XXI. MEZINÁRODNÍ KOLOKVIUM O REGIONÁLNÍCH VĚDÁCH. SBORNÍK PŘÍSPĚVKŮ. 21ST INTERNATIONAL COLLOQUIUM ON REGIONAL SCIENCES. CONFERENCE PROCEEDINGS. Place: Kurdějov (Czech Republic) June 13-15, 2018 Publisher: Masarykova univerzita, Brno Edited by: Viktorie KLÍMOVÁ Vladimír ŽÍTEK (Masarykova univerzita / Masaryk University, Czech Republic) Vzor citace / Citation example: AUTOR, A. Název článku. In Klímová, V., Žítek, V. (eds.) XXI. mezinárodní kolokvium o regionálních vědách. Sborník příspěvků. Brno: Masarykova univerzita, 2018. s. 1–5. ISBN 978-80-210-8969-3. AUTHOR, A. Title of paper. In Klímová, V., Žítek, V. (eds.) 21st International Colloquium on Regional Sciences. Conference Proceedings. Brno: Masarykova univerzita, 2018. pp. 1– 5. ISBN 978-80-210-8969-3. Publikace neprošla jazykovou úpravou. / Publication is not a subject of language check. Za správnost obsahu a originalitu výzkumu zodpovídají autoři. / Authors are fully responsible for the content and originality of the articles. © 2018 Masarykova univerzita ISBN 978-80-210-8969-3 ISBN 978-80-210-8970-9 (online : pdf) Sborník příspěvků XXI. mezinárodní kolokvium o regionálních vědách Kurdějov 13.–15. 6. 2018 215 DOI: 10.5817/CZ.MUNI.P210-8970-2018-28 REGIONAL DISPARITIES IN LABOUR PRODUCTIVITY OF SMALLAND MEDIUM-SIZED ENTERPRISES IN MANUFACTURING Regionální odlišnosti v produktivitě práce u malých a středních podniků ve zpracovatelském průmyslu MARTINA NOVOTNÁ TOMÁŠ VOLEK JAROSLAV VRCHOTA Katedra ekonomiky Ekonomická fakulta Jihočeská univerzita v Českých Budějovicích Department of Economics Faculty of Economics University of South Bohemia in České Budějovice  Studentská 13,370 05 České Budějovice, Czech Republic E-mail: novotna@ef.jcu.cz, volek@ef.jcu.cz, vrchota@ef.jcu.cz Annotation The article aims at regional differences in the efficiency of the use of human work in small and medium-sized enterprises in manufacturing. The analysis was focused on differences in high technology and low technology SMEs in regions of the Czech Republic. Regional disparities were assessed using measure of variability. An analysis of 1,068 enterprises showed greater variability between regions in labour productivity of high technology enterprises than in low technology enterprises but these regional disparities significantly decreased over the monitored period. The level of labour productivity in high technology enterprises declined (except for 3 regions) as a result of an inadequate growth in personal costs. Also, for low technology enterprises in almost all regions, there was a decline in labour productivity and the corresponding steady state. High wage growth in the regions can lead to higher regional disparities in labour productivity, and the risk of losing competitiveness for businesses in the future. Key words labour productivity, SMEs, manufacturing, technological intensity Anotace Článek se zabývá regionálními rozdíly v efektivnosti využívání lidské práce v malých a středních podnicích ve zpracovatelském průmyslu. Analýza byla zaměřena na odlišnosti u high-tech a low-tech malých a středních podniků v regionech České republiky. Regionální disparity byly hodnoceny pomocí měr variability. Z provedené analýzy 1068 podniků byla zjištěna větší variabilita mezi regiony u produktivity práce high-tech podniků než u low-tech podniků, ale tyto regionální disparity se za sledované období významně snížily. Úroveň produktivity práce u podniků high- tech klesla (vyjma 3 regionů) důsledkem neadekvátního růstu osobních nákladů. Rovněž u podniků low-tech u téměř všech regionů byl zaznamenán pokles produktivity práce vlivem růstu osobních nákladů. Vysoký růst mezd v regionech může vést k vyšším regionálním disparitám v produktivitě práce a pro podniky do budoucna znamená riziko ve ztrátě konkurenceschopnosti. Klíčová slova produktivita práce, MSP, zpracovatelský průmysl, technologická intenzita JEL classification: D24, M21, R11 Sborník příspěvků XXI. mezinárodní kolokvium o regionálních vědách Kurdějov 13.–15. 6. 