This paper is featured in the FT today:
Weighing up four theories on the UK’s productivity gap: http://on.ft.com/1H31JMv
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. Our data indicates an implied productivity gap of 12.6% in 2011 relative to the productivity level on pre-recession trends. We find (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.
(Apologies to those who logged into an earlier blog version under this title that linked to a paper on science)