Slides presented at the Productivity Research Network meeting on 16th March 2018. Slides presented on decomposing labour productivity into contributions from industries and “reallocation” effects.

1. Productivity Research Network
16th March 2018

2. Generalised Exactly Additive
Decomposition of 2-digit SIC
Output per Hour
Ciaren Taylor

3. Contents
• Methodology Re-cap
• Base case (Whole Economy)
• Alt 1: Excluding Real Estate
• Alt 2: Excluding Imputed Rent
• Alt 3: Excluding Imputed Rent & Gov Services
• Alt 4: Excluding IR, Gov Services, and Oil
• Long-term: Industries driving allocation effect

4. Methodology Recap
• Based on Tang & Wang (2004)
• Published at higher level every quarter as our
“Breakdown of contributions, whole economy
and sectors” table – further information
available there

5. Methodology Recap
Broken down into:
• Contribution from productivity growth within
each industry
• Contribution from “allocation effect” – can be
further broken down into:
Labour effect: As increased labour share in high
productivity industries boosts average productivity
Price effect: As increased relative price in a high
productivity industry boosts its weight in CVM
GVA calculation, increasing average productivity

6. Methodology Recap
Direct effect Size effect Interaction
How OpH growth in
industry directly effects
whole economy OpH
growth
Indirect effect of OpH
growth on whole
economy OpH growth
Interaction between
direct and size effect
OpH growth in an
industry * nominal
share of GVA
Change in size *
weight (== relative
OpH)
Change in size * OpH
growth * weight (==
relative OpH)
‘Size’ = labour share *
relative price level

7. Methodology Recap
Labour effect Price effect Interaction
Indirect effect of
changing labour share
Indirect effect of
changing relative price
Interaction between
labour and price effect

8. Base Case (Whole Economy)
OpH
Growth Allocation
OpH
Growth Allocation
2007 Q3 10.7 2.0 2005 Q4 9.6 1.9
2017 Q3 2.5 -2.9 2015 Q4 1.0 -1.7
Difference -8.2 -5.0 Difference -8.6 -3.6

9. Alt 1: Excluding Real Estate
OpH
Growth Allocation
OpH
Growth Allocation
2007 Q3 10.8 -2.1 2005 Q4 10.2 -2.0
2017 Q3 3.8 -3.1 2015 Q4 0.8 -2.2
Difference -7.0 -0.9 Difference -9.3 -0.2

10. Alt 2: Excluding Imputed Rent
OpH
Growth Allocation
OpH
Growth Allocation
2007 Q3 11.1 -1.4 2005 Q4 10.3 -1.4
2017 Q3 3.8 -2.8 2015 Q4 1.1 -2.1
Difference -7.3 -1.4 Difference -9.2 -0.7

11. Alt 3: Excluding Imputed Rent & Gov
Services
OpH
Growth Allocation
OpH
Growth Allocation
2007 Q3 14.5 -1.1 2005 Q4 13.8 -1.0
2017 Q3 4.0 -3.9 2015 Q4 1.2 -2.6
Difference -10.4 -2.8 Difference -12.6 -1.7

12. Alt 4: Excluding IR, Gov Services, and
Oil
OpH
Growth Allocation
OpH
Growth Allocation
2007 Q3 15.9 -0.4 2005 Q4 15.2 -0.6
2017 Q3 4.1 -2.9 2015 Q4 2.1 -2.4
Difference -11.7 -2.5 Difference -13.0 -1.8

13. Long-term: Industries driving
allocation effect
Labour effect Price effect Interaction
Indirect effect of
changing labour share
Indirect effect of
changing relative price
Interaction between
labour and price effect

14. Long-term: Industries driving
allocation effect
Weight
(== relative OpH)
‘Unweighted’ Allocation effect

15. Long-term: Industries driving
allocation effect
OpH
Growth Allocation
OpH
Growth Allocation
2007 Q3 11.1 -1.4 2005 Q4 10.3 -1.4
2017 Q3 3.8 -2.8 2015 Q4 1.1 -2.1
Difference -7.3 -1.4 Difference -9.2 -0.7
Alternative 2: Excluding Imputed Rent

16. Long-term: Industries driving
allocation effect
-5
-4
-3
-2
-1
0
1
2
3
0 2 4 6 8 10 12 14
unweighted allocation
effect (pp)
Weight (i.e. relative Output per Hour)
Alternative 2: Excluding Imputed Rent
Components of the contributions to the allocation effect from different industries, 1997 Q1 to 2017 Q3
+
+
-
-

17. Long-term: Industries driving
allocation effect
Alternative 2: Excluding Imputed Rent
Components of the contributions to the (unweighted) allocation effect from top & bottom 10 industries,
1997 Q1 to 2017 Q3
-15 -10 -5 0 5 10
Telecommunications (0.9)
Employment Activities (0.2)
Manufacture of transport equipment (0.9)
Retail Trade, Except Of Motor Vehicles And Motorcycles (0.7)
AGRICULTURE, FORESTRY AND FISHING (0.4)
Manufacturing of computer, electronic & optical products (0.9)
Manufacture of basic metals and metal products (0.9)
Manufacture of rubber and plastics products, & other non-metallic mineral products (0.8)
Manufacture of machinery and equipment n.e.c. (0.8)
Manufacture of chemicals and chemical products (1.4)
Other Professional, Scientific And Technical Activities (0.6)
Social Work Activities Without Accommodation (0.5)
Services To Buildings And Landscape Activities (0.3)
Activities Auxiliary To Financial Services And Insurance Activities (1.1)
Office Administrative, Office Support And Other Business Support Activities (0.8)
Construction Of Buildings (1.4)
Computer Programming, Consultancy And Related Activities (0.7)
Food And Beverage Service Activities (0.6)
Human Health Activities (0.9)
Education (1.6)
Unweighted Allocation effect (pp)
Labour
Price
Interaction
Relative OpH

18. Conclusions
• Allocation effect not positive prior to downturn
if imputed rent is excluded
• Allocation effect trending downward in recent
years in all cases
• Effect of allocation effect on productivity
puzzle decreased substantially by excluding
imputed rent
• Effect of allocation effect on productivity
puzzle increased by excluding government
services