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Productivity Research Network, March 2018

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Slides presented at the Productivity Research Network meeting on 16th March 2018. Slides presented on decomposing labour productivity into contributions from industries and “reallocation” effects.

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Productivity Research Network, March 2018

  1. 1. Productivity Research Network 16th March 2018
  2. 2. Generalised Exactly Additive Decomposition of 2-digit SIC Output per Hour Ciaren Taylor
  3. 3. Contents • Methodology Re-cap • Base case (Whole Economy) • Alt 1: Excluding Real Estate • Alt 2: Excluding Imputed Rent • Alt 3: Excluding Imputed Rent & Gov Services • Alt 4: Excluding IR, Gov Services, and Oil • Long-term: Industries driving allocation effect
  4. 4. Methodology Recap • Based on Tang & Wang (2004) • Published at higher level every quarter as our “Breakdown of contributions, whole economy and sectors” table – further information available there
  5. 5. Methodology Recap Broken down into: • Contribution from productivity growth within each industry • Contribution from “allocation effect” – can be further broken down into: Labour effect: As increased labour share in high productivity industries boosts average productivity Price effect: As increased relative price in a high productivity industry boosts its weight in CVM GVA calculation, increasing average productivity
  6. 6. Methodology Recap Direct effect Size effect Interaction How OpH growth in industry directly effects whole economy OpH growth Indirect effect of OpH growth on whole economy OpH growth Interaction between direct and size effect OpH growth in an industry * nominal share of GVA Change in size * weight (== relative OpH) Change in size * OpH growth * weight (== relative OpH) ‘Size’ = labour share * relative price level
  7. 7. Methodology Recap Labour effect Price effect Interaction Indirect effect of changing labour share Indirect effect of changing relative price Interaction between labour and price effect
  8. 8. Base Case (Whole Economy) OpH Growth Allocation OpH Growth Allocation 2007 Q3 10.7 2.0 2005 Q4 9.6 1.9 2017 Q3 2.5 -2.9 2015 Q4 1.0 -1.7 Difference -8.2 -5.0 Difference -8.6 -3.6
  9. 9. Alt 1: Excluding Real Estate OpH Growth Allocation OpH Growth Allocation 2007 Q3 10.8 -2.1 2005 Q4 10.2 -2.0 2017 Q3 3.8 -3.1 2015 Q4 0.8 -2.2 Difference -7.0 -0.9 Difference -9.3 -0.2
  10. 10. Alt 2: Excluding Imputed Rent OpH Growth Allocation OpH Growth Allocation 2007 Q3 11.1 -1.4 2005 Q4 10.3 -1.4 2017 Q3 3.8 -2.8 2015 Q4 1.1 -2.1 Difference -7.3 -1.4 Difference -9.2 -0.7
  11. 11. Alt 3: Excluding Imputed Rent & Gov Services OpH Growth Allocation OpH Growth Allocation 2007 Q3 14.5 -1.1 2005 Q4 13.8 -1.0 2017 Q3 4.0 -3.9 2015 Q4 1.2 -2.6 Difference -10.4 -2.8 Difference -12.6 -1.7
  12. 12. Alt 4: Excluding IR, Gov Services, and Oil OpH Growth Allocation OpH Growth Allocation 2007 Q3 15.9 -0.4 2005 Q4 15.2 -0.6 2017 Q3 4.1 -2.9 2015 Q4 2.1 -2.4 Difference -11.7 -2.5 Difference -13.0 -1.8
  13. 13. Long-term: Industries driving allocation effect Labour effect Price effect Interaction Indirect effect of changing labour share Indirect effect of changing relative price Interaction between labour and price effect
  14. 14. Long-term: Industries driving allocation effect Weight (== relative OpH) ‘Unweighted’ Allocation effect
  15. 15. Long-term: Industries driving allocation effect OpH Growth Allocation OpH Growth Allocation 2007 Q3 11.1 -1.4 2005 Q4 10.3 -1.4 2017 Q3 3.8 -2.8 2015 Q4 1.1 -2.1 Difference -7.3 -1.4 Difference -9.2 -0.7 Alternative 2: Excluding Imputed Rent
  16. 16. Long-term: Industries driving allocation effect -5 -4 -3 -2 -1 0 1 2 3 0 2 4 6 8 10 12 14 unweighted allocation effect (pp) Weight (i.e. relative Output per Hour) Alternative 2: Excluding Imputed Rent Components of the contributions to the allocation effect from different industries, 1997 Q1 to 2017 Q3 + + - -
  17. 17. Long-term: Industries driving allocation effect Alternative 2: Excluding Imputed Rent Components of the contributions to the (unweighted) allocation effect from top & bottom 10 industries, 1997 Q1 to 2017 Q3 -15 -10 -5 0 5 10 Telecommunications (0.9) Employment Activities (0.2) Manufacture of transport equipment (0.9) Retail Trade, Except Of Motor Vehicles And Motorcycles (0.7) AGRICULTURE, FORESTRY AND FISHING (0.4) Manufacturing of computer, electronic & optical products (0.9) Manufacture of basic metals and metal products (0.9) Manufacture of rubber and plastics products, & other non-metallic mineral products (0.8) Manufacture of machinery and equipment n.e.c. (0.8) Manufacture of chemicals and chemical products (1.4) Other Professional, Scientific And Technical Activities (0.6) Social Work Activities Without Accommodation (0.5) Services To Buildings And Landscape Activities (0.3) Activities Auxiliary To Financial Services And Insurance Activities (1.1) Office Administrative, Office Support And Other Business Support Activities (0.8) Construction Of Buildings (1.4) Computer Programming, Consultancy And Related Activities (0.7) Food And Beverage Service Activities (0.6) Human Health Activities (0.9) Education (1.6) Unweighted Allocation effect (pp) Labour Price Interaction Relative OpH
  18. 18. Conclusions • Allocation effect not positive prior to downturn if imputed rent is excluded • Allocation effect trending downward in recent years in all cases • Effect of allocation effect on productivity puzzle decreased substantially by excluding imputed rent • Effect of allocation effect on productivity puzzle increased by excluding government services

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