Skills and economic performance: the impact of intangible assets on UK productivity – Executive summary
This executive summary presents the key findings from research into the impact of intangible assets of economic performance. The research provides further evidence to demonstrate that firms with a higher proportion of intangible assets are more likely to be highly productive and experience higher growth.
Skills and economic performance: the impact of intangible assets on UK productivity (PDF, 314 Kb) – Evidence report 39 – Executive summary
Published September 2011
Improving economic growth is a key policy objective for the Government. Therefore, understanding the drivers of productivity growth is a fundamental requirement for effective economic policy.
Current measurements of productivity, based on the ‘tangible’ inputs of capital and labour, do not fully account for variations in performance. As a result of this there is a growing interest in ‘intangible’ assets and their potential to help us to better understand the sources of growth.
Intangible assets are embedded in knowledge workers, and as such are difficult to disentangle from firms’ human capital. This research develops measures of intangible assets for UK firms based on the labour input of workers in high skilled organisation, R&D and IT related occupations. These measures are then used to assess how firms employ intangible assets to increase productivity and raise economic performance.
The data are constructed using a ‘bottom-up’ approach, based on firm level estimates of the contribution that wages of intangible rich occupations make to the intangible capital stock of the firm. In comparison to existing studies this gives a great deal of flexibility in analysing intangible assets across geographies and industrial sectors.
Intangibles are important in most sectors but are dominant in a handful. The findings support the expectation that sectors driven by high technology are likely to have higher levels of intangible assets. However, it is clear that intangible assets are not limited to these sectors.
The econometric results indicate that intangible assets have a significant, positive, association with productivity, and that firms with a higher proportion of intangible assets are more likely to be highly productive. The various elements of intangible assets contribute in different ways. Particularly of note is that organisation capital, contributing to economic competences, has a greater impact than either R&D or IT capital. This suggests that a key factor in explaining differences in productivity are due to the way organisations are managed and run.
More often than not, sectors where productivity is rising fastest are sectors where intangible assets make a relatively large contribution to productivity growth. Between 1998 and 2006, intangible assets have been a source of growth for UK firms in most sectors, although the magnitude and composition (across intangible asset types) of these contributions varies across sectors.
The analysis shows that intangible assets contribute positively to productivity growth in the majority of the 44 city regions covered by the data. The regions that had the greatest contributions to productivity growth from intangible assets were not the major conurbations and industrial heartlands, but relatively affluent, cities and towns known perhaps for their strong knowledge base and having relatively good transport links to major conurbations.
