Bank of England’s Ben Broadbent: UK productivity is not as bad as it looks
The weakness in productivity growth in the UK may not be a sign of something inherently wrong with the economy, but could be due to more subtle changes in the jobs market, the Bank of England’s deputy governor for monetary policy said today.
Productivity normally grows each year, but its stagnation since the 2008 financial crisis and economic recovery has led to repeated calls for a government policy response to address the so-called productivity puzzle.
However Ben Broadbent believes a part of this puzzle can attributed to the firing and subsequent hiring of low-skilled workers leading to a bias in the figures.
The low-paid and low-skilled were the first to go during the financial crisis, he explains, but were also the first to be hired once the economy began picking up.
This is standard recession-recovery behaviour, but was more pronounced during the most recent episode. It can cause measured productivity growth, the change in output per worker per hour, to appear worse than actual productivity growth.
He said the laying off and subsequent hiring of low-skilled workers “has imparted a bias to average pay and productivity growth – upwards in the recession, downwards in the past couple of years – over that period.”
To some extent weakness in productivity “has had nothing to do with existing jobs but instead reflects the skew in the creation of new jobs towards relatively less productive, less well-paid roles there would be no real-wage resistance, among existing employees, to overcome," he added.
Immigration may have also played a part. “When the UK economy grows faster than its neighbours, as has been the case over the past couple of years, you’d expect to see greater inward migration and a disproportionate rise in the supply of low-skilled labour in particular,” Broadbent said.