2018 216 1. Introduction Effectiveness of the use of human work is one of the major factors in the competitiveness of small and mediumsized enterprises in manufacturing. This efficiency, measured by labour productivity, is not identical in the individual regions and, on the contrary, may lead to an increase in regional disparities. At the same time an important role in efficiency is played by technological intensity of enterprises. The aim of the paper is to evaluate the regional differences in the efficiency of the use of human work by small and medium enterprises in the processing industry, taking into account their technological intensity. Regional disparities can be defined as inequalities in the economic or socio-economic growth of the regions (Dusek, 2013). The economic growth of individual regions is clearly linked to the concept of competitiveness as a basic indicator of long-term success in market economies. An important role have the factors (resources) of the region's competitiveness, what this competitive advantage is predominantly based on. We can include in these competitive advantages the technological level, innovation (Melecky, 2015) or the efficiency of using factors of production (Gonzalez-Pernia, et al., 2012). The prerequisite of regional competitiveness is the competitiveness of enterprises that are active in the region and create jobs. Small and medium-sized enterprises are the engine of economy (Mura et. al., 2015) and generator of development regions. The efficiency (productivity) of SME is influenced by many factors: human capital, organization capital (Leitao, Franco, 2011) or business process (Hajduova, Andrejkovic, Mura, 2014). Kislingerová (2008) says that the competitiveness of enterprises as the ability of firms to constantly increase productivity. Measurement of regional disparities can be done on the basis of objective indicators. One of these indicators are indicators of productivity (Filippetti, Peyrache, 2013). Productivity measures how efficiently production inputs are being used in an economy to produce a given level of output. There are many different productivity measures. The simplest and the most frequently-encountered measure is labour productivity. Labour productivity can be measured at the firm, sector and regional or national level. Labour productivity is defined as value added per worker (Broersma, Oosterhaven, 2009), worker-hour or personal cost. Using personal costs for measuring labour productivity reflects the costs that enterprises has to spend on employees. Labour productivity is influenced by many factors. The important factors of labour productivity are the flexibility of the labour market (Pavelka, Loester, 2013) and business cycle (Mayer et al. 2016). The size and dynamics of labour productivity in the regions is one of indicators of regional competitiveness. 2. Methodology The aim of the paper was to assess the regional differences in the efficiency of utilization of the labour factor in the processing industry for small and medium enterprises. The goal was also to find a change in this efficiency in 2016 compared to 2012 (change after five years) in regions of Czech Republic (NUTS2). The analysis was performed in 1068 SMEs, through their financial statements drawn from the Albertina database. The same enterprises were under review in both of the years. We used the classification by Commission Recommendation 2003/361/ESES based on number of employees, turnover and balance sheet total. Attention was focused on enterprises in the manufacturing industry, which were divided according to economic activity or technological demands. The enterprises were sorted into two categories. Eurostat uses the aggregation of the manufacturing industry according to technological intensity and based on NACE Rev. 2 at 2-digit level. The first category of HT includes high-technology and medium-high-technology, while the second category includes medium-lowtechnology and low-tech economic activities. HT category includes mainly the enterprises in the following fields: 21 Manufacture of basic pharmaceutical products and pharmaceutical products; chemical products; 27 to 30 Manufacture of electrical equipment; Manufacture of motor vehicles, trailers and semi-trailers, category LT includes in particular these fields of activity (especially those related to industries): 19 Manufacture of coke and refined petroleum products; 22 to 25 Manufacture of rubber and plastic products; 33 Repair and installation of machinery and equipment; 10 to 18 Manufacture of food products, beverages, tobacco