UK productivity lagging behind main competitors

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Workers at Bombardier’s Derby plant rally to save their jobs
Workers at Bombardier’s Derby plant rally to save their jobs

ONS figures show widening gap with US, Germany and France

The UK’s productivity fell back last year compared with its major competitors, according to research by the Office for National Statistics (ONS).

The productivity gap with the US soared by nine percentage points in 2010 compared with 2006 to leave the gap the largest since 1994, said the ONS.

Between 2009 and 2010, the proportion of national income created by each worker per hour leapt in France, Germany and the US while it remained stagnant in the UK. Only Italy and Japan saw productivity per hour fall, though Japan closed the gap with the UK slightly.

US productivity per hour worked was 23 percentage points higher than the UK while Germany and France were ahead by 18 and 16 percentage points respectively.

Economists said much of the malaise affecting British productivity since 2008 was due to the response of employers in the downturn, who hoarded workers in the hope of quick exit from recession and return to full production.

In the first six months of last year, the optimistic outlook appeared well founded, but a marked deterioration in the UK’s growth in the last six months of the year undermined the tactic.

Those countries where employers shed workers at a faster rate than they cut production were able to boast higher productivity.

In the US, companies and state employers made millions of workers redundant in the wake of the banking crash to leave unemployment higher than 9%.

In France and Germany, firms also shed workers, though unlike the US, many workers were transferred to state-run employment programmes, which had the effect of raising productivity and limiting the growth of unemployment. It is estimated – to reach US productivity levels – unemployment would be in excess of 3.5m in the UK for companies and public sector employers.

Howard Archer, chief UK economist at IHS Global Insight said steep cuts in investment after the 2008 Lehman crash might have done lasting damage to the UK.

“There is serious and rapidly mounting pressure on the government to come up with more reforms and measures to boost business investment and productivity given the economy’s current softness and the lack of scope for fiscal stimulus,” he said.

“However, productivity could be adversely affected if the public sector spending squeeze leads to significant infrastructure problems.

“Productivity could also suffer if extended economic weakness leads to a growing number of workers being out of a job for an extended period and their skills being diluted,” he concluded.