Plant Closures and the Productivity ‘Miracle’ in Manufacturing

Abstract

There has been a considerable improvement in labour productivity in UK manufacturing in the 1980s. Manufacturing output per person employed rose at an annual rate of only 0.7 per cent between 1973 and 1979 but at 4.1 per cent between 1979 and 1985. However, the cause or causes of this improvement have not been generally agreed. Muellbauer (1986) suggested five principal hypotheses to account for the improvement (see also Mendis and Muellbauer, 1984):(1)Technology, in particular the of the microelectronic revolution.(2)Improved industrial relations, due in part to the decline of unionism caused by the recession of the 1980s and in part to the change in the laws governing trade unions brought in by the first two Thatcher governments.(3)Capital scrapping—the period 1973–80 may have been one of large-scale unrecorded scrapping, since large parts of the capital stock became obsolete after the oil price rises; slow growth of capital per person would have led to slow growth in output per person but these trends may have been reversed after 1981.(4)Labour utilisation—this was low during the recession but the subsequent recovery produced a biased measure of the true productivity picture.(5)Plant closures—the recession led to the closure of low productivity plants, thus automatically raising the average productivity level of the survivors. The analogy with a batting average has sometimes been drawn—if the tail-enders are not allowed to bat, the average, though not of course the total, score is likely to be higher.