products, textile, wearing apparel, leather and related products, wood and of products of wood, paper and paper products, printing and reproduction of recorded media; 31 to 32 Manufacture of furniture; Other manufacturing. It was evaluated not only the efficiency of the labour factor but also the company's performance. Efficiency of work was measured through indicators: Labour productivity (Sales - S/personal costs - PC), Labour intensity (Personal costs -PC/ total costs - TC), Capital-Labour ratio (fixed assets/personal costs). Business performance was evaluated using ROA, ie the ratio of EBIT and Assets a Return on Equity (ROE) – ratio EAT and Equity, at the same time it was detected also Material and energy intensity (consumption of material and energy / firm Sborník příspěvků XXI. mezinárodní kolokvium o regionálních vědách Kurdějov 13.–15. 6. 2018 217 performance). One way to increase business competitiveness is to increase labour productivity, which can be formally registered as 1 1 0 0 PC S PC S  , where PC represents personal costs and sales revenue from goods, products and services After simple algebraic treatment we get 0 1 0 1 S S PC PC  , tj. < which can be interpreted as a requirement for a slower growth in personal costs compared to a change in sales for goods, products and services. Therefore, it is actually a declaration of a requirement that average wages for employees grow more slowly than average labour productivity. All the indicators were first identified for the whole set of enterprises and subsequently the regional disparity of selected indicators was determined. All indicators were first identified for a whole set of enterprises and then a regional disparity in labour productivity was determined by means of standard deviation and variation coefficient, with the simultaneous use of both variability measures being recommended. The standard deviation ( = ∑ ( − ) ) is not a dimensionless number and depends on the overall level of the phenomenon, on the contrary the variation coefficient ( = ) is a dimensionless number and shows only the size of variability (Kutscherauer et al., 2010). 3. Results Small and medium-sized enterprises play an important role in the endogenous growth of individual regions in the Czech Republic. The share of small and medium-sized enterprises in the total value added of the business sector in the Czech Republic is around 54% (2015). In the case of economic problems or the economic slowdown of small medium-sized enterprises, this effect is immediately reflected in the economic growth and development of the regions. The slowing or acceleration of economic growth or productivity of SMEs can thus be a significant factor in creating regional disparities. The analysis carried out first divided the small and medium-sized enterprises (SMEs) according to their economic activity into high-technology and low-technology. The economic performance of MSEs is illustrated in Table 1. The table shows the level of selected ratios between 2016 and 2012. The level of indicators monitored does not show significant differences between HT and LT. The most striking difference is between technology-intensive businesses and enterprises with less demanding ROA (Return on Assets) and ROE (Return on Equity) indicators. Firms in the HT category achieve significantly lower return on equity in 2012. Tab. 1: Selected MSEs ratios MSEs ratios 2012 2016 HT LT HT LT C-L RATIO in CZK 1.365 1.381 1.350 1.467 Material and energy intensity in CZK 0.499 0.423 0.424 0.395 Labour intensity in CZK 0.207 0.243 0.256 0.259 Labour productivity in CZK 3.907 3.603 3.527 3.536 ROA v CZK 0.027 0.073 0.057 0.075 ROE v CZK 0.021 0.100 0.095 0.100 Number of enterprises 265 803 265 803 Source: authors’ calculation The growth rate of the absolute and relative indicators in 2016 compared to 2012 is shown in Figure 1. It is clear that the sales index for goods, products and services is growing more slowly than the index of personal costs, both for HT and LT. These results in a decline in labour productivity, which is more pronounced in HT businesses. At the same time, labour intensity increased significantly, but material and energy intensity decreased. This can be caused (in keeping with competitiveness) with technologically more demanding investments, which also have an impact on the cost increase. The increase in personal costs can be related both to a change in the structure of Sborník příspěvků XXI. mezinárodní kolokvium o regionálních vědách Kurdějov 13.