Intangible investment in people and productivity

Organizational activity, information and communication technology work, and research and development (R&D) can be classified as work that creates intangible capital. We measure the returns to these three types of labor input by accounting for differences in their productivity compared with other labor inputs using Finnish firm‐level data from 1998 to 2008. We apply a novel idea to use hiring as one proxy for productivity and demand shocks. We find that organizational workers increase total factor productivity and improve the profitability of high‐productivity firms. R&D workers account for a large share of intangible capital; however, the returns to R&D are low. Investments in organizational competence are more likely to result in more rapid productivity growth. Firms with performance‐related pay or domestically owned firms with extensive foreign activities have been among the highest performers with respect to the use of organizational work.