Competitiveness Research Network

CompNet news


European firms after the crisis

New insights from the 5th vintage of the CompNet firm-level-based database

Following the post-crisis talks and the recognition of a ‘new normal’ with higher unemployment, subdued economic growth and declining productivity growth, the new economic environment is characterized by ongoing structural policy reforms. Whether the European economies get trapped in the new normal or whether policy decisions will strengthen the longer run prospects will crucially depend on countries’ level of competitiveness.

Given the above, this report intends to shed light on the competitive stance of European firms after the crisis, taking a firm-level perspective to analyse the competitive position of European firms. It presents a set of stylised facts, drawn from the new vintage of firm-level-based CompNet database, on firms’ productivity dynamics, their financial state, employment growth and their performance on the international export markets.

This micro-level approach allows us to ascertain the extent in which firms performances are heterogeneous across EU, also in relation of possible determinants of such performance.

European firms after the crisis. New insights from the 5th vintage of the CompNet firm-level-based database, CompNet Report September 2016


Fighting ‘currency wars’ with blanks: The limited role of exchange rates in export competitiveness

In the ‘currency wars’ discussion, it is almost taken for granted that exchange rate depreciations will result in non-trivial export gains.

Filippo di Mauro, Konstantin Benkovskis and other CompNet members argue that this is not so straightforward. Using evidence from countries in Europe and Asia, they show that non-price/non-exchange rate factors play a critical and often predominant role in shaping trade developments. Moreover, these factors affect export outcomes in a very diversified manner across countries, partly due also to the role of the global value chain.

Fighting ‘currency wars’ with blanks: The limited role of exchange rates in export competitiveness, VoxEU.org

The topic is heatedly debated among politicians and academics and is very present in the media, for example in an article of the The Economist:
Funding the deficit: the big test for the pound


Exchange Rate devaluations: when they can work and why

The effect of exchange rate devaluations on a country’s exports is frequently debated, with some supporting a strong impact and others suggesting no sizeable response of exports to relative price changes.

Antoine Berthou and Filippo di Mauro, members of the steering Committee of CompNet, argue that firm heterogeneity in terms of productivity and size can explain the opposing views. The measured reaction of aggregate exports to relative price movements is largely determined by the reaction of the most productive/largest companies.

Exchange rate devaluations: When they can work and why

CompNet approach and takeaways

This memo and this presentation provide a broad overview of the CompNet database and its approach to measure and compare competitiveness across countries.

They also summarize a range of very recent publications of network members and their main (policy-relevant) takeaways.

CompNet key features and main policy-relevant takeaways
Assessing European competitiveness: the CompNet approach
CompNet Report - Assessing European competitiveness: the contribution of CompNet research

The Competitiveness Research Network (CompNet) of the European System of Central Banks (ESCB) functions as a forum in which to discuss different approaches to, and measures of, competitiveness.

Its main activities include the regular updating of its micro-based competitiveness database for 17 EU countries, and research on competitiveness, productivity enhancement and resource reallocation, including macro assessment and the role of the global value chain.

About the Network

CompNet is a network of researchers that is led and guided by a steering committee composed of:

Chairman Filippo di Mauro
Steering Committee Carlo Altomonte (external consultant, Bocconi University)
João Amador (Banco de Portugal)
Eric Bartelsman (external consultant, Vrije Universiteit Amsterdam)
Konstantins Benkovskis (Latvijas Banka)
Antoine Berthou (Banque de France)
Matteo Bugamelli (Banca d’Italia)
Ettore Dorrucci (ECB)
Pavlos Karadeloglou (ECB)
Paloma López-Garcia (ECB)
Contact compnet@ecb.europa.eu
List of CompNet Partner Institutions and corresponding representatives

 