–15. 6. 2018 218 employees in favour of more qualified and to a lack of experts in selected professions, to the development of unemployment and to the pressure of wage growth. Fig. 1: Indexes of Selected Indicators MSEs in Manufacturing (Year 2016 / Year 2012) Source: authors’ calculation Next part of the article is devoted to the area of regional disparities in the field of efficiency of labour factor. For the analysis of MSEs within the Cohesion Regions, the labour productivity indicator (Table 2) was selected. Tab. 2: Labour productivity of MSEs in NUTS2 regions in 2012, 2016 NUTS 2 2012 2016 Number of enterprises HT LT HT LT HT LT Praha 4.46 4.04 3.19 3.71 29 56 Střední Čechy 3.78 3.89 3.91 3.90 21 66 Jihozápad 3.13 3.43 2.91 3.42 31 95 Severozápad 3.47 3.55 3.00 3.75 22 69 Severovýchod 3.37 3.53 3.65 3.44 46 146 Jihovýchod 3.68 3.86 3.87 3.84 46 175 Střední Morava 3.98 3.21 3.87 3.15 47 115 Moravskoslezsko 6.18 3.53 4.04 3.26 23 81 Total 3.91 3.60 3.53 3.54 265 803 Standard deviation 0.85 0.24 0.40 0.25 Coefficient of Variation in % 21.30 6.63 11.25 6.92 Source: authors’ calculation Labour productivity is expected to be highest in Praha and Moravskoslezko, especially in 2012, in the HT category. After five years (2016), in Praha, due to wage growth, it is even lower than other regions; in Moravskoslezsko labour productivity remains still the highest in 2016 in the HT. We can conclude from the calculation of rate variability that greater variability between regions is at the standard deviation of the labour productivity of HT enterprises, but in five years these companies have significantly decreased. The labour productivity of LT enterprises is low in both monitored periods (approximately CZK 0.25 of sales per CZK 1 of personnel costs, which is less than 7%). Labour productivity in all regions and categories of the company is affected mainly by the amount of labour costs i.e. personal costs or the share of these personal costs in the total costs of the enterprise (Table 3). 0,00 0,50 1,00 1,50 2,00 2,50 3,00 3,50 4,00 4,50 5,00 Capital-Labour ratio Material and energy intensity Labour intensity Labour productivity ROA ROE Sales Personal costs LT HT Sborník příspěvků XXI. mezinárodní kolokvium o regionálních vědách Kurdějov 13.–15. 6. 2018 219 Tab. 3: Labour intensity in NUTS2 regions in 2012, 2016 NUTS 2 2012 2016 Number of enterprises HT LT HT LT HT LT Praha 0.1966 0.2125 0.2471 0.2744 29 56 Střední Čechy 0.1845 0.2393 0.2059 0.2379 21 66 Jihozápad 0.3208 0.2759 0.3326 0.2846 31 95 Severozápad 0.2737 0.2245 0.3367 0.2305 22 69 Severovýchod 0.2475 0.2332 0.2493 0.2584 46 146 Jihovýchod 0.2331 0.2340 0.2411 0.2539 46 175 Střední Morava 0.2295 0.2657 0.2544 0.2810 47 115 Moravskoslezsko 0.1523 0.2495 0.2189 0.2706 23 81 Total 0.2073 0.2438 0.2564 0.2594 265 803 Standard deviation 0.0468 0.0185 0.0426 0.0172 Coefficient of Variation in % 20.36 7.66 16.13 6.65 Source: authors’ calculation It is precisely in the regions where businesses have the lowest share of personal costs in total costs, but also the highest level of labour productivity. Labour intensity is only in some regions dependent on the category of business by technological intensity. Higher share of personal costs in total can be seen especially in the category of HT enterprises in the following regions: Jihozápad, Severozápad (this share is more than 33% in 2016), LT category is the highest proportion of personal costs in Jihozápad, Střední Morava and Moravskoslezsko (about 28%). On the other hand, the lowest share of personal costs in total can be recorded in the category of HT enterprises in 2012, namely in Praha (11.6%) and Moravskoslezsko (15.2%). If we focus on the growth rate of the monitored indicators (Figure 2), certain differences can be observed in the case of businesses by technological intensity, especially the jump increase in labour intensity for HT enterprises in Praha and Moravskoslezsko. For businesses, regardless of category by technological intensity, labour intensity grow more quickly than labour productivity, except in HT in Severovýchod