British Manufacturing Productivity 1955-1983: Measurement Problems, Oil Shocks and Thatcher Effects

There has been considerable controversy over the apparent slowdown in productivity growth in Britain and in other industrial countries over 1971-80 and the apparent speed up in at least British productivity growth over 1980-83. This paper throws light on these matters by means of an aggregate production function for British manufacturing estimated on quarterly data for 1956-83. This makes it possible to distinguish cyclical movements in productivity caused by variations in labour utilization from underlying trends. The measure of labour utilization rests on information on weekly hours of overtime work as a fraction of the normal work week. The paper also considers measurement problems in output for which several significant observable proxies are available and in capital, the latter being compared with the CBI's capacity utilization data and Bennett and Smith-Gavine's Percentage Utilization of Labour index. Estimates are provided of measurement biases in output and comparisons made between crude output per head and a productivity measure corrected for variations in utilization and measurement biases in output.