Is the urgent overtaking the important? Structural economic problems deserve more attentionby Simon Kirby, Amit Kara / May 10, 2017 / Leave a comment
There are many pressing issues related to housing, health, education and our new relationship with the European Union that will dominate the policy debates until 8th June. Political parties will aim to win over voters quickly with messages on these emotive subjects. But amidst the urgency there is a genuine risk that we lose sight of the most pressing structural questions facing the UK economy—questions concerning labour productivity and living standards.
We at the National Institute of Economic and Social Research are highlighting this issue as part of our effort—with the Nuffield Foundation—to ensure that public debate in the run-up to the vote is informed by independent and rigorous evidence.
The UK has a poor record on labour productivity—particularly since the start of the financial crisis. It is not alone; most advanced economies suffered a sudden and sharp drop in labour productivity during the crisis period, but have yet to see much, if any, bounce back. What is striking about the UK performance is that we started with a large productivity deficit against our competitors before the crisis and that gap has got wider since then.
To put this in perspective, the latest official data for 2015—the most recent data we have on this subject—shows that G7 workers were on average producing some 15 per cent more output than UK workers. Another way to assess our productivity performance is by comparing productivity today with a pre-crisis average trend. Had UK productivity performance from 2008 to 2015 matched its pre-downturn trend, labour productivity would have been much higher in 2015: the figure is in excess of 15 per cent. The UK is the worst performer of any G7 economy on this metric. The poor productivity performance of the past decade has been a puzzle for economists and is yet to be fully understood.