Can job displacements explain the UK’s productivity puzzle?

Publication type

Conference Paper


Understanding Society Scientific Conference 2015, 21-23 July 2015, University of Essex, Colchester, UK


Publication date

July 21, 2015


Human capital has been found to be important for aggregate
productivity, and large individual human capital losses are associated
with job displacements. I investigate the role of involuntary job
separations (since displacements have increased during the 2008
financial crisis) on the UK’s productivity puzzle. I construct an
estimator of aggregate productivity (as output per hour worked) which
accounts for displacements. I introduce a tractable Constant Elasticity
of Substitution (CES) production function that separates workers into
displaced and non-displaced, and is adjusted to real aggregate data. As a
first step, I estimate that the elasticity of substitution between high
and low educated workers for the UK economy is 1.97 (which is close to
the estimations of Acemoglu for the US economy). With the adjusted CES, I
run the following accounting counterfactual exercise: I measure the
potential aggregate productivity for the hypothetical case where the
productivity of a displaced worker is equal with the one that he had
before the displacement. I establish a methodology which can also be
used for a comparison between different economies.
By linking the British Household Panel Survey with the Understanding
Society dataset, we extract a unique worker’s earning histories for the
UK from 1990 to 2011, which includes the current economic crisis. I
combine this new dataset with aggregate data from the Office for
National Statistics (ONS) and I run counterfactual exercises where I
observe the following results: displacements can explain on about the
22% of the drop in the growth rate of productivity, and the 10% of the
post-crisis gap, if productivity had followed the path of past





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