Productivity Decomposition presentation. July 8th 2015
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Decomposing UK Aggregate Labour Produc7vity and Growth 19982013 ERC Theme 6 Reference Group Mee7ng 8 th July 2015
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Transcript of Productivity Decomposition presentation. July 8th 2015
Decomposing UK Aggregate Labour Produc7vity and Growth
1998-‐2013
ERC Theme 6 Reference Group Mee7ng 8th July 2015
Outline
• Introduc7on and execu7ve summary • Background literature
– Why produc+vity ma1ers – UK produc+vity: the puzzle and the debate – Small business produc+vity
• Data and methodology • Findings
– Se<ng up the scene – Decomposi+on results
• Summary and discussion
Context
• Ongoing discussions and debates on the UK Produc7vity Puzzle – Its impera7ves – Exis7ng theories and specula7ons
• The gaps of our knowledge that we aim to fill – Firm heterogeneity
• Firms growth paWerns • Role of SMEs • Role of young vs mature firms
This Research • To enhance our understanding of UK labour produc7vity
changes over the period 1998-‐2013, by conduc7ng an in-‐depth analysis of UK firm produc7vity growth paWerns, to iden7fy the contribu7ons of different types of heterogeneous firms to aggregate labour produc7vity in the UK.
• We focus on the produc7vity improvements among surviving firms and resource alloca7on effects among surviving firms, entry and exit firms; further we study the specific contribu7ons of heterogeneous firms (firms showing different growth paWerns, in different size and age).
• BSD data; Melitz and Polanec (2012) Decomposi7on approach
Background literature: UK Produc7vity the puzzle and the debate Poten7al explana7ons of the produc7vity puzzle, which are subject to debate: • Demand side and global impact -‐ the weakened demand depressed the
economy’s produc7ve capacity through cuts in investment and depressed technological progress (Pryce, 2015).
• Measurement issues -‐ BarneW et al (2014) argue that this could explain up to 4 per cent (one quarter) of the produc7vity shordall since the beginning of the recession. Outlton and Sebas7á-‐Barriel (2013) argue 4-‐16 per cent of the produc7vity shordall was due to measurement issues.
• Financial constraints -‐ the availability and cost of bank credit were
adversely affected by the onset of recession (Riley et al, 2014a). UK banks have tolerated underperforming companies to survive, which poten7ally led to less exits and hence low produc7vity (Pessoa and Van Reenen, 2014; Bryson and Forth, 2015).
UK Produc7vity the puzzle and the debate
• Labour market factors -‐ Companies reserved labour (“labour hoarding”) as output fell in recession, when facing uncertain demand, in order to avoid the costs of firing and then re-‐hiring (Mar7n and Rowthorn, 2012; Butcher and Bursnall, 2013; BarneW et al 2014).
• Self-‐employment -‐ Many jobs created or safe-‐guarded over the recession were part-‐7me, zero-‐hour contract jobs and self-‐employment with lower pay, less training provided and poor skill u7lising jobs (Mar7n and Rowthorn, 2012).
• Capital shallowing -‐ As the rela7ve cost of labour and capital drops, the capital-‐labour ra7o declines. Declined real wage and increased cost of capital has been observed empirically (Broadbent, 2012; Pessoa and Van Reenen, 2013).
• Capital misalloca+on effects -‐ the financial crisis has likely resulted in a misalloca7on of capital to less produc7ve firms, and keeping zombie firms alive, many of which are small but not produc7ve (IFS, 2013; Bank of England, 2014).
Background literature: Small business produc7vity
• High growth firms • Produc7vity, firm size and employment crea7on • Technology and innova7on • Interna7onal context • Central ques7ons:
– How to make small businesses on average more produc7ve – by understanding the produc7vity growth drivers and barriers?
– How to allocate resources to more produc7ve firms, and to do this, we need to understand the contribu7on of small businesses to aggregate produc7vity?