CompNet Partner Institutions

Banca d'Italia
Banca Naţională a României
Banco Central de la Rep. Argentina
Banco de España
Banco de Portugal
Bank of England
Bank of Finland
Banka Slovenije
Banque centrale du Luxembourg
Banque de France
BIS
Bocconi University
Bulgarian National Bank
Central Bank of Croatia
Central Bank of Cyprus
Central Bank of Ireland
Central Bank of Malta
Central Bank of Turkey
Česka Národni Banka
Danmarks Nationalbank
De Nederlandsche Bank
Deutsche Bundesbank
EBRD
ECB
Eesti Pank
EU Commission
Federal Reserve Bank of New York
Hungarian Academy of Sciences
Hungarian National Bank
ISTAT
Latvijas Banka
Lietuvos bankas
London School of Economics
Magyar Nemzeti Bank
Národná banka Slovenska
Narodowy Bank Polski
National Statistics Institute of Finland
Nationale Bank van België /Banque Nationale de Belgique
OECD
Oesterreichische Nationalbank
Rheinisch-Westfälisches Institut für Wirtschaftsforschung e.V. (RWI)
Stanford University
Statistical Office of Ireland
Satistical Office of Luxembourg
Statistical Office of the Netherlands
Statistical Office of Sweden
Trinity College Dublin
University of Maryland
University of Milan
University of Paris
University of Pavia
University of Surrey
US International Trade Commission
Vrije Universiteit
WIIW

Research focus

CompNet’s purpose is to:

  • strengthen the analytical framework for assessing competitiveness
  • identify what drives the dynamics of competitiveness and productivity in EU countries and firms
  • relate competitiveness indicators with aggregate outcomes (e.g. exports, economic growth).

CompNet began operating in 2012 and since then has provided a substantial contribution of novel research.

The ultimate objective of CompNet is to identify the structural factors that contribute to raising the economy’s long-term growth potential, by effectively linking instruments, mechanisms and outcomes. To do so, CompNet has developed a set of novel indicators and a comprehensive firm-level database, and has undertaken original research.


CompNet schema: Micro level, Macro level, Cross-border level

CompNet members are also active in producing policy related notes from the research they conduct within the Network.

CompNet Policy Briefs
No. 1
Jan 2013
CompNet Policy Brief No 1: Going beyond labour costs: How and why 'structural' and micro-based factors can help explaining export performance
Abstract

As policy-makers refocus on growth, there is an urgent need to enhance our understanding of the factors at the root of competitiveness, in order to improve the appropriateness and precision of policy design. This policy brief argues that traditional aggregate indicators, such as unit labour costs, can be most effectively used for policy-making when complemented by sectoral and firm level-based indicators. Conceptually, such indicators offer a more complete view of the factors that drive productivity at the firm level, and hence competitiveness at the country level; second, empirically, they help explain why variations in e.g. relative prices have different explanatory power across countries on ultimate policy targets, such as export results.

This policy brief – drawing from ongoing work within CompNet - presents some concrete example of how a broader assessment of competitiveness can enhance policy analysis, design and evaluation. At the macro level, it shows how adjusting traditional relative export prices for quality allows us to better understand export patterns for a number of EU countries. At the micro level, it shows that for firms undertaking R&D an increase in the ULC is not necessarily affecting their ability of exporting, whereas the latter applies to firms that do not engage in R&D activities. This confirms also at the micro level the idea that quality considerations might severely alter the ability of aggregate cost-related measure to provide a good proxy for external competitiveness.

No. 2
Jul 2013
CompNet Policy Brief No 2: The signatures of euro area imbalances: Export performance and the composition of ULC growth
Abstract

Growing current account imbalances within the euro area between 1999 and 2007 were not driven by divergences in export performance between surplus and deficit countries. While current account dynamics are highly correlated with unit labour costs (ULC) and imports, it is not the case for exports. Rising unit labour costs were not the source of the original demand shock but a symptom and they were not necessarily associated with losses in export competitiveness.

In this policy brief, we decompose ULCs into the share of labour compensations in nominal VA and the price of VA using detailed sectoral data. We show that the bulk of the appreciation in unit labour costs is due to price developments in the nontradable sector, explaining the disjunction between traditional measures of cost competitiveness (aggregate ULCs) and export performance.

No. 3
Aug 2013
CompNet Policy Brief No 3: Global Value Chains: A case for Europe to cheer up
Abstract

A higher integration of firms in global value chains is – in the public debate - often seen with suspicion and frequently made the culprit of adverse economic developments, most notably competitiveness losses, import penetration, export compression, and job shedding. New indicators based on a decomposition of value added into its domestic and foreign components are better able to assess the challenges, but also the opportunities of higher fragmentation of production, arising for instance from economies being able to serve emerging export markets, and ‘climbing up the value chain’, via increasing international division of labour. In the last few years there has been a strong effort to construct databases, which allow us to proxy – admittedly, still only partially - the complex interactions that are increasingly taking place in global production and supply chains. Such statistics, aimed at measuring trade in value-added terms, show in many cases a different picture than the traditional trade indicators based on gross terms.

