Britain's productivity slump

Now that Gordon Brown thinks he's in charge of national security as well as the economy, it's worth pointing out that, in one important regard, the latter has not done so well under his stewardship.
This chart shows the five-yearly growth rate in output per worker. The rate has been steadily trending downwards in recent years. Productivity has grown 6.6% in the last five years, compared to 11.7% in the five years before immediately before Brown became Chancellor.
That comparison is a little unfair, as productivity was boosted in the early 1990s because the economy was coming out of recession; because firms hoard labour in a downturn, output per worker falls in recessions but rises in recoveries.
What isn't unfair, though, but is really surprising, is that productivity growth now is lower than in the early 1970s, when the economy was - legendarily - held to ransom by bolshy unions.
You can easily read this as a sign that increasing public sector employment and regulation are doing more damage  now than unions did in the 70s. A more generous reading, though, would be:
1. Growth in output per worker is depressed by the increase in part-time employment. Output per hour has grown a little better than output per job in the last five years - by 7.5% compared to 6.6%. However, even this measure is much slower than the 2.15% annual rate the Treasury foresees for future productivity growth (table A2 of this pdf). Which raises the question: where will this productivity pick-up come from?
2. Increased employment means jobs have been found for less productive workers. That depresses average productivity.
3. We're living through a (long) adjustment phase. Firms installed lots of new equipment, much of it IT, in 1999-2002, but have not yet worked out how to maximize its potential, and workers are wasting time (for example by blogging) whilst they find out how to do so. Eventually, perhaps, productivity will accelerate.   

Comments

[Tim Worstall]

Much as I like to hammer on El Gordo I think there’s some truth to the last. Much of the US burst of productivity growth seems to be being attributed to US firms having worked it out.

Having negative productivity growth in the public sector isn’t helping though.

[Tim Worstall]

The other thing I wonder about IT is, is this a one off boost? Will we get a few years of fast growth then see it level off? Or will learning how to use IT properly lead to a permanent boost in the possible level of growth?

[Alex]

1/2 are interesting and probably true. The sort of jobs created in the mid-90s that sucked up a lot of the mass unemployed - call centres, essentially - are hardly productivity-rocking. That's also, in essence, why they are so readily exportable - it's almost economic empty calories.

3 - well, we hope. I wonder to what extent workers wasting time blogging (also known as learning, cooperating and such) is actually beneficial and whether the stats capture that?

[angry economist]

Is this productivity for all sectors? or just manufacturing?

The reasons for crap productivity performance are many - CEP at LSE do a lot of good papers on this. One of the interesting findings is that in certain industries, there are some very high productivity businesses, followed by long tails of lower productivity ones.

I posted an article on productivity issues and possible policy responses on my blog (see link below comment) a while back.

Interestingly too, there might be of productivity which some may not like - e.g. tesco making productivity gains whilst wiping out local shops and business ownership.