Capital allocation and productivity
Helen Miller (IFS) & Alina Barnett (BoE)
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Productivity puzzle
Output per hour worked (2008 Q1 = 100)
120
115
110
105
100
95
90
85
Source: Author’s calculation using ONS data series ABMI and YBUS.
Dashed line shows pre-2008 trend, calculated using the average quarterly growth rate for the decade prior to 2008.
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2015
2014
2013
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
80
Resource allocation & productivity
• Productivity growth comes in part from the reallocation of
resources within and between firms (Disney et al. (2003) , Barnett
et al. (2014) )
• Uneven shocks create incentives for resources to move
• Possible impediments since the crisis:
– financial market frictions
– weak demand and uncertainty
• Frictions to labour and capital choices can lead to persistent
dispersions in prices and output (e.g. Hsieh and Klenow (2009))
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Price level dispersion across sectors
Mean
Mean+2sd
Mean-2sd
Percentage point deviation from trend
70
50
30
10
-10
-30
-50
-70
1972 1975 1978 1981 1984 1987 1990 1993 1996 1999 2002 2005 2008 2011
Source: Bank calculations. The mean and standard deviation are calculated across sectors for each year.
Deviations from trend are based on HP filtered data between 1970-2006. Sample is whole economy. Data from ONS and EU Klems.
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Productivity dispersion across sectors
Mean
Mean +2sd
Mean -2sd
Percentage point deviation from trend
50
30
10
-10
-30
-50
1972 1975 1978 1981 1984 1987 1990 1993 1996 1999 2002 2005 2008 2011
Source: Bank calculations. The mean and standard deviation are calculated across sectors for each year.
Deviations from trend are based on log-linear trends calculated between 1970-2006. Sample is whole economy excluding the
energy sector. Data from ONS and EU Klems.
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Productivity growth occurs within sectors
annual %, 4qma
5%
Between sectors reallocation
Within sector productivity growth
Productivity growth
4%
3%
2%
1%
0%
-1%
-2%
-3%
-4%
-5%
-6%
1980
1982
1984
1986
Source: Bank calculations.
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1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
2012
2014
Indications of misallocation at the firm level
• Dispersion of firm rates
of return has increased
since the crisis, that of
capital has not
• Positive relationship
between rate of return
and investment has
broken down
Source: Barnett, Broadbent, Chui, Franklin, Miller, National Institute Economic Review 228 2014
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Where next?
• Measure frictions to capital allocation (ala Hsieh & Klenow 2009)
• John Van Reenen (LSE), “Productivity, management and
reallocation”
• Rebecca Riley (NIESR and CFM), “Productivity dynamics in the
wake of the financial crisis: evidence from businesses”
• Chiara Criscuolo (OECD), "The future of productivity"
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