If we apply such new indicators to Europe, the picture that emerges in terms of trade performance and competitiveness is more nuanced than standard statistics would suggest. The European economies have by and large been able to deepen their internal integration as well as to re-orient themselves towards higher skilled and higher value-added service activities.

As a corollary, substantial job opportunities by exporting are also being created in service activities (when appropriately measured), which at times more than compensate for job losses experienced in the shrinking traditional manufacturing activities. This policy brief provides few examples of such developments and offers an overview of existing new value-added based databases, which provide a basis for the improvement of our assessment on global value chains in Europe and beyond.

No. 4
Jan 2014
CompNet Policy Brief No 4: Mapping competitive pressure between China and EU countries
Abstract

China’s impressive export growth over past decades has raised concerns that European producers might be driven out of their traditional markets by cheap Chinese products. Further, the more subdued global demand that has been seen in recent years will lead to intensified competition over existing consumer markets. Hence, we see a growing need for in-depth knowledge regarding the competitiveness of European exporters.

This policy brief offers a comprehensive analysis of how European exporters – particularly exporters from central, eastern and south-eastern Europe – performed in the 2000s relative to China, which has been the world’s number one exporter since 2008. While we find that Chinese and European producers coexisted in a large number of product markets during that period, the results also point to a gradual increase in the number of product markets that are being discovered by Chinese exporters and then abandoned by European exporters, particularly exporters from smaller countries and those on the periphery of the EU. At the same time, incidences of European exporters entering a market that is not yet served by China have become far less common, with Germany being the sole exception in this regard.

Thus, we conclude that European exporters should be encouraged not only to enter new markets in order to withstand competition from China, but also to maintain their presence in existing export markets, especially in times of economic turbulence – i.e. when demand conditions are cyclically weak. After all, research in this field has shown that it is easier to revive established trade links after a downturn than to establish new trade links.

No. 5
Jan 2014
CompNet Policy Brief No 5: Measuring institutional competitiveness in Europe
Abstract

While there are many methods to measure the competitiveness of an economy, most of these concepts do not sufficiently distinguish between how market factors influence competitiveness, and what governments can do to improve their competitive position. Disentangling market-induced and politics-induced changes in competitiveness is not easy, but strongly warranted given current discussions about competitiveness differentials among EMU Member States.

This policy brief proposes a new competitiveness index, the Institutional Competitiveness Index, which focuses on those dimensions which politics can influence, such as labour market and product market regulation or taxation.

The new index serves well for mapping the catching-up process in Europe after the formation of EMU. While the index shows that all Member States have improved their institutional competitiveness since the start of EMU, it also shows considerable room for improvement in those areas that fostered the current crisis, like product or labour market functioning. Therefore, the Institutional Competitiveness index can also serve as a tool to pinpoint vulnerabilities and flag specific need for policy action in individual countries.

In contrast to other commonly used competitiveness indices like the World Economic Forum’s Global Competitiveness Index, the Institutional Competitiveness Index explicitly disentangles institutional drivers from market-driven processes, such as prices and wages. Therefore, the Institutional Competitiveness Index is a useful complement to existing approaches to measuring competitiveness.

No. 6
May 2014
CompNet Policy Brief No 6: Global value chains reshape our policy thinking
Abstract

The international fragmentation of production in global value chains (GVCs) challenges the way we look at the global economy. It is essential to understand how global value chains work, how they affect economic performance, and how policy can help countries to derive benefits from their participation in GVCs. The policy implications are diverse and include trade policy, investment policies, innovation policies, and framework and structural policies that directly affect how, and to what extent economies can benefit from global value chains.

No. 7
April 2015
CompNet Policy Brief No 7: A micro-based look at the evolution of investment over the Great Recession
Paloma Lopez-Garcia, Matteo Iudice, Giorgio Presidente
Abstract

Due to high heterogeneity at the firm level, aggregate indicators might deliver misleading information. A novel dataset containing firm-level data (CompNet) is used to complement previous analysis of weak investment over the Euro area. We find that the raise in credit constraints affected disproportionately low-productive firms, whereas low profitability hampered investment of the most productive firms.

No. 8
May 2015
CompNet Policy Brief No 8: Centralisation of wage bargaining and firms’ adjustment to the Great Recession – a micro-based analysis
Filippo di Mauro, Maddalena Ronchi
Abstract

This brief aims to investigate to what extent the labour market framework in which firms operate has shaped their response to the Great Recession. We use a novel ECB firm-level dataset, which combines the CompNet and WDN datasets. Given the large cross-country heterogeneity in labour market dynamics throughout the crisis, we exploit the variability in the degree of centralisation of wage bargaining institutions across firms to explain different firm-level cost-cutting strategies following the Great Recession.

