Hostname: page-component-586b7cd67f-l7hp2 Total loading time: 0 Render date: 2024-11-20T23:53:58.991Z Has data issue: false hasContentIssue false
  • English
  • Français

The Financial Foundations of the Productivity Puzzle

Published online by Cambridge University Press:  01 January 2020

Jagjit S. Chadha ,
Amit Kara  and
Paul Labonne
Paul Labonne*
Affiliation:
National Institute of Economic and Social Research
*
p.labonne@niesr.ac.uk;
Get access Rights & Permissions [Opens in a new window]

Abstract

The financial crisis has led to a change in the mix of capital and labour employed in the UK and a sharp decline in total factor productivity. This has meant that labour productivity has not recovered to any great degree since the financial crisis. We explore the role of overall and sectoral productivity in explaining the fall in labour productivity, but also question the extent to which productivity in the service sector may be measured with error. We outline the links between a constrained financial sector and a fall in overall productivity – in which intangible capital seems to play an important role – and illustrate how a financial sector providing intermediate services may act to amplify the business cycle impetus from a total factor productivity shock within the context of a calibrated model.

Keywords

productivity slowdownlabour productivityfinancial frictionsproductivity measurementE01E32E44
Type
Research Articles
Information
National Institute Economic Review , Volume 241 , August 2017 , pp. R48 - R57
Copyright
Copyright © 2017 National Institute of Economic and Social Research

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

Footnotes

We thank colleagues for advice and comments, in particular Rhys Williams, Rebecca Riley, Nick Oulton, Young-Kwan Kang, Peter Dolton, Ron Smith and Bill Allen. Some of these results were shared at the NIESR Economists' Round Table in June 2017.

References

Arrowsmith, M., Griffiths, M., Franklin, J., Wohlmann, E., Young, G. and Gregory, D. (2013), ‘SME forbearance and its implications for monetary and financial stability’, Bank of England Quarterly Bulletin, 53, 4, pp. 296–303.Google Scholar
Bank for International Settlements (BIS) (2017), Annual Report, p. 52.Google Scholar
Blundell, R., Crawford, C. and Jin, W. (2014), ‘What can wages and employment tell us about the UK's productivity puzzle?’, Economic Journal, 124, May, pp. 377–407.CrossRefGoogle Scholar
Burgess, S. (2011), ‘Measuring financial sector output and its contribution to UK GDP’, Bank of England Quarterly Bulletin, 51.Google Scholar
Chadha, J.S., Corrado, L. and Holly, S. (2014), ‘A note on money and the conduct of monetary policy’, Macroeconomic Dynamics, 18(08), pp. 1854–83, December.CrossRefGoogle Scholar
Chadha, J.S., Corrado, L. and Sun, Q. (2010), ‘Money and liquidity effects: separating demand from supply’, Journal of Economic Dynamics and Control, 34(9), pp. 1732–47, September.CrossRefGoogle Scholar
Chadha, J.S. and Warren, J. (2013), ‘Accounting for the Great Recession in the UK: real business cycles and financial frictions’, Manchester School, 81, pp. 43–64.CrossRefGoogle Scholar
De Ridder, M. (2016), ‘Investment in productivity and the long-run effect of financial crises on output’, Cambridge-INET Working Paper Series 2016/18; Cambridge Working Paper Economics 1659, University of Cambridge.Google Scholar
Duval, R., Hong, G.H. and Timmer, Y. (2017), ‘Financial frictions and the great productivity slowdown’, IMF Working Paper 17/129.CrossRefGoogle Scholar
Franklin, J., Rostom, M. and Thwaites, G. (2105), ‘The banks that said no: banking relationships, credit supply and productivity in the United Kingdom’, Bank of England Staff Working Paper No. 557.Google Scholar
Goodfriend, M. and McCallum, B. (2007), ‘Banking and interest rates in monetary policy analysis: a quantitative exploration’, Journal of Monetary Economics, 54(5), pp. 1480–507.CrossRefGoogle Scholar
Haltiwanger, J., Jarmin, R., Kulick, R. and Miranda, J. (2016), ‘High growth young firms: contribution to job, output and productivity growth’, forthcoming in Haltiwanger, J., Hurst, E., Miranda, J. and Schoar, M. (eds), Measuring Entrepreneurial Businesses: Current Knowledge and Challenges, NBER.Google Scholar
Jakab, Z. and Kumhof, M. (2015), ‘Banks are not intermediaries of loanable funds – and why this matters’, Bank of England Working Papers, no 529.CrossRefGoogle Scholar
Levina, I., Melolinna, M., Saleheen, J. and Tatomir, S. (2017), ‘The financial system and productive investment: new survey evidence’, Bank of England Quarterly Bulletin, 2017 Q1.Google Scholar
Metcalf, D. (2007), ‘Why has the British national minimum wage had little or no impact on employment?’, DP 781, Centre for Economic Performance, LSE.Google Scholar
ONS (2007), ‘Productivity: market sector, services and industries’, chapter 8 in ONS Productivity Handbook.Google Scholar
Pissarides, C. (2013), ‘Unemployment in the Great Recession’, Economica, 80(319), pp. 385–403.CrossRefGoogle Scholar
Stone, R. (1984), ‘The accounts of society’, Nobel Memorial Lecture, 8 December 1984.Google Scholar