Trends in UK business dynamism and productivity: 2025

• Workers in firms at the 90th percentile of firm-level labour productivity produced 3.5 times more output than workers in firms at the median of the distribution in 2023; this is higher than the pre-2008 global financial crisis average of 2.9 times.

• The net job creation rate in 2024 was 1.4%, with underlying gross job creation of 10.6% and gross job destruction of 9.2%.

• Business dynamism measured by the job reallocation rate was lower in 2024 than 2001 in every industry.

• The mean price markup was 1.3 in 2023, the joint-highest with 2021 since the data series began in 1997.

This bulletin presents firm-level estimates of labour productivity, measured by approximate gross value added (aGVA) per worker in real terms (2023 constant prices).

Figure 1 shows how the distribution of aGVA per worker across firms has evolved between 1997 and 2023. This distribution is employment-weighted, which means that firms with more workers occupy a proportionally larger share of the distribution.

Labour productivity has increased overall, with the mean aGVA per worker growing at a compound annual growth rate (CAGR) of 0.9% over this period. The median, which is unaffected by outliers and represents a "typical" firm, increased at a slower CAGR of 0.5%. The mean growing faster than the median indicates that productivity growth has not been uniform. The gap between high and low productivity firms has widened because the 90th and 10th percentile of the employment-weighted distribution grew at different rates (0.9% and 0.6%, respectively).

Changes in labour productivity were smaller in 2023, following a sharp fall in labour productivity in 2020 during the coronavirus (COVID-19) pandemic, and a strong recovery in 2021 and 2022. The median of employment-weighted aGVA per worker rose by £1,000 (2.6%) between 2022 and 2023, while the mean fell by £1,000 (1.6%). This decline coincided with lower business dynamism and profit margins in 2023 (see Section 3: Business dynamism and Section 4: Market power).

Figure 2 compares two distributions of labour productivity:

• firm-weighted, which represents all firms contributing equally to the distribution

• employment-weighted, where firms with more employees have a greater influence

Labour productivity is unevenly distributed across firms and workers: both firm-weighted and employment-weighted distributions show a positive skew, with the majority of firms having aGVA per worker lower than the mean. In the firm-weighted distribution, half of firms had an aGVA per worker of £31,000 or less in 2023, while the mean aGVA per worker was £51,500.

Both measures of aGVA per worker were higher in the employment-weighted distribution, with a median aGVA of £39,500 per worker and a mean aGVA of £63,000 per worker. Workers sorting into more productive firms indicate positive allocative efficiency in 2023. This reflects gains in overall productivity from the concentration of labour in firms that generate higher output per worker.

Figure 3a shows the 90th and 10th percentile ratio, which compares productivity in the most and least productive firms. This ratio remained broadly stable before the coronavirus pandemic but widened substantially afterwards, narrowing briefly in 2022. It increased again in 2023 as productivity gains among the most productive firms coincided with declines among the least productive firms.

Figure 3b presents the 90th and 50th percentile ratio, which measures the gap between the most productive firms and those at the median aGVA per worker. Dispersion increased slightly overall in 2023, which was caused by services, while manufacturing continued its longer-term trend of narrowing dispersion.

Figures 4a and 4b show changes in labour productivity across the labour productivity distribution. Figure 4a presents the average annual change in aGVA per worker, while Figure 4b shows average annual (log) growth rates. The figures compare periods before and after the 2008 global financial crisis (GFC), as UK productivity growth has been slower in the years following the crisis.

Growth in aGVA per worker was weaker across almost all percentiles after the GFC. Figure 4b shows that the annual change in aGVA per worker between 2008 and 2023 was stronger in the tails of the distribution, particularly above the 60th percentile, with little to no growth around the median.

Figure 4b measures productivity changes in rates rather than levels, which shows that the average productivity growth rates of firms below the 40th percentile were similar to those above the 60th percentile. However, growth rates are negatively correlated with percentile rank in the bottom half of the distribution and positively correlated in the top half. Both remain below their pre-GFC averages.

Business dynamism can be measured as the rate at which jobs are created and destroyed. Jobs are created by existing businesses ("incumbents") growing and by new businesses entering the market. Jobs are destroyed by incumbents shrinking or exiting the market. Business dynamism can support productivity growth if entering and growing businesses have higher productivity than shrinking and exiting businesses.

The reallocation rate is an overall measure of business dynamism, summing job creation and destruction as a proportion of total employment in the previous year. This measure provides an indication of the gross job flows in an economy at a point in time.

