Working Paper: CEPR ID: DP15516
Authors: Giordano Mion; Nick Jacob
Abstract: We revisit UK's poor productivity performance since the Great Recession by means of both a suitable theoretical framework and firm-level prices and quantities data for detailed products allowing us to both measure demand, and its changes over time, and distinguish between quantity total factor productivity (TFP-Q), i.e., the capacity to turn inputs into more physical output (number of shirts, liters of beer), and what we call revenue total factor productivity (TFP-R), i.e., productivity calculated using revenue (or value-added) as a measure of output and so the capacity to turn inputs into more revenue. This in turn allows us to measure how changes in TFP-Q, demand and markups ultimately affected revenue TFP, as well as labour productivity, over the Great Recession. Our findings suggest that the poor UK firms' productivity performance post-recession is due to both a weakening of demand and a decreasing TFP-Q pushing down sales, markups, revenue TFP and labour productivity.
Keywords: Total Factor Productivity; TFP; Revenue TFP; Prices; Demand; Great Recession; United Kingdom
JEL Codes: D24; L11; E01; O47; O52
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| weakening demand (D12) | TFPQ (F16) |
| TFPQ (F16) | revenue TFP (O49) |
| revenue TFP (O49) | labor productivity (J24) |
| weakening demand (D12) | sales markups (M31) |
| sales markups (M31) | revenue TFP (O49) |
| TFPQ (F16) | sales markups (M31) |
| weakening demand (D12) | labor productivity (J24) |