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Abstract:

CEP discussion paper
The UK's great demand and supply recession
Nick Jacob and Giordano Mion
December 2020
Paper No' CEPDP1737:
Full Paper (pdf)

JEL Classification: D24; L11; E01; O47; O52


Tags: total factor productivity (tfp); revenue tfp; prices; demand; great recession; united kingdom

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.