Figure 5 shows that the reallocation rate declined slightly in the year to 2024 by 0.8 percentage points to 19.8%. This was the result of a decline in job reallocation among incumbent firms growing and shrinking, as job reallocation from entering and exiting firms was almost unchanged on the year. The job reallocation rate over the past 15 years has remained stable but at a lower level than the period before the GFC.

Figure 6 shows the net job creation rate: job creation by expanding incumbents and entering businesses minus job destruction by shrinking incumbents and exiting businesses. The net job creation rate was 1.4% in 2024, with an underlying gross job creation of 10.6% and destruction of 9.2%, which was slower than in 2022 and 2023.

The majority of net job creation came from job creation by entering businesses exceeding job destruction by exiting businesses between 2012 and 2019. This has reversed since 2023, with exiting businesses destroying more jobs than entering businesses are creating jobs. An increase in the rate of job creation by expanding incumbents resulted in positive net job creation. Figure 7 shows the entry and exit rates of businesses each year, which correlates with our understanding of what has been supporting job creation and job destruction over time. The business exit rate was 14% and the entry rate was 12.6% in 2024, the second successive year that exit rates exceeded entry rates.

Tables 1 and 2 show the contributions to overall job creation and destruction rates from four firm age and four firm size groups for 2024. Large old firms and micro new firms together contributed nearly half of total job creation and over a third of total job destruction.

This year we have introduced analysis of business dynamism by industry. Reallocation (job creation and destruction) rates for an industry are calculated using that industry's employment from the previous year as the base. Table 3 shows that accommodation and food services; arts, entertainment, recreation, and other activities; administration and support services; and real estate activities were the industries with the highest reallocation rates.

Across all industries, entering and exiting businesses contributed less to reallocation relative to incumbents.

Figure 8 shows that, in 2024, the reallocation rate of every industry was lower than at the start of the series in 2001, reflecting the lower dynamism of the economy overall since the GFC. There is variation across industries in how large the decline in reallocation rates was, and how they have changed since the GFC. Seven of the 17 industries had a higher reallocation rate in 2024 than 10 years earlier in 2014.

Figure 8: Across most industries, job reallocation rates are lower than before the 2008 global financial crisis

Job reallocation rates by industry, whole economy, UK, 2001 to 2024

Notes:

1.  Industry classification is based on SIC07 section letter. "Mining, quarrying & utilities” combine sections B, D and E. “Arts, entertainment, recreation and other activities” combine sections R, T and U.
2. Industry job reallocation rates are calculated as the ratio of jobs reallocated in the industry in period T over total industry employment in period T minus 1.

Download the data

Market power refers to the ability of businesses to set prices in excess of costs. A business with high market power can restrict output to maximise profits, by setting prices in excess of costs.

Market power can be measured by price markups or approximated by profit margins. Profit margin is estimated from reported data as profit divided by gross output. Price markups are measured as the ratio of price to marginal cost. 

This bulletin measures markups using a version of the method set out in the Loecker, JD, Warzynski, F (2012), 'Markups and firm-level export status', American Economic Review, Volume 58, Issue 6, pages 2437 to 2471. This method infers price-cost margins from production data rather than directly observing prices or marginal costs. Markups exceeding 1.0 imply price exceeds marginal cost and provide evidence of market power.

Figure 9 shows that the mean markup in the non-financial business sector increased from 1.1 in 1997 to 1.3 in 2023, returning to a record high first experienced in 2021. Markup growth over the period was concentrated at the top of the markup distribution. The ratio between the 90th percentile and the 50th percentile markup increased from 1.5 in 1997 to 1.7 in 2023. Similarly, the ratio between the 90th and the 10th percentile increased from 1.9 in 1997 to 2.2 in 2023.

Figure 10 shows the mean profit margin in the non-financial business sector increased from 13.0% in 1997 to 14.2% in 2023. The median profit margin decreased from 9.1% to 8.5% in the same period. Increases in profit margins were concentrated at the top of the distribution, as shown by the ratio between the 90th percentile and the 50th percentile, increasing from 4.2 in 1997 to 5.7 in 2023. There was a small decrease in the mean profit margin, from 14.8% in 2022 to 14.2% in 2023.

