DP15516 The UK's Great Demand and Supply Recession

Author(s):	Nicholas Jacob, Giordano Mion
Publication Date:	December 2020
Keyword(s):	demand, great recession, prices, Revenue TFP, Total factor productivity (TFP), United Kingdom
JEL(s):	D24, E01, L11, O47, O52
Programme Areas:	Industrial Organization, International Trade and Regional Economics, Macroeconomics and Growth
Link to this Page:	cepr.org/active/publications/discussion_papers/dp.php?dpno=15516

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.