Productivity Growth in the Small Firm Sector in UK Manufacturing.

This thesis analyses the performance of the small firm sector in UK manufacturing, focusing on productivity growth, technological change and innovation. The natural starting point for the study is a consideration of the observed differences in firm sizes. Here, the thesis reviews the economic literature on the size and growth of firms focusing on 'Gibraf s Law'. The review concludes that while the law has reasonably validity for larger firms it breaks down among smaller enterprises and that the small firm in industrial sectors needs to be considered as both complementary to, as well as competitive with, its larger counterparts. The analysis of the performance of the sector begins in chapter 3 with an analysis of the growth of output, employment and labour productivity by size class for the period 1973-2002 both for total manufacturing and for the textile, food, paper, chemicals, electrical and transport equipment industries. The results show that the share of employment of the sector has increased over time, but that this as occurred at the same time as a fall in labour productivity relative to large firms. These are examined in chapter 4. The findings suggest that the higher growth rate of labour productivity in the large firm sector is related to the relative growth of capital intensity rather than any differences in rates of technological change between sectors. Chapter 5 adopts an alternative approach based upon the analysis of labour demand and the impact on employment of technological change. Econometric models of labour demand for total manufacturing suggest positive impacts on productivity for both measures. The model is supplemented by panel data, which shows more mixed results, possibly because the spillover effect is not well captured within industries. Chapter 6 seeks confirmation of the results in chapter 5 and further evidence regarding the sources of technology for small firms