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Home Publications Productivity, Investment and Profits during the Great Recession: Evidence from UK Firms and Workers

Productivity, Investment and Profits during the Great Recession: Evidence from UK Firms and Workers

Journal article | Fiscal Studies, Vol. 34, No. 2, June 2013

 

The UK has recently experienced its deepest recession since the Second World War. One feature has been the resilience of employment, which fell far less than GDP. This led to a substantial fall in labour productivity and has given rise to a so-called ‘productivity puzzle’. In this paper, we use firm- and individual-level data to shed new light on these aggregate patterns and we examine changes in firm investment in physical capital and profitability. We provide evidence that labour productivity, investment and firm profitability all fell, on average, within firms over the course of the recession and that many of these adjustments were more pronounced in small firms. We also provide indicative evidence on the extent to which different firms might have engaged in labour ‘hoarding’. Our results provide new insight into the potential determinants of the productivity puzzle and also indicate the types of firms that might be expected to be able to respond more quickly to a subsequent increase in demand.