Figure 11 shows the relationship between price markups and firm labour productivity. By controlling for firm-specific characteristics and economy-wide trends, the model captures how changes in productivity within a firm relate to its markup. Markups rise with productivity up to about £300,000 per worker. For most firms in the UK (94%), which have an approximate gross value added (aGVA) below £150,000 per worker, the relationship is positive.

Allocative efficiency

In general, allocative efficiency is the broad economic concept of how well an economy directs its resources, such as labour and capital, toward its highest-value use. In our application, allocative efficiency refers specifically to the extent to which employees sort into the most productive firms.

Approximate gross value added (aGVA)

The Annual Business Survey (ABS) provides information on turnover and intermediate purchases, which can be used to estimate businesses' approximate gross value added (aGVA). It is a measure of the income generated by those surveyed, minus their intermediate consumption of goods and services used up in order to produce their output.

Business dynamism

Business dynamism refers to the ongoing process of firm entry, exit, growth and reallocation of resources that continually reshape the structure of the economy. It captures how quickly and effectively resources shift toward more productive firms.

Job creation, destruction and reallocation

Job creation refers to the employment created when firms enter the market, re-enter after a period of inactivity lasting at least a year, or when existing firms expand. Job destruction refers to the employment destroyed when existing firms contract, exit the market, or become inactive for a period of at least a year.

The sum of job creation and destruction is the reallocation rate, or "churn". This measure gives an indication of the labour reallocation that is occurring at a point in time.

Entry and Exit

Entry is measured as firms enter the market or re-enter after a period of inactivity lasting at least a year. Exit is measured as firms exit the market or become inactive for a period of at least a year.

Labour productivity

Labour productivity is calculated by dividing output by labour input. For this bulletin, we measure output by aGVA and the labour input by number of workers in the firm.

Marginal cost

The marginal cost is the cost a firm must pay to produce one more unit of its output. In a perfectly competitive industry, a profit-maximising firm will choose an output such that the marginal cost is exactly equal to the price its product commands in the market.

Markup

This bulletin measures markups using a version of the method set out in the Loecker, JD, Warzynski, F (2012), 'Markups and firm-level export status', American Economic Review, Volume 58, Issue 6, pages 2437 to 2471. In this method, intermediate inputs serve as a flexible input whose output elasticity is compared to its revenue share. The ratio of these two terms provides an estimate of the firm's markup. In this bulletin, intermediate consumption is used as flexible input.

Markups can provide a measure of the market power of a firm. A markup equal to one implies price is equal to the marginal cost and, therefore, the firm has no market power. A markup above one implies price exceeds marginal cost, which indicates market power.

However, since markups can also be the result of upfront investments (firms may need to charge mark-ups to cover fixed costs) or input market frictions. Markups, therefore, need to be evaluated together with other measures to establish changes in market power.

Non-financial business sector

A subset of the whole economy that excludes large parts of agriculture, all of public administration and defence, publicly provided healthcare and education, and the financial sector.

Non-financial market services

Businesses within the sectors of:

• retail

• administrative support and services

• transport and storage

• accommodation and food

• information and communication

• real estate

• professional, scientific, and technical.

Output per worker

Employment figures for output per worker are sourced from the business survey and administrative sources, and so are unaffected by ongoing challenges with the Labour Force Survey (LFS).

The employment measure we use for aGVA per worker was unaffected by furlough during the coronavirus (COVID-19) pandemic. Furloughed workers were still classified as employed in this measure. However, aGVA was affected by factors such as reduced sales during lockdowns and furlough payments. This affects the level and growth rate of our labour productivity measure during and after the pandemic, including year-on-year growth rates in 2023.

Profit margin

The profit margin is an accounting measure of the profitability of a firm. It is computed by dividing a firm's pre- or post-tax profit by its revenue. In this article, we use pre-tax figures when we describe profit margins.

Estimates for firm-level labour productivity and market power are derived from the Annual Business Survey (ABS). The ABS combines data from the Annual Business Inquiry (1997 to 2008), the Annual Business Survey (2008 to 2023) and the Northern Ireland Annual Business Inquiry (1997 to 2023). This represents the largest Office for National Statistics (ONS) business survey in terms of the number of respondents and variables it covers. The ABS covers the non-financial business sector only, which excludes businesses from the following industries:

• farms in section A (agriculture)

• all of section K (finance and insurance)

• section O (public administration and defence)

• the government components of section P (education) and Q (health)

Business dynamism results are derived from the Longitudinal Business Database (LBD), which is a linking infrastructure constructed using the Inter-departmental Business Register (IDBR). The LBD provides longitudinal business microdata at a quarterly frequency. The business dynamism results presented in this bulletin are based on the annual LBD. The annual LBD is derived from the quarterly LBD by selecting Quarter 3 (July to Sept) IDBR data for most years, apart from 2002, which uses Quarter 4 (Oct to Dec). This is done to capture the annual updates in firm employment.

