What do we know?
1. Disney, Haskel and Heden document that 50% of productivity growth in UK manufacturing over a decade is driven by the batting average effect of entry and exit of high and low productivity firms respectively.
2. The FT have a recent feature, with some interesting work cited from the Bank
"The Bank of England recently lent the theory some weight, pointing out that about 30 per cent of companies were lossmaking in 2010, a bigger proportion than in the 1990s recession, yet corporate insolvency rates during this downturn have been much lower than in previous ones."
3. The ONS have an important new paper looking at changes in firm productivity up to 2009, using their very comprehensive data. Since they have access to the company register, this is a very large sample of firms.
Their data suggest there may be something to the Zombie view. The figures below shows , for market services , the average productivity of firms in the lowest and highest quartiles of the labour productivity. There is a fall in 2009 and a hint that the lower tail of firms are lower in those years than before. Note that before the recession the upper tail had been widening. So the recession seems to have cut off the very highest performers and lengthened lowest tail, widening the productivity distribution.
One thing that is very puzzling however, is that small firms in market services are much more productive than large ones as their Figure 3 shows (size class 4 are above 250 and class 1 below 20).
And the averaging effect is shown here:
This shows that over the 2000s most employment growth was in the low productivity firms (Quartile 1). the left hand bars, which should have retarded productivity. So what's going on? My guess is this: large service sector firms employ likely a lot of part-timers (e.g. large retailers). So per labour hour they are more productive, but per employee as shown here, less so. Thus the interpretation of Figure 42 is that the sorting effect has beeen working in the 2000s to raise true productivity since its been working in favour of the large firms. So what's been happening in the recession? In 2008 and 2009 it looks like the smaller firms, that is the right hand lines, are gaining employment relatively more than the larger ones. That is, the left blue line is lower relative to the right hand lines. This agains suggets the sorting effect is working less well.
More puzzles but credit the ONS for using their considerable data resources to try to figure out this problem.
