Skills and economic performance: The impact of intangible assets on UK productivity

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 typically grouped into three main categories. • Economic Competences – such as brand equity which would include advertising and marketing expenditures. This category includes firm specific resources, including human capital (investments in training) and organisational structure (management). • Innovative Property – this includes both scientific R&D and non-scientific R&D. Non-scientific R&D includes research in social sciences and humanities, mineral exploration, new motion picture films and other forms of entertainment, new architectural and engineering design and new product development in financial industries. • Digitised information – this is often measured as IT capital, composed of software as well as databases. Existing studies at the macro level suggest intangible assets make a significant contribution to productivity growth and micro level studies suggest intangible assets help to explain difference in performance between firms. Because 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 aims of this research are to explore: • the number and cost of intangible workers as a proportion of the overall workforce across a range of sectors; • the relationship between intangible assets and performance; and • the contribution of intangible assets to growth.