1. The Fernald/Inklaar paper is important. It argues that the UK TFP levels problem not in manufacturing or market services. It is mining and utilities.
2. First they look at overall TFP levels
The key here is that they take comparative level data from 1997 and extrapolate it forward using national data. This means that an awful lot depends on the accuracy of that 1997 level data.
As they say, the UK coverged towards the US pre-2007 but then has been in a consistent gap. "althought the US has been pulling ahead in terms of labour productivity in the left panel..., TFP levels in the right panel are much more stable. For example, the EU-5 level of TFP was 90% of the U.S. level in 1985, 91% in 1995, and 91% in 2019."
3. where do these TFP level differences come from? Using the same method they can break levels out by industry
Some definitions:EU-5 (Germany, France, Netherlands, Belgium, Finland). Market services is G, H, I, J, K, N, S. Other is A agriculture, B Mining, DE Utilities, F construction). Other is 17% share of UK market sector value added, manufacturing about the 20%, services the remainder. 63%.
4. so what explains the differences in the overall TFP levels?
"But as Figure 2 showed, the overall UK level of TFP remains well below the US or EU-5. If it is not manufacturing or market services, then it must be in the remaining 17% of the market economy that we labelled “other” (agriculture, mining, utilities, and construction). Indeed, a third takeaway from Figure 6 is that he level of TFP in other industries has collapsed since the early 2000s, dropping from approximately two-thirds of the US level to only one-third."
5. They have a good discussion of falling TFP in mining
"Consider the accessibility of an oil deposit as the “quality” of the natural resource as an input. Holding fixed that natural resource quality, suppose that the same quantity of other capital and labor leads to the same output. Then technology and TFP are both unchanged. But if the quality of the natural resource gets worse (e.g., the North Sea runs out of oil), then the same observed inputs, with unchanged technology, leads to lower output. Although technology has not changed, measured TFP falls.
From this perspective, the observed decline in UK TFP in mining (oil extraction) presumably reflects the declining quality of North Sea deposits. " (My italics).
They continue: " In the U.S., fracking is a technological innovation that substantially lowers the cost of extraction at a given location. Because of that, new locations that were previously uneconomic are now worth drilling. In other words, fracking allowed a given quantity of observed inputs to lead to increasing amounts of oil and gas extraction, despite a shift to lower-quality deposits. Hence, measured TFP (which does not account for the shift to high cost, ‘low quality’ deposits) also understates the true technology gains."
6, the PWT data. The latest PWT data shows comparative TFP levels (this uses the CTFP measure).
This seems to show Britain ahead of the US. Looking at the data appendix to the PWT, see here, appendix C, we have this calculation is relative PPP outputs over relative PPP inputs
where j is the country.
How do they get internationally comparable capital stocks? For each country Changes in capital stock of assets are calculated by a PIM for each asset. This change is then aggregated over the assets. To get an internationally comparable total capital stock level, the level of this is deflated by an investment price for each asset
In turn the "The prices for each asset are based on PPP benchmark surveys: the six ICP surveys since 1970 and the more frequent surveys by the OECD and Eurostat since 1995. The prices from these surveys do not directly map into the six assets we use. "
Given these issues, the meaurement of the comparative levels might be different to the 1997 method used in the Fernald/Inklaar work above.