Data and Methodology • We use the longitudinal version of the firm level popula7on data from the
Business Structure Database (BSD)
• We apply the Melitz and Polanec (2012) aggregate produc7vity and growth decomposi7on methodology
• We categorise firms into their annual labour produc7vity growth groups: Produc'vity growth Produc'vity decline
Fake growth Posi7ve produc7vity growth, whereby produc7vity increases through a contrac7on in employment (dy=0>dE); or where the contrac7on in employment is faster than the contrac7on in turnover (dE<dY<0).
Decline by efficiency loss
Nega7ve produc7vity growth, whereby turnover
decreases but employment grows (dY≤0<dE) or where
employment and turnover grow but employment growth
outpaces turnover growth (0<dY<dE). Growth hero Posi7ve produc7vity growth, whereby turnover and employment both grow, the growth in turnover faster than employment (dY>dE>0).
Jobless growth
Posi7ve produc7vity growth, whereby turnover increases with either no employment growth, or with employment contrac7on (dY>dE≤0).
Decline by contrac'on Nega7ve produc7vity growth, whereby turnover and
employment both decrease but turnover contracts more
than employment (dY<dE≤0). Note: Y denotes turnover, and E denotes employment, d is the rate of change.
Methodology (con7.) • We categorise firms into sectors based on 2-‐digit SIC (2007) – we
exclude Agriculture; Mining; Energy and Water; Finance and Insurance and Real Estate
• We differen7ate firms by different size and age bands: Age:
– Entrants (aged 0) – Young Firms (aged 1-‐5) – Mature Firms (aged 6+)
Size: – Single employee firms – firms with 2-‐249 employees – Firms with 250+ employees
Setng the Scene
Aggregate and Average Labour Productivity level and growth 1998-2013
Source: Authors own calculations of BSD data
-‐6.0
-‐4.0
-‐2.0
0.0
2.0
4.0
6.0
0
20,000
40,000
60,000
80,000
100,000
120,000
140,000
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
Percen
tage cha
nge
Labo
ur Produ
ctivity
(£)
Aggregate LP Avg LP
Aggregate LP Growth Avg LP growth
Employment and employment growth 1998-2013
-‐4.0 -‐3.0 -‐2.0 -‐1.0 0.0 1.0 2.0 3.0 4.0
14,000,000
14,500,000
15,000,000
15,500,000
16,000,000
16,500,000
17,000,000 1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
Percen
tage cha
nge
No. Of e
mployees
employees employment growth
Turnover and turnover growth 1998-2013
-‐6.0
-‐4.0
-‐2.0
0.0
2.0
4.0
6.0
8.0
1,000,000
1,200,000
1,400,000
1,600,000
1,800,000
2,000,000
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
Percen
tage cha
nge
Turnover (£
m)
turnover turnover growth
Setng the scene Proportion of entering firms by sector
5.0
10.0
15.0
20.0
25.0
30.0
35.0
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
manuf const whls trans accomm
info prof arts othsvs
Proportion of exiting firms by sector
0.0
2.0
4.0
6.0
8.0
10.0
12.0
14.0
16.0
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
manuf const whls trans accomm
info prof arts othsvs
Exiters Entrants
% %
1998 1.6 19.6
1999 6.1 15
2000 7.6 15.7
2001 7.3 15.6
2002 8.8 14.8
2003 8.2 15.3
2004 9.7 17.8
2005 9.9 16
2006 9.6 15.3
2007 9.5 15.2
2008 10.9 16.1
2009 11.7 11.9
2010 12.1 11
2011 11.4 11.2
2012 8.8 14.9
2013 10.3 13.3
Na7onal picture:
Setng the Scene Productivity Growth Patterns by Type of Growth 1998-2013
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Decline by contrac7on 40 44 44 41 40 38 38 40 42 34 44 44 38 47 39 40
