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Sources of labour productivity growth at sector level in Britain, 1998-2007: a firm-level analysis

This paper focuses on the sources of labour productivity at a disaggregated sector level using a range of methods for decomposition and varying a number of the underlying assumptions.

Nesta Working Paper 14/09
Issued: October 2014 (revised in October 2015)
JEL Classification: L11; O47
Keywords: Productivity decomposition, labour productivity, sector dynamics

Abstract

This paper focuses on the sources of labour productivity at a disaggregated sector level using a range of methods for decomposition and varying a number of the underlying assumptions.

Pulling together this body of evidence offers us one of the most holistic pictures of British sectoral dynamics and labour productivity over the period 1998 to 2007. The recent introduction of the dynamic Olley and Pakes decomposition method by Melitz and Polanec (2012) offers an alternative approach to the standard dynamic decomposition developed by Foster, Haltiwanger and Krizan (2001).

Our findings indicate that at the firm level, entry and exit have played a relatively minor role in improving labour productivity growth, although this masks a great deal of variability in the performance of entrants. A much more significant contribution to labour productivity throughout the period was achieved through the market share growth of incumbent firms with above average productivity. The interpretation of findings is sensitive to underlying assumptions and the approach adopted.

Authors

Geoff Mason

Catherine Robinson

Chiara Rosazza Bondibene

 

This paper was originally issued in October 2014. Some amendments have been made to the original research and a corrected version was re-issued in October 2015.