Accounting for the UK productivity puzzle: a decomposition and predictions

Accounting for the UK productivity puzzle: a decomposition and predictions
Document type
Discussion paper
Author(s)
Goodridge, Peter; Haskel, Jonathan; Wallis, Gavin
Publisher
Imperial College Business School
Date of publication
1 February 2015
Series
Discussion Paper 2015/02
Subject(s)
Trends: economic, social and technology trends affecting business
Collection
Business and management
Material type
Reports

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This paper revisits the UK productivity puzzle using a new set of data on outputs and inputs and clarifying the role of output mismeasurement, input growth, and industry effects. The data indicates an implied productivity gap of 12.6% in 2011 relative to the productivity level on pre-recession trends. The paper finds (a) the labour productivity puzzle is a TFP puzzle, since it is not explained by the contributions of labour or capital services (b) the re-allocation of labour between industries deepens rather than explains the puzzle (i.e. there has been actually been a re-allocation of hours away from low-productivity industries and toward high productivity industries (c) capitalisation of R&D does not explain the puzzle (d) assuming increased scrapping rates since the recession, a 25% (50%) increase in depreciation rates post-2009 can potentially explain 16%(33%) of the puzzle (e) industry data shows 33% of the TFP puzzle can be explained by weak TFP growth in the oil and gas and financial services sectors and (f) cyclical effects via factor utilisation could potentially explain 14% of the puzzle. Continued weakness in finance would suggest a future lowering of TFP growth to around 1% pa from a baseline of 1.2% pa.

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