National Productivity Week 27th January 2025 | Visit Website

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the UK’s productivity problems.


Firm level evidence on the use of potential capital

This research explores how equipment like home offices, laptop computers and internet connections, which can be combined with work at home to produce output (potential capital), can impact productivity. Productivity measured by conventional means, ignoring potential capital, tends to overstate output per hour, creating an artificial boom/bust in the productivity cycle. Data at the sector level confirms this view, showing that potential capital contributed to output produced other than in the workplace. Enforced WFH and use of potential capital was a feature not a bug, providing resilience for firms, but now it is unenforced, it is important to know whether and how it may become permanent.

The study makes use of firm level survey data from the Decision Maker Panel (DMP) and from a Working From Home survey (WFHS) of working age adults in the UK to explore these issues in greater depth. It looks at how Covid impacted firms, exploring the impact of WFH and use of potential capital on output and productivity by firm type and sector. It also evaluates whether firms make persistent use of WFH and potential capital after Covid or whether they will revert to the status quo ex ante, as well as looking at if firms are investing in new ways of producing goods and services using remote labour and capital to overcome identifiable barriers to investment in this knowledge capital.

Project lead Paul Mizen (The University of Nottingham)