UK falls further behind as productivity dips
The Chancellor had some rare good news in April this year when it was revealed that productivity had increased in the second half of 2017 - but much of that progress has now been undone.
Productivity - the output per hour worked - fell by 0.4 per cent in the first quarter of 2018. After a decade of stagnation, Britain is now over 23 per cent behind its pre-recession productivity growth trend.
Why does this matter? Because productivity is the driver of higher wages and better living conditions. It’s partly why wages are still yet to recover from the crash, and why people are feeling the pinch.
The ‘productivity puzzle’ has troubled academics and policymakers for over a decade now, with lots of competing explanations. If the problem is hard to get your head around, consider this: a French worker could take Friday off and still produce as much as worker in the UK. For a long time the problem was blamed on a ‘long tail’ of unproductive companies in sectors with high rewards unrelated to ‘real’ output - think financial services and banking.
That’s what the Bank of England reckoned. But this analysis has been panned by others, including the Centre for Cities - they think the key is to focus on building up exports. The Labour Party agrees.
Rebecca Long-Bailey, Labour’s Shadow Business Secretary, slammed the government’s approach to the problem, accusing them of being more concerned with saving their party from internal splits than providing a real industrial strategy:
“Today’s productivity figures again confirm that the Government’s lacklustre industrial strategy and the way that they have casually ignored the voices of unions and business during Brexit negotiations is severely threatening Britain’s economic future.
Improving productivity is essential in order to increase wages and living standards, so rather than hosting shambolic cabinet squabbles in the countryside, the Government should be prioritising industry and household incomes.
There is no sign of the UK closing the productivity gap with other G7 economies such as France, Germany and the USA. The Government is failing the people of this country.
Labour’s Industrial Strategy will provide the real investment, direction and confidence that businesses and workers are lacking, improving productivity and creating an economy that works for the many, not the few.”
The NIESR put forward another explanation last year: it’s because of housing. House prices in the UK are so high, that a significantly larger amount of investment goes into housing than in most other countries. The flipside of that is that business investment is low. So not only is the rigged housing market keeping homeownership out of the reach for most and empowering dodgy landlords, it’s also eating into your pay packet.
It’s a puzzle that needs to be solved, and quickly.