IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Login to save this paper or follow this series

Long and short-term effects of the financial crisis on labour productivity, capital and output

  • Nicholas Oulton
  • María Sebastiá-Barriel

The behaviour of labour productivity in the United Kingdom since the onset of the recessionin early 2008 constitutes a puzzle. Over four years after the recession began labourproductivity is still below its previous peak level. This paper considers the hypothesis thateconomic capacity can be permanently damaged by financial crises. A model which allows afinancial crisis to have both a short-run effect on the growth rate of labour productivity and along-run effect on its level is estimated on a panel of 61 countries over 1955-2010. The mainfinding is that a banking crisis as defined by Reinhart and Rogoff on average reduces theshort-run growth rate of labour productivity by between 0.6 and 0.7 per year and thelong-run level by between 0.84 and 1.1 (depending on the method of estimation), foreach year that the crisis lasts. A banking crisis also reduces the long-run level of capital perworker by an average of about 1. The effect on GDP per capita is about double the effecton GDP per worker since there is a long-run, negative effect on the employment ratio.

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: http://eprints.lse.ac.uk/48926/
File Function: Open access version.
Download Restriction: no

Paper provided by London School of Economics and Political Science, LSE Library in its series LSE Research Online Documents on Economics with number 48926.

as
in new window

Length: 55 pages
Date of creation: Jan 2013
Date of revision:
Handle: RePEc:ehl:lserod:48926
Contact details of provider: Postal: LSE Library Portugal Street London, WC2A 2HD, U.K.
Phone: +44 (020) 7405 7686
Web page: http://www.lse.ac.uk/

More information through EDIRC

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

as in new window
  1. Broadberry, S. N. & Crafts, N. F. R., 1992. "Britain's Productivity Gap in the 1930s: Some Neglected Factors," The Journal of Economic History, Cambridge University Press, vol. 52(03), pages 531-558, September.
  2. Reinhart, Carmen M. & Rogoff, Kenneth, 2010. "Growth in a Time of Debt," CEPR Discussion Papers 7661, C.E.P.R. Discussion Papers.
  3. Hughes, Abigail & Saleheen, Jumana, 2012. "UK labour productivity since the onset of the crisis — an international and historical perspective," Bank of England Quarterly Bulletin, Bank of England, vol. 52(2), pages 138-146.
  4. Perron, P, 1988. "The Great Crash, The Oil Price Shock And The Unit Root Hypothesis," Papers 338, Princeton, Department of Economics - Econometric Research Program.
  5. Faccini, Renato & Hackworth, Christopher, 2010. "Changes in output, employment and wages during recessions in the United Kingdom," Bank of England Quarterly Bulletin, Bank of England, vol. 50(1), pages 43-50.
  6. Goodridge, Peter & Haskel, Jonathan & Wallis, Gavin, 2012. "UK Innovation Index: Productivity and Growth in UK Industries," CEPR Discussion Papers 9063, C.E.P.R. Discussion Papers.
  7. Mauro Giorgio Marrano & Jonathan Haskel & Gavin Wallis, 2007. "What Happened to the Knowledge Economy? ICT, Intangible Investment and Britain's Productivity Record Revisited," Working Papers 603, Queen Mary University of London, School of Economics and Finance.
  8. Carmen M. Reinhart & Kenneth S. Rogoff, 2009. "This Time Is Different: Eight Centuries of Financial Folly," Economics Books, Princeton University Press, edition 1, volume 1, number 8973.
  9. Jordà, Òscar & Schularick, Moritz & Taylor, Alan M., 2011. "When Credit Bites Back: Leverage, Business Cycles, and Crises," CEPR Discussion Papers 8678, C.E.P.R. Discussion Papers.
  10. Furceri, Davide & Mourougane, Annabelle, 2012. "The effect of financial crises on potential output: New empirical evidence from OECD countries," Journal of Macroeconomics, Elsevier, vol. 34(3), pages 822-832.
  11. M. Hashem Pesaran, 2004. "Estimation and Inference in Large Heterogeneous Panels with a Multifactor Error Structure," CESifo Working Paper Series 1331, CESifo Group Munich.
  12. Dan Ben-David & Robin L. Lumsdaine & David H. Papell, 1998. "Unit Roots, Postwar Slowdowns and Long-Run Growth: Evidence from Two Structural Breaks," NBER Working Papers 6397, National Bureau of Economic Research, Inc.
  13. Valerie Cerra & Sweta Chaman Saxena, 2007. "Growth dynamics: the myth of economic recovery," BIS Working Papers 226, Bank for International Settlements.
  14. Carol Corrado & Charles Hulten & Daniel Sichel, 2009. "Intangible Capital And U.S. Economic Growth," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 55(3), pages 661-685, 09.
  15. Carmen M. Reinhart & Kenneth S. Rogoff, 2010. "From Financial Crash to Debt Crisis," NBER Working Papers 15795, National Bureau of Economic Research, Inc.
  16. Barnes, Sebastian & Price, Simon & Sebastia Barriel, Maria, 2008. "The elasticity of substitution: evidence from a UK firm-level data set," Bank of England working papers 348, Bank of England.
  17. Corder, Matthew & Weale, Martin, 2011. "Banking crises and recessions: what can leading indicators tell us?," Discussion Papers 33, Monetary Policy Committee Unit, Bank of England.
  18. Nickell, Stephen J, 1981. "Biases in Dynamic Models with Fixed Effects," Econometrica, Econometric Society, vol. 49(6), pages 1417-26, November.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:ehl:lserod:48926. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (LSERO Manager)

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.