FACT # 6: INVESTMENT IS AT THE ROOT OF PRODUCTIVITY AND COMPETITIVENESS. BUT ITALIAN FIRMS DO NOT INVEST

[If you have read ANY of the Facts #1 through #5 of the current series, you have already read the premise. Thus, you should skip it and proceed to read Fact #6 below]

Premise

On October 5, 2014  I decided I should embark on writing a series of short newspaper-like articles with the goal of attracting attention to explanations of the current situation of the Italian economy alternative to the ones offered by the (overwhelmingly neoclassical) austerity lovers. While I had not planned to publish both in Italian and in English, the ‘likes’ I got on the first three pieces in Italian convinced me that I should go the extra mile and publish them in English as well.

Of course, ‘likes’ on socials are not the only reason to publish in English. My preoccupation is that even many foreign colleagues of valor tend to adhere, along with the foreign general public, to judgments about the Italian economy that are not facts at all but, rather, judgments presented as facts. I thought it would be worthwhile to alert colleagues and public alike: when reading austerians, please take what you read cum grano salis, my friends!

And here is Fact # 6.

Fact #6: Firms’ productivity, and their international competitiveness therefore, rests upon what the human factor of production can contribute for a given amount and quality of physical capital. Italian firms invest in physical capital less than firms in high per capita income countries do (Fact #5); and invest less in education and training of the workforce they employ. And especially so do the much heralded small and medium enterprises.

Traditional international trade models of any vintage assume that the amount of physical capital available is a given, just the same way labor productivity is. In short, they are static models. But it was soon discovered that governments can enhance productivity and competitiveness through what has come to be known as ‘industrial policy’ by altering the rate of growth of capital and spending on upgrading and enhancement of labor skills and competences through education.

About the government and its responsibilities we will talk in the coming Facts. Here we want to start out reporting on the differential attitude of firms toward their respective work forces, that is, of what they do to enrich their workforce’s competences through training (a different issue is that of the qualification of the workforce they can attract for the first time).

So, we are talking about training. Taken together, whether designed for blue collar or white collar employees, young or old, skilled or unskilled. Figure 1 affords a first insight: here we are looking at the percentage of firms with more than 10 employees which have arranged for the training of their workforce in 2010. Among the 28 EU member countries, nearly all firms in Norway spent on personnel training. In Italy? 60%. So the country is number 20 out of 28. And, of course, below the average.

Figure 1. Percentage of firms with 10 employees or more that have supplied training for their personnel in 2010

2014 12 21 Fatto n.6 - Figura 1

Source: Eurostat CVTS4

Figure 2 reports on the percentage of firms actually programming training activities for their employees, again by country. This is an indicator of how sensitive management and ownership are to the issue of employees training, how well training programs are thought in advance and structured in formal programs: after all, the more goes into the training budget, the more we are likely to see a firm that cares about qualifications and skills of their employees. So, what are the percentages? 66% in France, 30% in Italy. And again below EU-28 average.

Figure 2. Percentage of firms exhibiting a training program and/or have a specific entry in their budget devoted to training activities (2010)

2014 12 21 Fatto n.6 - Figura 2

Source: Eurostat CVTS4

The careful reader will point out that we have not touched yet on the issue of how much firms supplying training programs actually spend on them: the fact that many firms have training programs but do not allocate substantial budgets to them…..This is a legitimate concern. Figure 3 ranks countries according to the average cost incurred per employee by the totality of their firms. Here, such cost is reported on a purchasing power parity basis, that is, the original ‘true’ data are corrected through a method widely used to make sure that international comparisons take into account national disparities (in short: it is conceivable that an hour of training will cost more in a high per capita income than the same hour, of the same quality, will cost in a low per capita income country. This is accounted for).

Figure 3. Average cost of lifelong training per employee. Purchasing Power Parity. All firms, 2010.

2014 12 21 Fatto n.6 - Figura 3

Source: Eurostat CVTS4

Result? Roughly €1100 per employee in Belgium, roughly €420 in Italy. And, again, Italian firms are below the EU-28 average.

No, Italian firms are not doing it right. Training is the way to enhance skills, to transfer knowledge, to mobilize employees around innovative projects, to improve the quality of working conditions at the same time that productivity and competitiveness will benefit. Not investing in training is tantamount to asking to stay what we are, that is, to become obsolete soon. No, that is doing it not right.

At this point, the usual, careful reader will point out that not all firms are identical, and that comparing averages… True. Let us move on and look into the number of firms that do training by size of their workforce. Figure 4-a tells us that the share of large firms, those with 250 employees or more, that do training, does not show much variance through the EU-28 (average 93%, Italy 91%).

Figure 4-a. Percentage di firms with more than 250 employees that offered training in 2010 

2014 12 21 Fatto n.6 - Figura 4-a

Source: Eurostat CVTS4

But when we look at the so-called medium enterprises, those employing between 50 and 249 persons (Figure 4-b), the variance of the shares grows substantially across countries. The share of medium firms that supply training stays above 90% of total only in a handful of countries (Norway, Denmark, Austria, Sweden, France, Belgium and the UK). Moreover, the variance grows even more when we look at firms with 10-49 employees (Figure 4-c): the share of small firms that supply training to their employees is above 74% just for a few ‘best performing’ countries (Norway, Denmark, Austria, Sweden, UK, Netherlands and Belgium). Firms of other countries show a worrisome variance of investment on human skills today….and, consequently, tomorrow’s productivity. And how many small Italian firms invest in training? Few, too few: 50%. They are not doing it right.

Figure 4-b. Percentage of firms with a workforce 50- 249 that supplied training in 2010 

2014 12 21 Fatto n.6 - Figura 4-b

Source: Eurostat CVTS4

Figure 4-c. Percentage of firms with a workforce 10- 49 that supplied training in 2010 

2014 12 21 Fatto n.6 - Figura 4-c

Source: Eurostat CVTS4

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