On the home front
But if all of the above factors relate to the difficulty of measuring productivity on a global basis, what are the specific issues relating to the UK?
Simon Ward, economic adviser to Janus Henderson, says productivity in the UK has lagged comparable countries for many years, but this has been particularly acute since the global financial crisis.
He says: “In the 15 years to 2019 (that is, before the pandemic), UK output per hour grew at the second slowest rate among the G7 (Italy was the slowest).
"The UK’s underperformance predated the Brexit referendum; indeed, UK productivity growth over 2016-19 was close to the G7 average.
"The underperformance over this period is probably partly explained by a differential impact from the financial crisis, given the greater importance of financial services for the UK economy."
Because financial services are a bigger part of the UK economy than those of peers, a sharp decline in financial services output during the global financial crisis impacted the UK more.
But the impact of a recession that ended more than a decade ago would usually be expected to have washed out of the data by now.
What is different this time?
What may be different this time is that in the aftermath of the financial crash, financial institutions were barred from engaging in certain business activities that were lucrative and looked productivity enhancing until they crashed, while also being required to employ more people in compliance roles.
Because compliance people have a role that essentially involves preventing unproductive activities occurring, the productivity of compliance staff is harder to measure in the traditional way.
Davies fleshes out the numbers further, saying: “From 2009-19, output per hour worked in the UK grew at 0.42 per cent a year, compared to 1.01 per cent in the US, 0.95 per cent in Japan and 0.79 per cent in Germany. Among the G7 economies, only Italy fell below the UK for productivity growth.”
He adds: “The fact that there was a clear downward break in UK productivity growth relative to other advanced economies in 2008 suggests that the long-term impact of the financial crash had a particularly severe effect on growth in the UK, because of our greater reliance on the financial sector to drive the expansion of the entire economy in the decade before the crash.
"However, there are other obvious reasons why the UK has decelerated, including persistently lower investment in the non-financial services sector and manufacturing sector, compared to other countries.
