Developing Firm-Level Micro Data for Productivity Analysis

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Developing Firm-Level Micro Data for Productivity Analysis

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Summary

In collaboration with ONS, we developed and conducted the Management and Expectations Survey (MES), the largest-ever survey of UK management capabilities. Conducted in 2017, the survey revealed the substantial heterogeneity of management capabilities across UK businesses and their strong correlation with productivity. We are running a second wave in Autumn 2020, providing longitudinal data on UK firms’ management practices, their expectations and business performance measures. The MES provides a rich new resource for policymakers and researchers to better understand how management practices affect business performance both in manufacturing and, uniquely, in the services sector.

Overview

Low productivity is possibly the most important challenge that the UK economy faces because it affects the living standards we can sustain. Against this background, the disappointing productivity record of many UK businesses has provoked significant concern amongst policy, academic and business communities. The factors contributing to this picture remain the subject of debate. Much can be learned from careful investigation of firm-level micro data. Indeed, many of the central questions in the productivity debate are impossible to answer without detailed firm-level data. Our objective is to contribute to the evidence base by developing tools that allow us to produce firm-level measures of UK firms’ management practices, uncertainty and forecasting ability and that allow us to improve understanding of the causal relationships between management practices and productivity.

This study is carried out in collaboration with ONS researchers, including at different times Anna Ardanaz-Badia, Gaganan Awano, Russell Black, Ted Dolby, Emma Hickman, Josh Martin, Jenny Vyas and Philip Wales. We have developed a survey of UK businesses (the MES), which will provide longitudinal and internationally comparable information on firms’ management practices and expectations. Using linked information from administrative data and other ONS surveys, this allows us to explore the causal relationships between management practices and productivity, including the role of management in determining business responses to uncertainty and Covid-19. We augment the evidence on business responses to Covid-19 using information gathered from business websites, news and earnings reports. The MES also forms the basis for a set of randomized control trials to study the effects of management training on firm behaviours; this part of the project is being carried out in collaboration with Be the Business. We explore the factors that affect staff satisfaction and performance using information gathered from employee reviews of their employers.

This study is funded by the ONS and the Economic and Social Research Council (ESRC). ESRC support is via their investment in “Transforming Productivity, Management Practices and Employee Engagement” and the UKRI Covid-19 projects.

Methods

In 2017 we developed and conducted the UK Management and Expectations Survey (MES) in partnership with ONS. This was executed on a population of 25,000 firms across different industries, regions, firm sizes and ages. The MES was a voluntary survey of businesses with ten or more employees, covering both the production and services industries. The MES questionnaire built on the experience of the US Management and Organizational Practices (MOPS) surveys run by the US Census Bureau in 2010 and 2015 on around 50,000 US manufacturing establishments. Based on responses to questions concerning problem resolution, employment practices and the use of key performance indicators and targets, we retrieved a management score for each firm via an identical methodology to that used in MOPS in other countries, facilitating international comparison. The MES also collected information on firms’ subjective expectations of their turnover, expenditures, and employment using a ‘five-bin’ scale, as well as their expectations of future growth in UK real GDP. We will be running a second MES survey in the Autumn of 2020 and will be comparing results to other countries. The longitudinal survey provides a unique opportunity to analyse the relationship between firms’ management practices and their responses to major economic change.

Impact

Raising productivity is one of the government’s key priorities and is core to UK industrial strategy. The analysis drawn from the MES2017 has been disseminated through the policymaking communities; it has helped formulate policy recommendations and ultimately shaped a successful bid for an ESRC grant to carry out MES2020. The final datasets will be made available to researchers, to further expand on this research.

The Industrial Strategy White Paper 2017 called for a review of actions for improving the productivity and growth of small and medium-sized businesses. The Business Productivity Review: Call for Evidence in Spring 2018 referred extensively to our analysis, and later that year the Chancellor of the Exchequer announced a package of measures to support business to boost skills and growth. With reference to the Business Productivity Review, these included measures to improve the management practices of UK businesses.

Our study is being developed in liaison with policymakers and business bodies through our Business Engagement Group, including colleagues from Be the Business, The Behavioural Insights Team, the Department for Business, Energy and Industrial Strategy, the Chartered Management Institute, the Confederation of British Industry and McKinsey & Co.

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