The changing landscape of firm-level productivity – anatomy and policy implications
It is widely recognised that average levels of labour productivity in the UK lag those in many of our international competitors. But how meaningful or helpful are these comparisons of averages? And what do they actually tell us about what is going on in companies, given that productivity varies widely within, as well as between, specific industries? The productivity disparities between the best firms and the rest have widened in recent years.
A comprehensive explanation for these patterns remains elusive, and necessarily includes both factors internal to the firm as well as the effects operating through business eco-systems. Moreover, the weight attributable to drivers of productivity may differ markedly between sectors.
Improving levels of innovation, and the adoption of new technologies and management best practices, by UK firms operating ‘behind the frontier’ provides a focus for policy intervention to support long-term productivity growth. This will require a shift in policy thinking, however, as much current policy focuses support on leading-edge innovation, most often undertaken by frontier firms.
The paper also includes a number of policy implications.
Author: Stephen Roper (University of Warwick)