and LT in Severozápad. Fig. 2: Development of selected indicators in 2016 compared to 2012 in enterprises by technological intensity Source: authors’ calculation From the above it can be concluded that in the monitored enterprises in 2016, compared with 2012, personal costs grew faster than labour productivity. One reason for this may be the growth of the Czech economy, the influence of low unemployment, the competition of large enterprises, both on the part of produced products and services and on the demand side of employees (pressure to increase wages). Another reason can be the investment activity of the enterprises, which will mean an increase in labour productivity in future years, or a change in the structure of employees for the benefit of more skilled workers. 0 0,2 0,4 0,6 0,8 1 1,2 1,4 Labour productivity HT (index) Labour intensity HT (index) 0 0,2 0,4 0,6 0,8 1 1,2 1,4 Labour productivity LT (index) Labour intensity LT (index) Sborník příspěvků XXI. mezinárodní kolokvium o regionálních vědách Kurdějov 13.–15. 6. 2018 220 Figure 3 illustrates the growth rate of the C-L ratio (share of fixed assets per 1 CZK personal cost) for the monitored enterprises in 2016 compared to 2012. It can be estimated from the development indexes where the regions are more invested in enterprises in the HT category (Jihozápad, Moravskoslezsko), and in enterprises in category LT (Praha, Střední Čechy). In some regions, the differences in the investment activity of LT and HT are not significant (Střední Morava, Jihovýchod, Severovýchod and Severozápad). Fig. 3: C-L Ratio (index 2016/2012) Source: authors’ calculation The profitability of the enterprise was monitored through the ROA indicator for the same companies segmented by technological intensity in 2012 and 2016 (Figure 4). Companies in HT category in Praha had the highest return on assets in 2012, which declined significantly in 2016 and is the second lowest in NUTS2. In Střední Čechy, LT firms are more profitable. The highest profitability in regions of the HT industry is achieved by the regions Jihozápad, Severozápad and Jihovýchod. The greatest improvement occurred in Střední Morava and Severovýchod regions. In the LT, most regions have improved or maintained the same state except in Severovýchod region. Fig. 4: ROA in the monitored enterprises would be technological intensities in 2012 and 2016 Source: authors’ calculation Conclusion The paper dealt with the regional differences in the efficiency of the use of human work in SMEs. The analysis was focused on differences in high technology and low technology MSEs. From an analysis of 1068 enterprises in two periods, there were no significant differences in labour productivity between high a low technology firms. The growth rate of labour productivity and labour intensity indicators showed that businesses' sales grew slower 0 0,2 0,4 0,6 0,8 1 1,2 1,4 1,6 C-L Ratio HT (index) C-L Ratio LT (index) 0,0 2,0 4,0 6,0 8,0 10,0 12,0 HT (2012) HT (2016) 0,0 2,0 4,0 6,0 8,0 10,0 12,0 LT (2012) LT (2016) Sborník příspěvků XXI. mezinárodní kolokvium o regionálních vědách Kurdějov 13.–15. 6. 2018 221 than wages. The increase in labour costs can be related to a change in the structure of employees in favour of more skilled workers, with a shift to greater automation and robotization of production, a lack of free labour (low unemployment) and a pressure to wage growth. In HT, it was found that only three regions experienced a rise in labour productivity, while labour productivity levels declined in other regions. The main reason is not a drop in overall corporate performance but an inadequate growth in personal costs. This situation poses a risk of lower competitiveness in the future, which can be compensate by higher investments (Dosi et al, 2015).. Higher investment activity was recorded in HT in Praha and Moravskoslezsko. Higher regional differences in labour productivity levels were also found for HT enterprises than LT, but these disparities significantly decreased over the projection horizon (the variation factor decreased by about 10 percentage points). LT enterprises show a slight decline or steady state of labour productivity in most regions, excluding Severozápad. Even in these sectors, the impact of a high increase in personal costs over