Decline by efficiency loss 10 11 11 11 19 11 10 11 11 14 13 16 12 11 17 15
Jobless growth 42 37 38 40 30 42 42 40 39 42 33 31 40 33 34 34
Growth hero 3 3 2 3 3 3 3 3 3 4 3 3 3 3 3 4
Fake growth 6 5 5 5 9 6 7 6 5 7 7 7 6 7 7 8
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Contrib
u'on
to Con
'nuing Firm
s (%)
Source: Authors own calculations of BSD data
Aggregate labour produc7vity decomposi7on results
Aggregate Labour Productivity 1998-2013 (log of £000s)
3.700
3.750
3.800
3.850
3.900
3.950
4.000
4.050
4.100
4.150
4.200
4.250
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
Aggregte LP
Average LP of surviving firms
Source: Authors own calculations of BSD data
Decomposi7on: Aggregate Results
Labour Productivity of Entrants and Exits and Resource Allocation of Surviving Firms 1998 - 2013
-‐0.150
-‐0.100
-‐0.050
0.000
0.050
0.100
0.150
0.200
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
Resource alloca7on of surviving firms
Average LP of entrants
Average LP of exits
Source: Authors own calculations of BSD data
Decomposi7on: Aggregate Results Decomposition of Aggregate Labour Productivity Growth: within firm productivity growth and resource allocation,
Whole Economy
-‐0.060
-‐0.040
-‐0.020
0.000
0.020
0.040
0.060
0.080
0.100
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
Aggregate labour produc7vity growth
Contribu7on of within firm produc7vity improvement
Contribu7on of overall resource alloca7on
Source: Authors own calculations of BSD data
Aggregate LP growth
Aggregate labour Produc'vity growth decomposi'on i. Labour produc7vity improvement of surviving firms
ii.+iii.+iv. Total resource alloca7on effects
Among which:
ii. Improvement in resource alloca7on
among surviving firms
iii.+iv. Improvement of
net entry and Exit
iii. Improvemen
t in exit
iv. Improvement
in entry
∆Φ↓t =i.+ii.+iii.+iv.
ϕ↓S2 − ϕ↓S1
∑𝑖∈𝑆↑▒𝑐𝑜𝑣(s↓i2↑k , ϕ↓i2 ) −∑𝑖∈𝑆↑▒𝑐𝑜𝑣(s↓i1↑k , ϕ↓i1 )
w↓X1 [Φ↓S1 − Φ↓X1 ]
w↓E2 [Φ↓E2 − Φ↓S2 ]
(1) (2) (3) (4) (5) (6) (7) 1999-‐2001 average -‐0.004 -‐0.024 0.020 0.013 0.007 0.003 0.004 2002-‐2004 average 0.022 0.002 0.020 0.015 0.005 0.002 0.003 2005-‐2007 average 0.050 0.013 0.037 0.025 0.013 0.005 0.007 2008-‐2010 average 0.027 -‐0.002 0.029 0.009 0.020 0.010 0.011 2011-‐2013 average 0.015 -‐0.021 0.036 0.014 0.021 0.010 0.012 All year average 0.022 -‐0.006 0.028 0.015 0.013 0.006 0.007
Decomposi7on by LP Growth Groups Aggregate Labour Productivity decomposition by firm growth patterns
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Fake growth 6.56 5.22 5.06 6.71 7.69 7.81 6.19 8.68 5.61 7.64 7.41 7.36 11.10 9.04 8.11 8.38
Growth hero 14.57 18.92 10.57 12.47 14.44 12.24 12.00 11.64 12.86 16.38 15.20 13.57 14.23 11.63 12.94 16.69
Jobless growth 26.47 28.39 25.74 26.33 24.19 28.11 31.58 26.93 29.68 27.82 21.10 22.68 28.05 26.97 24.44 25.21
Decline by efficiency loss 26.07 23.27 29.56 27.24 28.76 25.43 20.83 26.73 26.83 26.61 26.86 30.31 24.70 24.61 28.35 26.95
Decline by contrac7on 17.75 17.95 22.88 20.14 17.69 19.35 22.34 19.61 18.90 15.56 21.27 20.43 17.34 22.99 20.55 18.05
0.00
5.00
10.00
15.00
20.00
25.00
30.00
35.00
Contrib
u'on
to ALP (%
)
Source: Authors own calculations of BSD data
Decomposi7on by LP Growth Groups Aggregate Labour productivity decomposition: contribution of resource allocation by surviving firms
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Fake growth -‐0.06 -‐0.03 -‐0.02 -‐0.03 -‐0.07 -‐0.06 -‐0.05 -‐0.06 -‐0.05 -‐0.07 -‐0.05 -‐0.07 -‐0.04 -‐0.01 -‐0.01 -‐0.05
