The Productivity Institute

The low productivity levels of some regions or areas of the UK, and the consequent disparities in income and broader well-being, are widely documented. We research how the differences between leading and lagging places have evolved and what are the feedback mechanisms embedding them, while we also look at how these relate to the provision of public services, health and educational outcomes. Our research investigates the reasons for the mixed performance of these interventions, comparing them with international practices.

Recommended reading:

• Forth, T and Jones, R. 2020. The Missing £4bn: Making R&D work for the whole UK. Nesta. 
• Billing, C; McCann, P; and Ortega-Argilés, R. 2019. Interregional inequalities and UK sub-national governance responses to Brexit. Regional Studies, 1-20. 

Coming decades will see major transitions as the UK adopts new technologies and responds to climate change. These transitions will require transformative change in (digital and low-carbon) technologies, business models, skills needs, infrastructure, policies and markets (Geels, 2019). What are the future productivity opportunities from digital technology and green growth and how can investments and skills be shaped to make the most of the complementarities between them (Acquier et al., 2017)? And what are the main distributional impacts on productivity across regions, sectors, and firms, and how can those be managed?

Recommended reading:

• Geels, F.W., 2019, Socio-technical transitions to sustainability: A review of criticisms and elaborations of the Multi-Level Perspective, Current Opinion in Environmental Sustainability, 39, 187-201. 
• Acquier, A., Daudigeos, T., Pinkse. J., 2017, Promises and paradoxes of the sharing economy: An organizing framework, Technological Forecasting and Social Change, 125, 1-10

While there is a vast amount of human capital research on the value of qualifications, we know far less about which skills and abilities - particularly psychological and social - are important for productivity and wellbeing, and how and where they can best be developed and deployed in a rapidly-changing digital economy. Our research will explore these issues in depth.

Recommended reading:

• Rafferty, A 2019, 'Skill underutilization and under-skilling in Europe: The role of workplace discrimination', Work, Employment & Society, vol. 26, no. 6. 
• Oswald, A.J., Proto, E. and Sgroi, D., 2015. Happiness and productivity. Journal of Labor Economics, 33(4), pp.789-822.
• Rani, U. and Grimshaw, D., 2019. Introduction: What does the future promise for work,
  employment and society? International Labour Review, 158(4), pp.577-592.
• Britton, J., Shephard, N. and Vignoles, A., 2019. A comparison of sample survey measures of earnings of English graduates with administrative data. Journal of the Royal Statistical Society: Series A (Statistics in Society), 182(3), pp.719-754.

Stagnant long-term productivity growth in UK firms has been linked - alongside other factors - to failures in technology diffusion, low levels of investment, short-termism, an inclination towards more incremental innovation and a general decline in business dynamism. Brexit and the impact of Covid-19 on the survival and strength of UK businesses may undermine investment, innovation and future productivity growth. Longer-term, UK businesses face other challenges – e.g. digitisation and the transition towards net zero – which may either exacerbate or help address the productivity challenge. Our research will examine how COVID-19 is impacting on firms across the productivity distribution, explore how firms are tackling the digital and net zero transitions, and how they can be incentivised to upgrade productivity.

Recommended reading:

• Driffield, Nigel L. and Karoglou, Michail (2019) Brexit and foreign investment in the UK. Journal of the Royal Statistical Society: Series A (Statistics in Society) , 182 (2). pp. 559-582. doi:10.1111/rssa.12417
• Roper, S (2020) R&D and innovation after Covid-19: What can we expect? A review of trends after the financial crisis, Enterprise Research Centre, May 2020.
• Vanino, Enrico, Roper, Stephen and Becker, Bettina (2019) Knowledge to money : assessing the business performance effects of publicly-funded R&D grants. Research Policy, 48 (7). pp. 1714-1737. doi:10.1016/j.respol.2019.04.001

There are large gaps in the understanding and measurement of knowledge capital. Our research explores the definition, measurement, and valuation of components of knowledge capital, as well as the interactions between intangible assets and organisational, human and social capital. What is the role of the state and universities in innovation? And how is innovation affected by market structure and participation in global supply chains?

Recommended reading:

• IBM iX and University of Cambridge. 2020. Targeting the Full Value of Digital Disruption.
• Velu, C. 2018. Solving the Productivity Paradox. Manufacturing Leadership Journal.

A long run and international perspective is essential for understanding the extent of the problem faced by the UK. And many of the UK productivity issues reflect economy-wide failures. Stagnant real wages and living standards for many are associated with slow productivity growth. Possible contributory factors include increased use of migrant labour in a relatively deregulated labour market; retrenchment and reform in the banking system and its consequences for firms’ access to finance; and public sector retrenchment and its impact on both public and private sector investment as well as regular disruptions in demand that may have acted to impede long run planning. The role of the monetary-fiscal settlement is key.

Recommended reading:

• Chadha, J. S., (2017), The Productivity Puzzle, Gresham College Lecture, 21st September 2017. 
• Crafts, N., & Mills, T. (2020). IS THE UK PRODUCTIVITY SLOWDOWN UNPRECEDENTED? National Institute Economic Review, 251, R47-R53.
  Oulton, N. 2020. "Measuring Productivity: theory and British practice," Discussion Papers 2002, Centre for Macroeconomics (CFM).
• Riley, R., Rosazza-Bondibene, C. and G. Young, Garry, (2015), The UK productivity puzzle 2008-13: evidence from British businesses, No 531, Bank of England working papers, Bank of England.

This theme addresses the multiple weaknesses of UK governance of industrial policy that have previously been identified by researchers in the field. Namely over-centralisation, top-downism, short-termism linked to the electoral cycle, silos and the absence of effective joined-up government, to name just a few. Working closely with policymakers and stakeholders at national and local levels, we undertake primary research into why UK policy institutions generally fail to act in a coherent, coordinated and long-term manner.

Recommended reading:

• Coyle, D and Sensier, M. 2020. ‘The Imperial Treasury: Appraisal Methodology and Regional Economic Performance in the UK’, Regional Studies, Vol. 54(3), pp. 283-95, 
• Pabst, A,. 2020. ‘Power without purpose: how the Tories don’t have a national plan’. New Statement, 12 February 2020. 
• Westwood, A .2020. ‘Industrial capacity in post COVID-19 Britain’. An Industrial Strategy for Tomorrow Policy Series. Bennett Institute for Public Policy.

The rising importance of the intangible capitals and globally integrated production structures have led to new modes of value creation. This challenges traditional empirical approaches for unravelling the sources of growth and its distribution, and demands new data and methods. In this theme we consider how we can develop and analyse the firm-level evidence base through data linkage and novel data sources to gain deep understanding of regional, national and firm-level productivity drivers. We also consider what new modes of value creation imply for the measurement of growth and welfare.

Recommended reading:

• Corrado, C., O’Mahony, M. and Samek, L. (2020) ‘Measuring Education Services Using Lifetime Incomes’, ESCoE DP 2020-02
• Riley, R. (2019) ‘Harnessing the value of data’, Ch. 12 in Eds. Barwell & Chadha Renewing our Monetary Vows: Open Letters to the Governor of the Bank of England, NIESR Occasional Paper 58, p. 195-212.