Trends in UK Business Dynamism and Productivity: 2023

The UK’s National Statistics Office has released experimental statistics on firm-level productivity, business dynamism, and business markup estimates, covering the period from 1997 to 2022. Here are the key points from the report:

  1. Firm-level Labour Productivity:
    • In 2021, 70.6% of UK workers were employed in firms with labor productivity below the mean.
    • The dispersion of firm-level productivity has increased, with workers in firms at the 90th percentile producing about 3.7 times more output than those at the median.
    • Labor productivity growth has been more reliant on “frontier” firms, especially post-2008 economic downturn.
    • Measures of productivity growth show a 10% fall in labor productivity in 2020, followed by a 14% increase in 2021.
  2. Business Dynamism:
    • Business dynamism, measured as the rate of job creation and destruction, has slowed since the 2008 economic downturn.
    • The total reallocation rate fell from 30.7% in 2001 to 20.6% in 2022.
    • The responsiveness of firm-level employment growth to productivity has decreased post-2008, resulting in overall lower productivity growth.
  3. Market Power:
    • Measures of market power indicate an increase, with the average markup on intermediate consumption rising from 111% in 1997 to 127% in 2021.
    • Estimates for 2020 and 2021 should be approached with caution due to the impact of the COVID-19 pandemic on businesses and data collection.
  4. Labor Productivity Distribution:
    • Labor productivity is not evenly distributed, with 70.6% of workers in firms below the mean. There is a long tail of highly productive businesses.
    • Over the period 1997 to 2021, mean labor productivity increased by 23.5%, while the median grew more slowly, indicating increased dispersion.
    • Dispersion of firm-level productivity across service firms has increased since 1997, while in manufacturing, it has fallen.
  5. Business Dynamism Trends:
    • Job creation and destruction rates were lower in the period following the 2008 economic downturn compared to the period before.
    • Between 2001 and 2007, the annual average job creation and destruction rates were 13.7% and 12.3%, respectively. Between 2011 and 2019, these rates dropped to 11.1% and 9.6%.
  6. Cautionary Note:
    • Estimates for 2020 and 2021 should be treated with caution due to the impact of the COVID-19 pandemic on businesses and data collection.

The report aims to provide insights into how the UK economy has evolved in terms of productivity, business dynamism, and market power, shedding light on trends and challenges faced by businesses.