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Pandemic slowed tech progress: Study reveals decline in key investments

LISER study on digital transformation during the COVID-19 pandemic

Esch-sur-Alzette - 22 October 2024

Contrary to public perception, the COVID-19 pandemic did not help to advance. Companies did indeed spend more money on technology that enables working from home and virtual collaboration. At the same time, however, investments in state-of-the-art production equipment declined, as did those in cutting-edge analysis and planning technologies and digitally supported customer management. Larger projects in particular were postponed or abandoned altogether. These are the findings of a study1 of German data conducted jointly by LISER (Luxembourg Institute of Socio-Economic Research), the ZEW Mannheim, the Institute of Labor Economics (IZA), the Institute for Employment Research (IAB) and other research institutions on the basis of a representative company survey.

“On the one hand, these pandemic-related investments helped companies to mitigate the negative consequences of the pandemic. They were able to increase the frequency of working from home and reduce short-term work. However, these adjustment investments were made at the expense of other technology investments, which may be contributing to the current weak level of productivity growth,” explained Dr. Terry Gregory, co-author of the study and research associate of LISER’s Labour Market department.

The majority of investments in modern digital technologies were made before the pandemic, while investment activity declined overall during the pandemic. The pandemic-related investment gap amounts to around 50 per cent. Contrary to public perception, the pandemic did not provide a boost to digitalisation, but actually set technology development back by almost a year and a half.

Based on the results of the study, Dr. Terry Gregory predicts the following for the period after the pandemic: “We suspect that the energy price shock and the rise in uncertainty that occurred in Germany after the pandemic with the onset of the war in Ukraine has contributed to a further postponement of major investments, even since the pandemic has subsided. This does not bode well for productivity growth or for the recovery of the economy.”

Publication

Firm-Level Technology Adoption in Times of Crisis

Discover the publication

In addition to the study, discover a policy brief (in German)

About the study:
About 3,000 German companies took part in the new representative company survey “IAB-ZEW-Arbeitswelt 4.0” (BIZA II), which was funded by the German Federal Ministry of Labour and Social Affairs. The survey compares the use of state-of-the-art digital technologies in German companies between 2016 and 2021, covering modern production equipment such as self-controlling machines and systems as well as analytical tools with big data, cloud computing systems, collaboration and communication tools and artificial intelligence.

BIZA II provides an insight into pandemic-related investment behaviour since 2019 and also allows a comparison with the investment plans made before the pandemic for the same period, which were collected in an initial company survey in 2016 (BIZA I). Therefore, the study is better able than previous data to estimate how investment behaviour would have developed if the pandemic had not occurred.

1 Arntz, M., Böhm, M., Graetz, G., Gregory, T., Lehmer, F., & Lipowski, C. (2024). Firm-Level Technology Adoption in Times of Crisis. (ZEW Discussion Papers; No. 24-057). Centre for European Economic Research (ZEW).
https://www.zew.de/en/publications/firm-level-technology-adoption-in-times-of-crisis-1#publication120896