Thursday 20 February 2014

UK productivity gap with G7 economies even wider than first thought

The Office for National Statistics this morning published its latest estimate of how labour productivity in the UK compares with the other major industrialised economies (the G7).      

We know UK labour productivity has been dire since the start of the recession. We now know our relative performance is even direr than first thought. Output per hour worked in 2012 was 21 percentage points below the average for the G7 major industrialised countries – the widest ‘productivity gap’ for two decades – while output per worker was 25 percentage points lower. Moreover, even though the UK economy has recovered since 2012 there is no evidence to suggest that the productivity gap is likely to have narrowed, leaving the UK still staring up the international productivity league table.

According to the ONS output per hour in 2012 was 3 percentage points lower than in the pre-recession year of 2007 and would have been a whopping 16 percentage points higher had the pre-recession rate of growth been maintained. Though some of this latter growth may have been ‘illusory’ in that it was propelled by an unsustainable boom, the UK economy clearly needs in particular a strong resurgence of business investment in order to both start closing the productivity gap and to trigger a rise in real wages for people in work.   

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