the performance of firms is reflected. This situation did not return either high investment activity or the Capital-Labour ratio in some regions (the largest growth was in Jihozápad). For LT, a low regional disparity rate (around 7%) has been demonstrated, which has not changed over the 5 years. Overall, the current high wage growth in the regions may pose a risk to businesses in the future for a loss of competitiveness at national or international level. Literature [1] BROERSMA, L., OOSTERHAVEN, J., (2009). Regional labor productivity in the Netherlands: evidence of agglomeration and congestion effects. Journal of Regional Science, vol.49, no.3, pp. 483-511. ISSN 0022- 4146. DOI: 10.1111/j.1467-9787.2008.00601.x. [2] EUR- LEX, (2003) Commission Recommendation of 6 May 2003. Official Journal L 124, 20/05/2003 P. 0036 – 0041. [online]. [1. 3. 2018]. Retrieved from: http://eur-lex.europa.eu/eli/reco/2003/361/oj. [3] DOSI, G., GRAZZI, M., MOSCHELLA, D., (2015). Technology and costs in international competitiveness: From countries and sectors to firms. Research Policy, vol. 44, no. 10, pp. 1795-1814. ISSN 0048-7333. DOI: 10.1016/j.respol.2015.05.012 [4] DUŠEK, J., (2013). European grouping of territorial cooperation as a way of cross-border regional cooperation within the European Union. In XVI. mezinárodní kolokvium o regionálních vědách. Sborník příspěvků. Brno: Masarykova univerzita, pp. 329-336. ISBN 978-80-210-6257-3. DOI: 10.5817/CZ.MUNI.P210-6257-2013-40. [5] EUROSTAT, (2008. )Eurostat indicators on High-tech industry and Knowledge – intensive services Annex 3 - High-tech aggregation by NACE Rev.2. [online]. [20. 2. 2018]. Retrieved from http://ec.europa.eu/eurostat/cache/metadata/Annexes/htec_esms_an3.pdf [6] FILIPPETTI, A., PEYRACHE, A., (2013). Is the Convergence Party Over? Labour Productivity and the Technology Gap in Europe. Jcms-Journal of Common Market Studies, vol. 51, no. 6, pp. 1006-1022. ISSN 0021-9886. DOI: 10.1111/jcms.12066. [7] GONZALEZ-PERNIA, J. L., PENA-LEGAZKUE, I., & VENDRELL-HERRERO, F. (2012). Innovation, entrepreneurial activity and competitiveness at a sub-national level. Small Business Economics, vol. 39, no. 3, pp. 561-574. ISSN 0921-898X. DOI: 10.1007/s11187-011-9330-y. [8] HAJDUOVA, Z., ANDREJKOVIC, M., MURA, L., (2014). Utilizing experiments designed results during error identification and improvement of business processes. Acta Polytechnica Hungarica, vol. 11, no. 2, pp. 149 -166. ISSN 1785-8860. [9] KUTSCHERAUER, A. et al., (2010). Regionální disparity. Disparity v regionálním rozvoji země - pojetí, teorie, identifikace a hodnocení. Ostrava: VŠB-Technická univerzita Ostrava. ISBN 978-80-248-2335-5. [10]KISLINGEROVÁ, E., (2008). Inovace nástrojů ekonomiky a managementu organizací. Praha: C.H. Beck. ISBN 978-80-7179-882-8. [11]LEITAO, J., FRANCO, M., (2011). Individual entrepreneurship capacity and small and medium enterprises (SME) performance: A human and organizational capital approach. African Journal of Business Management, vol. 5, no. 15, pp. 6350-6365. ISSN 1993-8233. [12]MAYER, E., RUTH, S., SCHARLER, J., (2016). Total factor productivity and the propagation of shocks: Empirical evidence and implications for the business cycle. Journal of Macroeconomics, vol.50, pp. 335-346. ISSN 0164-0704. DOI: 10.1016/j.jmacro.2016.11.001. [13]MELECKY, L., (2015). Spatial Analysis of NUTS 2 Regions Based on Competitiveness Factors and Their Regional Variability. In Cers 2014: 5th Central European Conference in Regional Science, International Conference Proceedings. Kosice: Tech Univ Kosice, pp. 581-91. ISBN 978-80-553-2015-1. DOI Sborník příspěvků XXI. mezinárodní kolokvium o regionálních vědách Kurdějov 13.–15. 6. 2018 222 [14]MURA, L., BULECA, J., HAJDUOVA, Z., ANDREJKOVIC, M., (2015). Quantitative financial analysis of small and medium food enterprises in a developing country. Transformations in Business & Economics, vol. 14, no. 1, pp. 212-224. ISSN 1648-4460. [15]PAVELKA, T., LOSTER, T. (2013). Flexibility of the Czech Labour Market from a Perspective of the Employment Protection Index. In 7th International Days of Statistics and Economics. Slany: Melandrium, pp.1090 – 1099. ISBN 978-80-86175-87-4. This paper was supported by the Grant Agency of the University of South Bohemia GAJU č. GA JU 053/2016/S.