UK Economic Performance: How Far do Intangibles Count?

This paper is concerned with the link between productivity growth and the increasing importance of intangible assets. A growing literature suggests that the standard production function, consisting of capital and labour, is inadequate in accounting for modern changes in productivity. Knowledge intensive intermediate inputs and own-account production, often netted out or ignored in earlier studies, have an increasingly important role to play. Existing work on intangibles is typically performed at the national level. Here, we discuss the definition and construction of occupational measures of intangibles for UK firms. Specifically, we argue that the human capital component of intangibles is substantial and thus construct occupationally defined measures of R&D, ICT and organisational capital based on the earnings of workers engaged in the production of these goods. Using a variety of micro datasets for Great Britain, we estimate firms' intangible assets and include these in a growth accounting exercise for 1998-2006. Our findings point to a strong association between a firm's performance and a firm's investments in intangible capital. We find that firms investing in one type of intangible asset tend to invest in other types of intangible assets too. Our findings indicate that overall, intangibles account for around 0.4 per cent per annum of the growth in labour productivity in the industries considered. Our results reveal aggregate properties consistent with previous UK studies but offer an alternative, disaggregated means of measurement.