Sources of Labour Productivity Growth at Sector Level in Britain, 1998-2007: a Firm-Level Analysis

Abstract

This article focuses on the sources of labour productivity at a disaggregated sector level using a range of methods for decomposition, including the dynamic Olley-Pakes decomposition method introduced by Melitz and Polanec (2015) which offers an alternative approach to the standard dynamic decomposition developed by Foster, Haltiwanger and Krizan (2001). Our findings indicate that at the firm level, entry and exit played a relatively minor role in improving labour productivity growth in Britain between 1998-2007, although this masks a great deal of variability in the performance of entrants and exitors. A much more significant contribution to labour productivity throughout the period was achieved through the market share growth of incumbent firms with above average productivity. The interpretation of findings is sensitive to underlying assumptions and the approach adopted.