The UK productivity puzzle 2008-13: evidence from British businesses

Rebecca Riley, Chiara Rosazza-Bondibene () and Garry Young
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Chiara Rosazza-Bondibene: Natioinal Institute of Economic and Social Research and Centre for Macroeconomics
Authors registered in the RePEc Author Service: Chiara Rosazza Bondibene

No 531, Bank of England working papers from Bank of England

Abstract: In many larger advanced economies labour productivity growth slowed sharply and remained subdued for years after the credit crisis of 2007/08. Nowhere was this more obvious than in the United Kingdom. We examine the dynamics of productivity among British businesses that lie behind this stagnation. The most striking feature is the widespread weakness in total factor productivity within firms, pointing to the importance of a common factor in explaining productivity weakness. In addition,we find that the positive correlation between surviving firms’ employment growth and their relative productivity ranking broke down after 2007/08, as would be expected if an adverse credit supply shock had caused inefficiencies in resource allocation across firms. Indeed, during the immediate recession years 2008/09, this shift was most apparent in sectors with many small and bank dependent businesses. But subsequently, while the contribution of external reallocation to aggregate productivity growth in 2010/13 was smaller than in previous years, this was not obviously associated with sectoral bank dependence. We illustrate the sensitivity of these findings to the choice of decomposition method.

Keywords: Productivity growth; productivity decomposition; resource allocation; credit shock; Great Recession; Great Stagnation. (search for similar items in EconPapers)
JEL-codes: E03 L11 O47 (search for similar items in EconPapers)
Pages: 40 pages
Date: 2015-06-23
New Economics Papers: this item is included in nep-eff and nep-eur
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Citations: View citations in EconPapers (14)

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