We show that wage bargaining institutions play a statistically significant role in shaping the way in which a negative shock is distributed by the firms across reductions in wages and employee numbers. In particular, we find that labour markets with a higher proportion of firms applying centralised collective bargaining are characterised by a larger share of companies reducing the number of employees. We show that this could partly be due to a higher degree of downward wage rigidities. In addition, our results suggest that the decision of many European countries to move, over the last two decades, from fully centralised bargaining to multi-level regimes did not limit reductions in employment.

Research output

CompNet members have published more than 40 papers both in the ECB’s Working Paper Series and in a number of journals.

Three main areas have been investigated in order to provide policy recommendations: trade and competitiveness, shock transmission in a global context and resource allocation and productivity.

Trade and competitiveness

CompNet’s analyses offer an in-depth and comprehensive explanation for recent trade developments that goes beyond the usual practice of relying heavily on measures of price and cost competitiveness.

ECB Working Paper series
No. 1909
25 May 2016
On domestic demand and export performance in the euro area countries: does export concentration matter?
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No. 1902
03 May 2016
Export characteristics and output volatility: comparative firm-level evidence for CEE countries
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No. 1789
04 May 2015
Exploring price and non-price determinants of trade flows in the largest euro-area countries
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No. 1788
04 May 2015
Assessing European firms' exports and productivity distributions: the CompNet trade module
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No. 1777
07 Apr 2015
Exports and domestic demand pressure: a dynamic panel data model for the euro area countries
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No. 1761
09 Mar 2015
Global value chains: a view from the euro area
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No. 1752
17 Dec 2014
How do exporters react to changes in cost competitiveness?
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No. 1740
11 Nov 2014
Exports and capacity constraints - a smooth transition regression model for six euro area countries
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No. 1739
24 Oct 2014
Global value chains: surveying drivers and measures
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No. 1736
29 Sep 2014
Measuring the effectiveness of cost and price competitiveness in external rebalancing of euro area countries: What do alternative HCIs tell us?
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No. 1695
22 Jul 2014
Collateral imbalances in intra-european trade? Accounting for the difference between gross and value added trade balances
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No. 1691
14 Jul 2014
Crisis-proof services: Why trade in services did not suffer during the 2008-2009 collapse
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No. 1681
30 May 2014
Euro area external imbalances and the burden of adjustment
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No. 1680
23 May 2014
Verti-zontal differentiation in export markets
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No. 1670
28 Apr 2014
Identifying hubs and spokes in global supply chains using redirected trade in value added
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No. 1640
21 Feb 2014
What drives the market share changes? price versus non-price factors
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No. 1617
22 Nov 2013
Crowding-out or co-existence? the competitive position of EU members and China in global merchandise trade
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No. 1612
19 Nov 2013
Non-price competitiveness of exports from emerging countries
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No. 1601
04 Nov 2013
How do firms in Argentina get financing to export?
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No. 1535
16 Apr 2013
Trade adjustment in the European Union - a structural estimation approach
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Books
  • Di Mauro, F. and Ronchi, M. (2015), “Assessing competitiveness in an increasingly borderless world”, in Investment and Investment Finance in Europe, Chapter 7, European Investment Bank.
Shock transmission in a global context

Given the persistent imbalances in the EU, researchers have investigated a number of channels through which cross-border shocks are transmitted, drawing from the CompNet database.

ECB Working Paper series
No. 1914
06 Jun 2016
The effect of bank shocks on firm-level and aggregate investment
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No. 1833
15 Jul 2015
The great collapse in value added trade
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No. 1801
09 Jun 2015
The exchange rate, asymmetric shocks and asymmetric distributions
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No. 1787
29 Apr 2015
"Made in China" - How does it affect our understanding of global market shares?
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No. 1720
19 Aug 2014
Export dynamics and sales at home
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No. 1650
11 Mar 2014
The euro plus pact: cost competitiveness and external capital flows in the EU countries
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No. 1559
20 Jun 2013
Fishing in the same pool? export strengths and competitiveness of China and CESEE in the EU-15 Market
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No. 1556
18 Jun 2013
Measuring institutional competitiveness in Europe
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No. 1412
04 Jan 2012
Global value chains during the great trade collapse: a bullwhip effect?
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Resource allocation and productivity

Nominal frictions are often a source of resource misallocation that can ultimately impact growth. CompNet research has helped gain an understanding of the effects that distortionary policies have on growth via productivity.

