Accounting for the UK Productivity Puzzle: A Decomposition and Predictions

25 Pages Posted: 12 Jun 2018

See all articles by Peter Goodridge

Peter Goodridge

Imperial College Business School

Jonathan Haskel

Imperial College Business School

Gavin Wallis

Bank of England

Date Written: July 2018

Abstract

This paper revisits the UK productivity puzzle using new data on outputs and inputs and clarifying the role of output mismeasurement, input growth and industry effects. Our data indicate an implied labour productivity gap of 13 percentage points in 2011 relative to the productivity level on pre‐recession trends. We find that: (a) the labour productivity puzzle is a TFP puzzle, since it is not explained by the contributions of labour or capital services; (b) the reallocation of labour between industries deepens rather than explains the puzzle (i.e. there has been a reallocation of hours away from low‐productivity industries and toward high productivity industries); (c) capitalization of R&D does not explain the productivity puzzle; (d) assuming increased scrapping rates since the recession, a 25% (50%) increase in depreciation rates post‐2009 can potentially explain 15% (31%) of the productivity puzzle; (e) industry data show that 35% of the TFP puzzle can be explained by weak TFP growth in the oil & gas and finance sectors; and (f) cyclical effects via factor utilization could potentially explain 17% of the productivity puzzle. Continued weakness in finance would suggest a future lowering of TFP growth to around 0.8% p.a. from a baseline of 0.9% p.a.

Suggested Citation

Goodridge, Peter and Haskel, Jonathan E. and Wallis, Gavin, Accounting for the UK Productivity Puzzle: A Decomposition and Predictions (July 2018). Economica, Vol. 85, Issue 339, pp. 581-605, 2018. Available at SSRN: https://ssrn.com/abstract=3192683 or http://dx.doi.org/10.1111/ecca.12219

Peter Goodridge (Contact Author)

Imperial College Business School ( email )

South Kensington Campus
Exhibition Road
London SW7 2AZ, SW7 2AZ
United Kingdom

Jonathan E. Haskel

Imperial College Business School ( email )

South Kensington Campus
Exhibition Road
London SW7 2AZ, SW7 2AZ
United Kingdom

Gavin Wallis

Bank of England ( email )

Threadneedle Street
London, EC2R 8AH
United Kingdom

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