A tale of two cycles:closure, downsizing and productivity growth in UK manufacturing, 1973-89

This paper uses the ARD, the new longitudinal database of the Census of Production, to analyse productivity at the establishment level in the two cycles of 1973-79 and 1979-89. Contrary to a commonly held view, closures did not play a major role in accounting for productivity growth in 1979-89. Establishments which exited had lower productivity than survivors but the exits were replaced by entrants which also had low productivity. Most of productivity growth was due to growth within survivors. The greatest gains occurred in the 36 establishments employing 7,500 or more in 1979; these accounted for a third of productivity growth amongst survivors. Most productivity growth occurred in establishments which downsized employment. But despite an overall fall of a quarter in employment, 16% of productivity growth occurred in establishments which expanded employment. The main difference between 1973-79 and 1979-89 was in the productivity growth rate amongst survivors. In 1973-79, it was negative overall and over half of employment was initially in establishments where productivity fell.