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More productive firms have a more skilled and homogeneous workforce in terms of ability, education and age

11.03.2022

Economics in a picture: More productive firms have a more skilled and homogeneous workforce in terms of ability, education and age

Workforce skills have been pointed out in the literature as one of the main determinants of firms’ productivity, which in turn constitutes one of the key features to assess countries’ economic performance. The measurement of workers’ skills in its different components has been at the core of the most recent debates in the empirical labour economics. Using a multi-dimensional skill index to comprehensively measure three of the most discussed dimensions of workforce skills – worker’s years of schooling, age and unobserved ability – we find a positive correlation between the average workforce skills and firm’s productivity, measured by the value-added per worker, in the period between 2006 and 2018.

On the other hand, the dispersion of the workforce skills within the firm, given by the standard deviation and adjusting for the average workers’ skill index, is negatively associated with firm’s productivity. This result shows that firms with higher productivity also have a more homogeneous workforce in terms of ability, years of schooling and age. 

 

For more details, see Cima, Pimenta, Portela and Silva (2022), “Workforce skills and firm productivity”, Banco de Portugal, Economic Studies, Vol. VIII, No 1.

 

Prepared by Joana Cima, Ana Catarina Pimenta, Miguel Portela and Marta Silva. The analyses, opinions and findings expressed above represent the views of the authors and not necessarily those of Banco de Portugal or the Eurosystem.

 

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