Gavin Wallis

What Happened To The Knowledge Economy? Ict, Intangible Investment, And Britain'S Productivity Record Revisited

Despite the apparent importance of the “knowledge economy,” U.K. macroeconomic performance appears unaffected: investment rates are flat, and productivity has slowed. We investigate whether measurement issues might account for this puzzle. The standard National Accounts treatment of most spending on “knowledge” or “intangible” assets is as intermediate consumption. Thus they do not count as either GDP or investment. We ask how treating such spending as investment affects some key macro variables, namely, market sector gross value added (MGVA), business investment, capital and labor shares, growth in labor and total factor productivity (TFP), and capital deepening. We find: (a) MGVA was understated by about 6 percent in 1970 and 13 percent in 2004; (b) instead of the business investment/MGVA ratio falling since 1970 it has been rising; (c) instead of the labor share being flat since 1970 it has been falling; (d) growth in labor productivity and capital deepening has been understated and growth in TFP overstated; and (e) TFP growth has not slowed since 1990 but has been accelerating.

Can Intangible Investment Explain the UK Productivity Puzzle

This paper investigates whether intangibles might explain the UK productivity puzzle. We note that since the recession: (a) firms have upskilled faster than before; (b) intangible investment in RD and (c) intangible and telecoms equipment investment slowed in advance of the recession. We have therefore tested to see if: (a) what looks like labour hoarding is actually firms keeping workers who are employed in creating intangible assets; and (b) the current slowdown in TFP growth is due to the spillover effects of the past slowdown in RD and (b) 0.75 per cent per annum of the TFP growth slowdown can be accounted for by the slowdown in intangible and telecoms investment in the early 2000s. Taken together intangible investment can therefore account for around 5 percentage points of the 16 per cent productivity puzzle.

Capital Services Growth in the UK: 1950 to 2006

This paper describes a capital services dataset for the United Kingdom developed for use in empirical work, and some of its key features. The estimates are consistent with National Accounts output estimates, making them ideal for use in growth-accounting or business-cycle analysis. The divergence between the volume of capital services and the volume of the capital stock after 1980 is highlighted. This divergence is driven by a shift in investment towards short-lived and more productive information and communication technology assets for which the flow of capital services is high. Standard capital stock measures understate growth in the productive input of capital, especially after 1990. Copyright (c) Blackwell Publishing Ltd and the Department of Economics, University of Oxford, 2009.

Accounting for the UK productivity puzzle: a decomposition and predictions

This paper revisits the UK productivity puzzle using new data on outputs and inputs and clarifying the role of output mismeasurement, input growth and industry effects. Our data indicate an implied labour productivity gap of 13 percentage points in 2011 relative to the productivity level on pre‐recession trends. We find that: (a) the labour productivity puzzle is a TFP puzzle, since it is not explained by the contributions of labour or capital services; (b) the reallocation of labour between industries deepens rather than explains the puzzle (i.e. there has been a reallocation of hours away from low‐productivity industries and toward high productivity industries); (c) capitalization of RD (d) assuming increased scrapping rates since the recession, a 25% (50%) increase in depreciation rates post‐2009 can potentially explain 15% (31%) of the productivity puzzle; (e) industry data show that 35% of the TFP puzzle can be explained by weak TFP growth in the oil & gas and finance sectors; and (f) cyclical effects via factor utilization could potentially explain 17% of the productivity puzzle. Continued weakness in finance would suggest a future lowering of TFP growth to around 0.8% p.a. from a baseline of 0.9% p.a. (This abstract was borrowed from another version of this item.)

A Response to Bill Martin and Robert Rowthorn

This note responds to a critique of our recent paper, “Can Intangible Investment Explain the UK Productivity Puzzle?†. In that critique Martin and Rowthorn (MR) present a re-working of data on labour composition which they feel refutes an element of our argument. In this response we argue that the data are still in support of our original position. Essentially, the puzzle is that measured labour productivity has been falling, but labour quality is rising, so, at least on this measure, changes in labour quality cannot explain falling productivity.