UK Productivity Conundrum

The data today from the ONS confirm the deterioration in UK labour productivity. The release notes:

UK labour productivity on an hourly basis was 12 index points (equivalent to 11 percentage points) lower than the G7 excluding the UK in 2010. This is a little lower than the shortfall on a per worker basis, reflecting lower average hours in the UK than other G7 countries, particularly the USA and Italy. However, the UK's shortfall on this measure has increased by six index points since 2006, reversing a long period over which the shortfall had narrowed. And the productivity shortfall has widened against all other G7 countries since 2006. On a per hour worked basis the productivity gap, in 2010, between the UK and the USA was at its widest since 1995 (24 index points) though it is smaller than the gap on a per worker basis.

The deterioration is clear from the chart below, which compares GDP per hour worked for several key G7 countries to the UK = 100. The series starts from 2003 so that we can bring Scotland's UK relative into the picture.

The deterioration does appear to have started in 2006. But it appears to have worsened since the Great Recession began, although in 2010 there was a relative improvement. Scotland's improvement relative to the UK seems to be mainly the result of the recession. The 2006 start suggests it is too simplistic to blame the recession on the UK's relative productivity deterioration, although the ONS cites UK GDP change as a factor in productivity change:

All G7 countries, including the UK, experienced growth in GDP per worker in 2010, reflecting a bounce-back from the global recession in 2008 and 2009. ... All of the G7 countries demonstrated positive growth in GDP per hour worked in 2010. The UK growth in GDP per hour worked resulted from a combination of a fall in average hours worked per worker .... and an increase in GDP.

But output change apart, the reason why the UK's relative productivity performance has deteriorated since 2006 remains something of a conundrum.

Comments

[Julia]

Brian, Have you seen the discussion of productivity in the February BoE Inflation Report?