The shortfall has persisted for many years and is often attributed to relatively low levels of investment, offers the ONS, but adds that the various factors advanced for the UK’s poor performance do not explain it fully. Stephanie Flanders, who was BBC economics correspondent, and The Economist magazine have a go, citing low wages as central.
Writing in June 2013 (the puzzle is not new, after all), Flanders cites the Centre for Economic Performance (CEP) (http://is.gd/8h4IMA), which says workers have priced themselves into jobs. It is all rather simple, she explains: “Companies have hired more people than usual because they have been a lot cheaper than usual, and also a lot cheaper than the alternative [investment].”
Ploughing a similar furrow, The Economist wrote in March this year that although productivity is higher in other countries: “Britain’s workers are a bargain all the same, because their pay is so pitiful.” It also notes a ready supply of cheap labour from within the EU – in 2012, Britain absorbed eight immigrants per 1,000 inhabitants, more than twice the EU average, it says. And lower wages are the other side of the coin to the UK’s surprisingly low lay-off rates during the recession, as compared with America, The Economist further states.
So, how to boost UK productivity? The CEP plumps for improvements to credit markets, investment in human capital (education, training and skills) and fiscal expansion, “ideally through greater public investment in infrastructure, housing and schools”. The Economist additionally offers that investment in skills and infrastructure is “the best bet for boosting it [productivity]”.
Chancellor George Osborne’s March budget laid out several “reforms to boost UK productivity”, including investment in skills and infrastructure. And his recent spending review will “prioritise spending in areas that drive productivity and growth”.
The puzzle answered, a solution offered and relevant political action signalled, then? A matter of scope, scale and duration for the latter, of course. But let’s hope we can solve the puzzle by making it disappear soon, although eight years of below trend growth will take several years of above trend progress to counter, no doubt.
This article was published in the August 2015 issue of Machinery magazine
