Elliott Ash, 03 July 2021

Faced with extreme old age and even dementia among its judges, some US states have imposed a mandatory retirement age. But this policy may remove experienced judges who are still productive in their jobs. This column examines the overall effect of mandatory retirement on court productivity in US states during 1947–1994 and finds that court productivity increased by more than 25% after the introduction of mandatory retirement. There may even be a team effect of ageing whereby the presence of older judges slows down the pace of work in the court.

Marek Ignaszak, Petr Sedláček, 02 July 2021

To gauge the efficacy of policies aimed at spurring growth, we must first fully understand the sources of aggregate growth. This column argues that understanding the drivers of economic growth requires paying attention not only to productivity and R&D dynamics at the firm level, but also to changes in demand for firms’ products. The authors provide a new perspective on commonly used supply-side pro-growth policies and open the door to analysing demand-side policies such as public procurement or product market regulation, which have been present in the policy debate but have largely escaped academic circles.

Nicholas Crafts, 25 June 2021

John Maynard Keynes famously predicted that no one would need to work for more than three hours a day by 2030. How did he get it so wrong? Nick Crafts tells Tim Phillips that, in one way, Keynes has underestimated the change in our work-life balance.

Sebastian Siegloch, Nils Wehrhöfer, Tobias Etzel, 04 June 2021

Increasing regional inequality has become a major concern for policymakers both in the US and Europe. This column investigates the effects of a large place-based investment subsidy targeted at manufacturing firms in East Germany. It shows that a decrease in the subsidy rate leads to a decrease in manufacturing employment, highlighting spillovers to untreated sectors in treated counties and untreated counties connected via trade and local taxes. It also finds that the place-based policy is at least as efficient as cash transfers for the unemployed but is more effective in curbing regional inequality overall.

Ian Goldin, Pantelis Koutroumpis, François Lafond, Julian Winkler, 31 May 2021

Labour productivity is a key determinant in improving living standards. But in recent years, productivity has stagnated, if not declined, in many countries around the world. This column re-evaluates the various reasons as to why this might be, applying three criteria to the existing explanations for the slowdown. It finds that the slowdown in productivity can be attributed to numerous factors, ranging from mismeasurement to changes in trade patterns.

Fozan Fareed, Bastiaan Overvest, 20 May 2021

The COVID-19 crisis may affect future productivity through its impact on business dynamics. This column argues that business dynamics – in particular business entries, exits, and bankruptcies – are slowing down, which can have adverse effects on long-term productivity. Over the course of 2020, fewer new businesses were established than in any ‘normal’ year and fewer closed down than during the Global Crisis in 2009. Most new entrants are self-employed and online businesses, especially in the wholesale and retail trade sector.

Morris Davis, Andra Ghent, Jesse Gregory, 18 April 2021

The COVID-19 pandemic has prompted a radical shift in how much people work from home. This column argues that, through learning and technology adoption effects, this enforced shift has boosted the productivity of working from home, which will lead to higher lifetime incomes for the working population. While these productivity gains would likely have happened eventually, the pandemic accelerated this process.

Gaurav Khanna, Wenquan Liang, Ahmed Mushfiq Mobarak, Ran Song, 08 April 2021

Why do workers remain in low-productivity areas when they could experience wage gains elsewhere? While the literature has proposed a few explanations, including the high cost and risky nature of migration, this column uses the case of China to examine instead the role that pollution plays. It finds that severe pollution can induce workers to relocate from productive to unproductive regions, suggesting that pollution control, coupled with policies facilitating migration, has the potential to bring about extra economic gains in developing countries.

Francesca Carta, Francesco D'Amuri, Till von Wachter, 16 March 2021

Population ageing reduces labour supply and burdens pension systems. At the same time, delaying the statutory retirement age may have an impact on firms’ productivity and risks crowding out younger workers. This column exploits an unexpected pension reform in Italy in 2012 which sharply increased the full retirement age for workers aged 55 or above to show that such concerns may not be warranted. A rise in employment of older workers led to an increase in value added while holding labour costs constant. Employment in other age classes also increased. This suggests older workers are valuable to employers and that pension reforms postponing retirement can remove a constraint rather than placing a burden on firms.

Masayuki Morikawa, 12 March 2021

Working from home has become much more prevalent across advanced economies during the Covid-19 pandemic. This column uses survey data from Japan to explore how widely working from home has been adopted across industries and how productive employees are at home. It finds that the overall contribution of working from home to labour input is surprisingly small. Even where firms adopted the practice, many employees did not exploit it; and even those who did work from home did not necessarily do so throughout the week. The firm survey responses suggest that across industries, the average productivity of employees when working from home relative to at the workplace is 68.3%, which is similar to the findings from an employee survey. The results suggest that there is room for improvement to make working from home more feasible.

Xinshen Diao, Mia Ellis, Margaret McMillan, Dani Rodrik, 01 March 2021

Before Covid-19 struck, many economies in sub-Saharan Africa were expanding rapidly – faster than at any time since independence. Yet African growth accelerations were anomalous when viewed from the perspective of comparative development patterns; structural changes were accompanied by declining within-sector productivity growth in modern sectors. This column explores this anomaly in the context of African manufacturing using newly created firm-level panel data for Tanzania and Ethiopia. In both countries, there is a sharp dichotomy between larger firms that exhibit superior productivity performance but do not expand employment much, and small firms that absorb employment but do not experience any productivity growth. These patterns appear to be related to technological advances in global manufacturing which are making it more capital intensive.

