Is this time different? How Industry 4.0 affects firms’ labor productivity

Abstract

Abstract: Does Industry 4.0 technology adoption push firms’ labor productivity? We contribute to the literature debate—mainly focused on robotics and large firms—by analyzing adopters’ labor productivity returns when micro, small, and medium enterprises (MSME) are concerned. We employ original survey data on Italian MSMEs’ adoption investments related to a multiplicity of technologies and rely on a difference-in-differences estimation strategy. Results highlight that Industry 4.0 technology adoption leads to a 7% increase in labor productivity. However, this effect decreases over time and is highly heterogeneous with respect to the type, the number, and the variety of technologies adopted. We also identify potential channels explaining the labor productivity returns of technology adoption: cost-related efficiency, new knowledge creation, and greater integration/collaboration both within the firm and with suppliers. Plain English Summary: Becoming Industry 4.0 technology adopter boosts Italian manufacturing micro, small, and medium enterprises’ (MSME) labor productivity by more than 7% on average. This is the key finding of new research based on original survey data collected from a sample of MSMEs operating in “Made in Italy” industries. Specifically, the research suggests that brand-new adopters of Industry 4.0 technologies gain a labor productivity premium compared to their non-adopting counterparts that lasts for up to 2 years after the adoption occurred. However, the productivity returns of technology adoption show non-linearities with respect to both the number of new technologies adopted by the firm and the variety of “technology groups” (production, customization, and data processing technologies). Overall, these results point to the relevance of industrial policies promoting the adoption of Industry 4.0 technologies by MSMEs, and this seems to be particularly the case for all those countries where MSMEs make the bulk of the national industrial system.