Competition and the dispersion of labour productivity amongst UK companies

Based on a sample of 140,000 UK companies over the period 1989-93, this paper finds a wide dispersion of labour productivity across firms. Some dispersion is transitory: amongst surviving companies there is regression towards the mean and dispersion falls over time. However, there are significant differences between sectors in the extent of dispersion, e.g. in manufacturing it is around 40% lower. A possible explanation is greater competition in manufacturing. A role for competition is also suggested by the finding that surviving companies which were initially below the mean improve their performance more rapidly than those initially above the mean.