This is weird in two senses.
First, it means that productivity is now significantly lower than it was in 2007. Such a prolonged fall is almost unprecendented. My chart shows that, except for the transitions to peacetime after the two world wars, we haven't seen a six-year long fall in productivity since the late 1880s*.
Secondly, it gravely weakens the most optimistic explanation for the post-2008 drop in productivity. We had hoped that this was due in part to labour-hoarding; firms hung onto skilled workers in the downturn in anticipation of needing them in the recovery. This theory, though, implies that productivity should now be rising as output recovers and hoarded labour is utilized more intensively. That it is not doing so suggests that there's some other reason for the productivity slump.
But what? There are several possibilities, including a slowdown in technical progress (pdf) and the possibility that the fall in bank lending is retarding the "external restructuring" that usually contributes so much (pdf) to productivity growth.
Although the productivity slump - like so many other issues! - doesn't get much attention from the political class, it matters enormously for the cost of living crisis. If productivity is falling then real wages can rise only if there's a fall in the share of profits in GDP or if there's a favourable change in the terms of trade such that import prices fall. The former is unlikely given the power of capital. And the latter should not be banked upon, especially if Iraq's oil supply is disrupted.
This poses the question: what can be done to raise productivity?
One possibility is that we should simply wait. Maybe, as MacAfee and Brynjolfsson argue, we'll see productivity surge once managers reorganize production to take proper advantage of digital technology. Or maybe the recent pick-up in business optimism will encourage firms to invest in productivity improvements; as Christopher Gunn points out, animal spirits can cause productivity changes.
But what if waiting isn't enough? What policy changes might raise productivity?
There's one answer here that isn't sufficient - deregulation. The data shows that during the free market era (1855-1914) output per worker grew by 1.1% per year, compared to growth of 2.1% during the social democratic period 1946-79. This tells us that the idea that free markets generate big productivity rises owes more to bigotry theory than to historical experience.
* The data comes from the Bank of England, updated from ONS sources.