ECB Working Paper series
No. 1836
06 Aug 2015
Assessing the financial and financing conditions of firms in Europe: the financial module in CompNet
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No. 1823
07 Jul 2015
Financial constraints and productivity: evidence from euro area companies
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No. 1764
16 Mar 2015
Assessing European competitiveness: the new CompNet microbased database
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No. 1751
17 Dec 2014
Competition in the Portuguese economy: estimated price-cost margins under imperfect labour markets
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No. 1748
15 Dec 2014
Enterprise productivity: a three-speed Europe
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No. 1704
04 Aug 2014
Are foreign-owned firms different? Comparison of employment volatility and elasticity of labour demand
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No. 1701
28 Jul 2014
European competitiveness - A semiparametric stochastic metafrontier analysis at the firm level
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No. 1615
20 Nov 2013
Fragmentation, incomes and jobs: an analysis of European competitiveness
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No. 1603
05 Nov 2013
Competition in the Portuguese economy: insights from a profit elasticity approach
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No. 1596
15 Oct 2013
Managers' mobility, trade performance, and wages
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No. 1554
12 Jun 2013
Business groups as hierarchies of firms: determinants of vertical integration and performance
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No. 1482
02 Oct 2012
Optimism bias? The elasticity puzzle in international economics revisited
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Firm-level based database

CompNet has created an EU firm-level based database. The dataset is unique in terms of its coverage and cross-dimensional analysis potential as it links, for example, trade or the financial status of firms with their productivity. Please refer to the CompNet user guide for a complete description:

CompNet firm-level based database. User guide for researchers. 4th round of data collection

This user guide aims at providing the researcher with a detailed overview of the structure and characteristics of this novel database. Information on indicator comparability, recommendations for the data use as well as possible limitations are also discussed.

Distributed micro-data approach

To preserve the confidentiality of firm-level information and to improve cross-country comparability, CompNet has adopted the “distributed micro-data approach” as developed by Bartelsman et al. (2004). In this approach a common methodology is used to:

Micro data - Country teams expertise - ECB Data harmonization and preparation
  • extract information from existing firm-level datasets available within each National Central Bank (NCB) or National Statistics Institute (NSI)
  • aggregate indicators at industry, macro-sector and country level to resolve confidentiality issues
  • harmonise the resulting set of indicators across countries in terms of the definition of measurements and the treatment of outliers, deflators and Purchsing Power Parities (PPPs).

The final outcome is a wide range of indicators, based on micro-level data, which can be used systematically to analyse competitiveness-related issues.

Available indicators by area of research

Productivity

CompNet provides a large set of the most widely recognised indicators to analyse productivity trends and levels over time. These indicators allow researchers to take country-specific snapshots, study productivity divergence across EU countries, and gain a better understanding of the causes behind the resource allocation process.

Productivity indicators include:

  • Labour productivity
  • Real value added
  • Total factor productivity (TFP)
  • Marginal product of labour and capital
  • Olley and Pakes gap (OP gap)
Financial

CompNet financial indicators provide extensive information regarding the financial and financing condition of firms.

Financial indicators include:

  • Leverage
  • Return on assets (ROA)
  • Capital depreciation (and growth)
  • Indicator of credit constraints
  • Cash flow ratio
Trade

CompNet trade indicators enable researchers to focus on the linkage between firms’ international activities and productivity.

Trade indicators include:

  • Share of exporting firms
  • Export value
  • Export ratio
  • Export value added
  • Correlation of firms' characteristics with export value
Markup

CompNet provides a large set of indicators of market competition and its dynamics over time.

Markup indicators include:

  • Price-cost margin
  • Market share
  • Concentration ratio for the 10 largest firms
  • Herfindahl-Hirschman index
Labour

CompNet labour indicators allow researchers to analyse employment dynamics at a granular level. In constructing the database, CompNet traced firms’ growth over time.

Labour indicators include:

  • Number of employees
  • Labour cost
  • Unit labour cost
  • Wage share
  • Employment change

How to access data

All researchers can apply to have access to the firm-level-based CompNet data by submitting the data request form to the CompNet team.

CompNet members and participating institutions that would like to access the data are requested to submit a shortened project description that is available upon request.

Please refer to the CompNet Governance Rules for more information on the procedures for data use and its dissemination.