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The productivity puzzle - real or imagined?

The productivity puzzle - real or imagined?

Wednesday, 28 May 2014
08:15 - 10:30
The Work Foundation, 21 Palmer Street, SW1H 0AD, London

Speakers

  • Jonathan Haskel, Professor of Economics at Imperial College Business School
  • Geraint Johnes, Director of the Work Foundation (Chair)
  • Charles Levy, Senior Economist, The Work Foundation

The Work Foundation hosted a breakfast roundtable event to explore the issues of the 'productivity puzzle' and to identify the most fruitful areas for action.

The context

Half a decade on from the onset of the credit crunch there is a widespread perception that the economy is finally picking up speed. But, while wage growth continues to lag behind inflation, living standards continue to fall. The modest revival in overall productivity is welcome, and the significant improvement in manufacturing is encouraging. However, this positive message is undermined by suggestions that improvements are driven by workers moving into more productive sectors, rather than improving performance. Stronger and broader overall productivity growth will be required in future if the economic recovery is to be sustained. Without an improvement in underlying productivity we can not expect to see a lasting improvement in the living standards of those in work.

There is a real risk that we are still thinking about and making decisions based on an out of date view of the economy. Many of the conventional relationships on which economists and policy makers have relied on for decision making for decades appear to have failed. Growth, employment and productivity have become uncoupled. Inflation does not appear to be driving wage demands. Economic growth is now strong, despite weak business investment. Why is this happening?

So far we have had a jobs-rich, productivity-poor recovery. What would be the implications of this continuing? Is this a plausible scenario for the UK? What would turn things around?

Perhaps the only thing that economists in this area have agreed in recent years is that productivity has defied forecasters. There have been many competing explanations for why in 2008/09 our economy shed far fewer jobs than would have been expected given the drop in output and why things have not bounced back. The relative significance of low interest rates, high profit margins, ‘zombie firms’, supply side factors, the size of the ‘output gap’ and more fundamental structural issues in our economy have been hotly debated. However, confusion remains around the causes of falling UK productivity, and the implications of this for policy to turn things around. This confusion is reflected in a very limited policy and political debate on how to drive long-term improvements in living standards.

This event was the first in a series of conversations  used to develop, demystify, and clarify the debate and to build momentum around potential solutions.

To find out more information about this event please contact  Sophia at The Work Foundation using the email address s.ghonim@lancaster.ac.uk

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