Growth hero 0.04 0.06 0.03 0.05 0.09 -‐0.01 0.06 0.02 0.04 0.08 0.11 0.12 0.09 0.01 0.10 0.16
Jobless growth -‐0.08 -‐0.39 -‐0.33 -‐0.35 -‐0.43 0.01 -‐0.59 -‐0.37 0.05 -‐0.07 -‐0.17 -‐0.15 -‐0.18 -‐0.33 -‐0.30 -‐0.20
Decline by efficiency loss -‐0.48 -‐0.09 -‐0.16 -‐0.28 -‐0.22 -‐0.02 -‐0.10 -‐0.12 -‐0.25 0.05 0.10 0.03 0.01 0.18 0.37 0.09
Decline by contrac7on 1.01 0.31 0.38 0.40 0.62 0.31 0.63 0.37 0.36 0.50 1.14 1.30 0.71 0.74 0.81 0.68
-‐1.00
-‐0.50
0.00
0.50
1.00
1.50
Contrib
u'on
to ALP (%
)
Source: Authors own calculations of BSD data
Decomposi7on by Size Aggregate labour productivity by firm size
0.5
11.5
2
2000 2005 2010 20152000 2005 2010 20152000 2005 2010 2015
Single employee firms Employees of 2-249 Employees of 250+
Aggregate LPWeighted average LP level of surviving firmscontribution of resource allocation among surviving firmscontribution of entrantscontribution of exits
LP le
vel
year
Graphs by size
.
Source: Authors own calculations of BSD data
Decomposi7on by Size • SMEs (2-‐249) show highest produc7vity growth over the whole period,
while single employee firms’ aggregate produc7vity growth has been mostly nega7ve with the level remaining largely unchanged
• Single-‐employee firms – Aggregate labour produc7vity growth is almost en7rely driven by the average
level of within-‐firm produc7vity growth, while resource alloca7on effects are trivial.
– These small resource alloca7on effects have been driven up by exits, which surged during the recession periods. This suggests that much more unproduc7ve single employee firms died during difficult 7mes and that improved the overall produc7vity growth of this type of firm.
Decomposi7on by Size (con7.)
• SMEs – The aggregate produc7vity of this group was not en7rely driven by survivors’ average produc7vity growth as resource alloca7on also played the most important role compared to other size bands.
– Resource alloca7on amongst SMEs has been improving since 2005 and contributed an even higher share during the recession period, with exit contribu7ng more than entry, sugges7ng some cleansing effects
Summary of the findings
• Considerable sectoral differences in produc7vity paWerns and the experience during the recent recession.
• Significant business demographic changes underline the UK aggregate produc7vity
change, featured by an increasing number of small businesses especially single-‐employee firms, more exits and less entrants.
• Heterogeneous firm growth paWerns are behind aggregate produc7vity changes, and we find several interes7ng phenomena such as resilient “Growth heroes” and a large chunk of ‘Decline by contrac7on’ firms.
• Within firms’ produc7vity improvement has been mainly responsible for aggregate
produc7vity changes in the UK.
• Resource alloca7on on average played a very limited role in driving the aggregate produc7vity change.
Disclaimer
• "This work contains sta+s+cal data from ONS which is Crown Copyright. The use of the ONS sta+s+cal data in this work does not imply the endorsement of the ONS in rela+on to the interpreta+on or analysis of the sta+s+cal data. This work uses research datasets which may not exactly reproduce Na+onal Sta+s+cs aggregates."
Contact us:
Jun Du at [email protected] Karen Bonner at [email protected]
More details about the ac7vi7es of the ERC and our latest events can be
found at: www.enterpriseresearch.ac.uk
