Diane Coyle, Jen-Chung Mei and Lucy Hampton explore the role played by relative price changes in the well-documented slowdown in labour productivity growth in the UK.
This working paper explores the role played by relative price changes in the well-documented slowdown in labour productivity growth in the UK. Using two alternative sectoral decomposition frameworks, it isolates the contribution from relative output price changes to aggregate labour productivity growth before and after 2008. It also compares the recent double deflated UK data with the counterfactual of the previous single deflated data to explore the role of input prices at the sector level.
It shows that relative price shifts contribute negatively to aggregate UK labour productivity growth, although to a differing extent depending on the decomposition chosen. It also finds that the shift to double deflation of the data, adjusting input prices separately, makes a large negative contribution in one of the decomposition methods. However, the relative price effects differ between manufacturing and information and communication technology (ICT), with more sensitivity to the choice of single or double-deflated data in the case of ICT.