UK Productivity

Interesting piece on UK productivity by Robin Marris in The Times. He thinks our productivity is catching up everyone else's. Here's an excerpt from his article:

The UK started in 1993 with a shortfall in performance of nearly 20 per cent and ended with a figure of less than 10 per cent. Notice that the UK line in the first chart not only grows more steadily than the other line, it also grows faster. The UK annual average growth rate from 1993 to 2005 was actually 2.1 per cent, compared with the corresponding G6 figure of only 1.5 per cent.

Of course, the “64 trillion dollar question” will be whether, if and when we catch up the others, our relative performance slows down. That will be the challenge of whatever government we have in office around the year 2020.

The chart gives a strong clue to the main reason for this modest success story — a single word: “stability”. When the present Government first took office in 1997, the statistics on which the charts shown here are based did not exist. But there was plenty of other evidence all pointing in the same gloomy direction, namely that in the field of productivity, Britain had a major problem.

In my opinion it is much to the Government’s credit that it showed early concern with it. As an early sceptic I must concede that the left-hand chart awards high marks to the Government’s subsequent performance. As can be seen, whereas our curve was steady, that for our G6 competitors was not.

It is well known that when markets droop, employers are initially disinclined to shed labour. They fear that if and when business improves, their good workers may be difficult to recover. Consequently, in a recession either working hours or working rates must be cut.

The resulting cyclical behaviour of apparent productivity is well known. When production falls as an economy slows, and companies hoard workers, the same staff are producing less output, so productivity slides.

Less clearly established, however, is the persistence of the effect. Productivity trends, once pushed back in time, are not easily recovered.

Consequently — though in so saying I eat not a few words — my first chart is a great vindication of all those people who have contributed to its story: the Chancellor, Gordon Brown; his chief lieutenant, Ed Balls; and the Bank of England’s Monetary Policy Committee under its brilliant chairman, my old tutorial pupil with whom I often disagree, Mervyn King.

The second chart on the right shows productivity per hour worked. We still have a way to go to catch up France, Germany and the USA, but our curve is steeper than theirs, which indicates the gap is narrowing and we can console ourselves that we are more productive than the Japanese.