An Occupation and Asset-Driven Approach to Capital Utilization Adjustment in Productivity Statistics

Most measures of productivity, especially multi-factor productivity, are pro-cyclical, due in part to a failure to account for variations in capital utilisation. The coronavirus pandemic caused a sharp decline in output and hours worked in most economies, but standard measures of capital input were largely unaffected. This motivates renewed attention on measuring capital utilisation. We propose an extension to the most common method, which uses variations in labour hours worked to proxy for variations in capital utilisation. By using only the hours worked of relevant occupations for relevant assets, we overcome a conceptual shortcoming of the standard method. We also introduce a conceptual framework to apply these adjustments, noting that not all assets will be subject to variation in utilisation to the same degree. We estimate our proposed method using UK labour market data, for 10 industries and the market sector aggregate, quarterly from 2002 to 2020. Our central estimate shows a decline in capital utilisation of around 9% in the UK market sector in the height of the coronavirus pandemic, recovering over half of this by the end of 2020. This subdues, but does not eliminate, the fall in MFP through 2020. However, the method produces less-promising results prior to 2020, particularly during the global financial crisis.