Firm age is a strict measure of the time in which the business is substantively active to an extent to qualify for inclusion as an active enterprise on the IDBR. If a firm becomes inactive for more than a year and then reactivates, the age counter is reset to zero. Firms that reactivate after a year may have two different age measures at two different points in time. In 1999, the first year of the LBD, the age of firms with existing birthdates are calculated as the difference between their birthdates and 1999. For enterprises without birthdates, the age counter starts at zero.

More information about the ABS can be found in our ABS Quality and Methodology Information (QMI).

Further information about the LBD can be found in the Economic Statistics Centre of Excellence's The UK Longitudinal Business Database technical report.

The measures presented in this bulletin have previously been published as analytical articles. These articles provide more detail on the background and methodology for these measures. See Section 8: Related links.

Strengths and limitations

Firm-level labour productivity

Estimates are weighted to be representative of workers in the non-financial business sector. First, the sample is weighted to be representative of the whole population of UK businesses, using survey design weights based on the IDBR. Then each business is additionally weighted by its workforce size, for example, a factory with 1,000 workers has 200 times more weight than a small workshop with five workers. However, note that an employment-weighted distribution of firm-level outcomes is not necessarily the same as the average outcome across all employees in the population, because of the within-firm dispersion in the outcome variable.

Results are also presented on a constant price basis, with a base year of 2023. Following the implementation of double deflation we use implicit price deflators calculated from the gross domestic product (GDP) output accounts, as described in our Double deflation and supply and use framework in the UK National Accounts article. The price deflators were calculated at the lowest level of industry aggregation used in the national accounts, which is mostly the two-digit Standard Industrial Classification (SIC) level.

Business dynamism

The annual LBD, derived from the quarterly LBD, uses two consecutive annual snapshots to establish true longitudinality. Like the quarterly LBD, the annual version uses unit-specific filters to build a clearer picture of the active business population for all units of the business structure.

The UK Business Register and Employment Survey (BRES) is the primary source of employment in the IDBR. Though BRES captures the annual employment dynamics, its use introduces a one-year lag, as the updated employment is reflected in the following year in the IDBR. The BRES also does not survey all firms every year. For firms that are not surveyed on an annual basis, the employment is not updated every year.

Since the present version of the LBD only takes the IDBR as its input, very small businesses that are not VAT registered or have no employees are not included. Businesses are not required to register if their annual turnover falls below the VAT threshold, which was £90,000 in 2024. Because of this, many self-employed workers are excluded. Nonetheless, businesses on the IDBR represent roughly 98% of turnover and 88% of employment. For information, see the Department for Business and Trade's Business population estimates for the UK and regions 2025: statistical release.

Correction between the 2024 and 2025 publications

A change in methodology was applied to fix an issue related to enterprise active status, where in some cases adding new yearly data retroactively altered a firm's active status. The impact affected employment figures from 2006 onwards, resulting in an average drop of 0.0001% in employment. This edition resolves the problem but, as a result, introduces differences compared to the previous edition. Between 2001 and 2023, the annual firm count increased by an average of 0.063%, and annual employment rose by 0.02%.

Market power

Capital stocks are not available at the firm level. They are constructed through the Perpetual Inventory Method (PIM) based on deflated capital expenditure values in the Annual Business Survey (ABS), and starting capital stocks from the national accounts, apportioned to the firm based on employment. Missing investment values are imputed based on a firm's own average investment, and where this is not possible, based on that of similar firms.

To compare quantities across years in real terms, we apply GDP-implicit price deflators. These deflators are calculated at the lowest level of industry aggregation in the national accounts. Typically, this is the two-digit SIC level. As a result, estimates in this article are given in constant price terms, with 2023 as the base year.

We apply the frequency weights that are computed as part of the construction of the ABS and ABI. This ensures that the sample is representative of the business population at large. Additionally, we weight firm-level markups by employment.

Official statistics in development

These statistics are labelled as "official statistics in development". Until September 2023, these were called "experimental statistics". Read more about the change in the guide to official statistics in development.