Florin Maican, Matilda Orth, Mark Roberts, Van Anh Vuong, 26 January 2021

Firms’ incentives to undertake innovation investments can be affected by their activities in domestic and international markets. This column uses a structural framework to estimate the returns to innovation investments and analyse the impact of trade on those returns. It shows that a firm’s R&D investments raise its future productivity in both domestic and export markets, with a larger impact in the export market. Furthermore, it shows that public efforts to stimulate innovation investments can be offset by trade restrictions limiting access to world markets. These findings are important for policymakers to recognise when fostering innovation. 

Nicholas Bloom, Philip Bunn, Paul Mizen, Pawel Smietanka, Gregory Thwaites, 18 January 2021

The Covid-19 shock has had asymmetric effects across sectors of the economy, with those sectors that involve the most social contact in consumption bearing the brunt. This column uses data from the Decision Maker Panel business survey data to assess how the spread of Covid-19 and measures to contain it are likely to affect productivity. It estimates total factor productivity in the UK private sector is likely to be lower than it would have been, by up to 5% in 2020 Q4, falling back to a 1% reduction in the medium term. Firms anticipate a large reduction in ‘within-firm’ productivity, primarily because measures to contain Covid-19 are expected to increase intermediate costs. Since the pandemic disproportionally affected firms in low-productivity sectors, and the least productive firms within these sectors, these become a smaller part of the economy and therefore a positive ‘between-firm’ reallocation effect partially offsets the negative ‘within-firm’ effect.

Andrés Rodríguez-Pose, Roberto Ganau, Kristina Maslauskaite, Monica Brezzi, 15 December 2020

Does institutional quality mitigate the negative returns of credit rationing on labour productivity? Using data on a large sample of manufacturing firms in 11 European countries, this column demonstrates that this is indeed the case, especially for micro, small, and medium-sized firms. The negative effects of credit constraints on productivity are mitigated in those areas of Europe with high-quality governance. ‘Good’ regional institutions not only drive firm-level productivity but also, and in a more indirect way, reduce the negative productivity returns of credit constraints.

Xavi Cirera, Diego Comin, Marcio Cruz, Kyung Min Lee, 29 November 2020

Understanding how firms use technology in production is key for studying productivity and labour market outcomes. This column introduces a new approach to measure technology adoption at the business function level – the Firm-level Adoption of Technology survey. Using representative data from three countries, it finds a larger variance in technology sophistication within firms compared with across firms, and greater variance across firms than across countries or regions. Furthermore, a development accounting exercise suggests cross-firm technology differences account for one-third of the cross-firm productivity gap. 

Tommaso Bighelli, Filippo di Mauro, Marc Melitz, Matthias Mertens, 13 October 2020

Aggregate firm concentration has increased in Europe in the last decade. Using firm-level data, this column shows that concentration is positively associated with productivity at the sector level. As a result, rising concentration should not be viewed as conclusive evidence of a weak competitive environment and need not necessarily be a cause for concern. Rather, rising concentration may be a reflection of more efficient market processes. This has important consequences for industrial and antitrust policy, which must carefully evaluate the costs and benefits of increasing concentration.

Sebastian Doerr, Dalia Marin, Davide Suverato, Thierry Verdier, 19 August 2020

A well-established observation in the trade literature is that conglomerate firms are more productive than single-product firms, but this appears to be at odds with findings in the finance literature that multi-segment firms trade at a discount and have lower Tobin’s Q than single-product firms, because internal capital markets misallocate funds across divisions within firms. This column develops a novel theory of misallocation within firms (rather than between firms) due to managers' empire building. Introducing an internal capital market into a two-factor model of multi-segment firms, it shows that more open markets impose discipline on competition for capital within firms, which explains why exporters exhibit a lower conglomerate discount than non-exporters. Testing the model with data on US companies, the authors establish that import competition reduces mis-allocation within firms. A one standard deviation increase in Chinese imports lowers the conglomerate discount by 32% and over-reporting of costs by up to 15%.

Eiichi Tomiura, Banri Ito, Byeongwoo Kang, 12 August 2020

Cross-border data flows are increasingly critical for modern firms, and the regulation of data poses a distinctly novel challenge for policymakers in the 21st century. This column presents survey data from Japan, investigating exactly which type of firm are most likely to be affected by regulations surrounding the international exchange of data. The results of the study suggest that new technologies such as Artificial Intelligence and 3D printers are usually adopted by the most productive and innovative firms, and that hampering these firms with regulation may create harmful effects for the wider economy.

Charles Goodhart, Dimitri Tsomocos, Xuan Wang, 07 August 2020

A sizeable proportion of enterprises, especially SMEs, in receipt of financial assistance from the government will fail to repay. This column asks whether, and to what extent, it may be beneficial to apply a screening mechanism to deter those mostly likely to fail to repay from seeking financial assistance in the first place. The answer largely turns on the relative weights attached for the objectives of stabilisation as compared with allocative efficiency.

Daniel Gallardo Albarrán, Robert Inklaar, 31 July 2020

Modern economic growth has improved the lives of millions in an unprecedented way, but its unequal progression across the globe has resulted in high income inequality. Most of the cross-country differences in income levels are typically attributed to differences in productivity rather than to physical or human capital accumulation. This column argues that this has not always been the case: physical capital accounted for a much larger fraction of income variation at the beginning of the 20th century. More generally, the results of the study call for a reevaluation of the long-term determinants of relative economic performance over time.

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