Chris Dillow highlights the flipside of the excellent employment figures: alongside still disappointing levels of GDP, they indicate a sudden loss of productivity. After touring through some popular explanations -an absence of bank credit, technological slowdown, a delayed return of entrepreneurial vim – I enjoy how he settles on a Mazzucato-like observation about exactly when productivity boomed; spoiler alert, it wasn’t during the small government phase.

I would also question how real is the fall in productivity. A more graph-strewn post may follow one day when not typing on a mobile. But real productivity ought to be a slow moving variable. People don’t suddenly lose their brains, infrastructure or capitalist institutions. We suffered some obvious real hits -declining oil production, the financial sector – but not 10% GDP worth.

 I think productivity is a residual. It’s what you get when you divide (weak) overall GDP through by (strong) labour numbers. If you can explain each side, you explain productivity, without the angst about our losing our way.

I think you can. 

 

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3 thoughts on “Productivity slumps, real or apparent

  1. Politicians making energy rarer and more expensive.
    A fall in unit productivity.

    If only economics was a sufficiently advanced science to be able to say what causes the latter.

  2. Still pondering the fall in productivity, I think there maybe something there in improvement of services. I just rented a car at Heathrow and was struck by how improved the service was, there were shorter waiting lines and someone showed me to my car. All of which took more people compared with the crappy service I experienced in the past. GDP measurement would only take into the amount paid by me, so although I was more satisfied by the service, measured productivity would show a fall. This is probably a result of sticky nominal pricing. The car hire firm faced a potential fall off in demand due to the 2008 to 2010 recession. They could react by reducing prices or increasing services, both really equate to the same thing, but increasing services avoids lowering nominal prices. Fortunately for the increasing service option, there were plenty of unemployed people. So wages are not rising, prices are not falling, but services are improving in quality, hence the solution to the productivity puzzle. Why did this happen this time but not in previous recessions? Perhaps UK service industry took the improving services option because services in the UK were so poor. Or perhaps the internet helped, maybe ironically price transparency allows large firms easier coordination on pricing, so as prices converge service companies look to compete on services.

    1. I think the service nature of our economy might be a big part of the picture – particularly if a significant chunk of staff being retained are about the firm keeping its market position for an eventual upturn. These staff – marketing, “surplus” customer service, etc – show up as unproductive, until the sales return. As you suggest we also have service improvements, continually – I can’t tell if they have been any better in aggregate.

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