Digitalization, Industry Concentration, and Productivity in Germany

Abstract This paper investigates the links of digitalization and industry concentration with labor productivity at the sectoral level in Germany. Combining data for digitalization and labor productivity from the EU KLEMS database with firm-level data from the CompNet and Orbis Bureau Van Dijk databases to construct industry concentration measures between 2000 and 2015, we show that (1) the German economy appears to have digitized since 2000, and (2) there is no clear-cut relationship between digitalization and market concentration at the industry level. Using a time and sector fixed effects model and controlling for capital intensity, however, we find evidence for (3) a positive effect of both lagged industry concentration and lagged digitalization on productivity at the sectoral level in Germany. This finding is robust to alternative measures of digitalization and industry concentration as well as to their interaction but sensitive to the sector sample and to scale effects from the capital intensity. We, therefore, cautiously conclude that recent technological change appears to have been labor-saving and that productivity-enhancing aspect of a partial “superstar firm” effect may be identified in the German economy, in particular in its manufacturing sector.