Recent trends in firm-level total factor productivity in the UK: new measures, new puzzles

Understanding the poor productivity performance of the UK economy since the financial crisis is complicated by the well-known challenges in estimating total factor productivity (TFP) using only revenue data. We develop a structural framework to infer quality-adjusted TFP from an estimated firm-level revenue function. We use microdata for two sectors previously identified as being significant contributors to the UK's productivity growth slowdown-manufacturing and ICT-from 2008 to 2019. The revenue function is estimated using the Blundell-Bond System GMM estimator. We also use an alternative cost-shares approach to identifying and measuring TFP. For both methods, we find an overall fall in TFP levels in manufacturing and a rise in ICT. We find a striking decline of between 13% and 18% in the level of within-firm manufacturing TFP, and of between 11% and 16% in ICT, although with reallocation effects differing between the two sectors. The finding of declining within-firm TFP is robust, although the magnitude varies between methods. We discuss a possible explanation for this extended UK productivity puzzle based on the relative underperformance of UK firms in international markets.