For a few years now the ONS has been going beyond its traditional measures of productivity to look at how individual firms are performing. In this blog Sumit Dey-Chowdhury explains how these data, updated today, are produced and what they tell us about changes in the UK economy.
“Productivity isn’t everything, but in the long run, is almost everything”, said the Nobel winning economist Paul Krugman in 1998. That insight feels as relevant today as three decades ago, but monitoring what causes productivity to change remains as challenging as ever.
This is where looking at productivity at the firm level can provide broader new insights, including by understanding whether an economy has become more or less dynamic over time. By looking at our survey and administrative data sources, we can shine a light on how individual businesses are performing. Doing so allows us to identify the types of firms that typically have stronger productivity growth, and the sectors which have become less dynamic over time. In our Trends in UK Business Dynamism and Productivity statistical bulletin, we take stock using the latest microdata.
Productivity and business dynamism
In simple terms, productivity measures how much output an economy can produce with its resources, such as labour and capital. We can construct a measure of labour productivity at the firm level – how much output a worker in a business has produced. By tracking this over time, we can see how much more or less that average worker can produce today compared with the past.
Utilising microdata enables us to go beyond changes in average productivity, as we can see how the distribution of productivity growth across firms has changed.
We can also look at business dynamism, which matters for productivity. It reflects the rate at which jobs and resources are being reallocated across firms. We measure this by tracking how many jobs have been created by new and expanding firms, and how many have been destroyed by closing and shrinking firms. In a dynamic economy we should expect the less productive firms to contract and close. This frees up resources that can be reallocated to more productive firms.
The latest insights
Today, we publish updated firm-level productivity findings using the latest Annual Business Survey, and business dynamism insights from the Longitudinal Business Database – for the first time including measures of dynamism by industry. We’ve also built an interactive dashboard so users can explore these business dynamism statistics in detail across firm size, age and industry.
Today’s release shows the long-term trend of slower productivity growth since the financial crisis is continuing. Businesses of all types, from the least productive to cutting-edge ones, are improving more slowly than before. Although there are big differences in the productivity performance between firms, it is the “average firms” which have seen the largest slowdown of all.
Business dynamism also remains subdued. Our new industry statistics show that dynamism was lower in 2024 than in 2001 across every sector, and more jobs were lost from firms closing than created by new firms starting up.
Microdata matters
These insights can only be identified by analysing the firm-level information from business surveys and administrative data. But the value of microdata usage in the ONS is not confined to analysis. It is key to production too, where improving quality and restoring confidence in our economic statistics is at the heart of our Plan for Economic Statistics. Using business microdata, we can assess the consistency of what businesses are telling us about their output, employment, and investment, and how that affects the quality of economic statistics.
We are progressing our development of Linked Employer-Employee Data using Pay As You Earn Real Time Information. This will provide a deeper understanding of economic dynamism by measuring how workers move between firms, and support quality improvement in labour market statistics. We are also exploring how to bring together other sources of firm-level administrative and survey data, to build a richer picture of the economy and inform the continuous improvement of economic statistics.
Sumit Dey-Chowdhury is a senior economist at the ONS.