UK's Productivity Gap Narrows

Monday, December 10, 2018

New figures from the Organisation for Economic Cooperation and Development (OECD); published today suggest the ‘productivity gap’ between the UK and other economies including France, Germany and the USA is smaller than previously thought. The latest estimates follow a re-appraisal of how each country measures the number of hours worked.

Productivity growth or, more importantly the lack of it, has been one of the burning economic issues since the financial crisis. Many people have speculated on this so-called ‘productivity puzzle’: why has recent productivity growth been so low? However, there is a second and more established mystery around the UK’s productivity performance and that is why British productivity has historically lagged so far behind other developed countries; particularly the USA, France and Germany. This ‘productivity gap’ has long been a matter for speculation.

Historically each country has used the best data available to it, but the OECD’s working paper shows that, when using a more consistent method to compare total hours worked, the UK’s labour productivity improves significantly relative to other countries. For example, the UK’s productivity gap with the US would reduce by about 8 percentage points from 24% to 16% when adopting the simple component method approach.

However, while these new results are striking, the UK’s labour productivity still lags behind many of its largest international competitors. In addition, these improved figures don’t provide any explanation for why productivity growth has been so stubbornly low since 2008. So, while this analysis significantly narrows the ‘productivity gap’, the efforts to solve the ‘productivity puzzle’ and understand the rest of the ‘gap’ will continue.

To read more about this story and to see how the ONS intends to investigate how best to implement the OECD’s proposed approach to calculate workers and hours worked estimates read the ONS latest blog here.