UK labour falls in productivity

Ben Southwood
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PRODUCTIVITY in the UK slumped between 2007 and 2011, data from the Office for National Statistics (ONS) revealed yesterday.

The three per cent fall in output per worker since the onset of the recession has driven an increasingly large productivity wedge between the UK and the rest of the G7 group of developed economies – the widest since 1995.

Output per hour was 15 percentage points below the average for the G7 excluding the UK – and output per worker was a full 20 percentage points below the average of its major competitors.

Though the UK’s productivity growth lagged Japan, the US and Canada, the ONS noted that it was “similar to [growth in] other European economies.”

Overall in 2011, all the G7 countries except for Japan and Canada produced more than the UK with each hour worked. Japan produced 10 per cent less and Canada produced almost exactly the same.

Germany, France and the US each produced around a quarter more than the UK per hour of labour time, while Italy produced four per cent more.

One explanation for poor productivity growth is the UK’s surprisingly positive labour market situation – the least productive workers are usually recruited last, meaning that average productivity tends to go down as employment figures rise.

But despite the recent uptick in job figures, employment is still two per cent lower than in 2007.

The three per cent fall in output per worker over the four-year period is deeper than any other G7 member barring Italy.

In the Bank of England’s Monetary Policy Committee minutes released yesterday, the committee suggests that firms are increasing staffing to boost capacity – because investing in physical capital, such as machines, is costly to reverse.

But this means each worker has less equipment and cannot work as effectively.