My real fear about the UK productivity puzzle

by on February 9, 2013 at 12:04 pm in Current Affairs, Economics | Permalink

…Britain’s economists are also puzzling over why the economy remains moribund even though more and more people are in work. There are still about half a million fewer people working as full-time employees than there were before the 2008 crash, but the number of people in some sort of employment has surpassed the previous peak. Economists think the rise in insecure temporary, self-employed and part-time work, while a testament to the British labour market’s flexibility, helps to explain why economic growth remains elusive.

That is from Sarah O’Connor’s excellent FT piece about working for Amazon in their warehouses.

prior_approval February 9, 2013 at 12:15 pm

‘My real fear about the UK productivity puzzle’

Is still obscure.

Unless it concerns strict enforcement of rules eliminating such ‘flexible’ forms of insecure employment, perhaps brought about through a strong labour presence.

Bill February 9, 2013 at 12:17 pm

Should have read: “My real fear about the UK austerity puzzle.”

TMC February 9, 2013 at 7:01 pm

should they try it

Bill February 9, 2013 at 8:26 pm

Must be, then, that their politicians misled them, no, into believing they had austerity (ask those who were laid off, or whose tuition increased), or is it perhaps when austerity doesn’t work, some say: You never tried it.

Just can’t please anyone.

TMC February 10, 2013 at 5:00 pm

“that their politicians misled them” Can’t imagine THAT happening. Unfortunately spending stats do not support the ‘austerity’ claim. At least when a recognizable definition of austerity is used.

ant1900 February 10, 2013 at 12:43 am

Bill has vapid post
No evidence, no surprise
Just stop commenting

ant1900 February 10, 2013 at 12:47 am

That’s 5-7-5; unfortunately, I didn’t get the line breaks right.

Bill February 10, 2013 at 10:38 am

ant1900, That’s not all you didn’t get right.

This column talks about the benefits of austerity in England…and it failed; then it turns and blames declining productivity, when productivity is partially based on using resources (fixed costs) more efficiently based on higher aggregate demand.

I am happy to point out the obvious to those who choose to ignore it.

You are not the audience, as they would say in the advertising or marketing trade, and, ant1900, I don’t care what you think and will not be deterred.

john pesonna February 9, 2013 at 1:28 pm

To the extent that Amazon is shipping your books, they are also paying high end knowledge workers.

Nylund February 9, 2013 at 2:06 pm

The last 10 years have probably left much of the working world with the feeling that things can fall apart at any moment. Maybe a decent current position does not create a feeling of confidence in the future like it once did.

In essence, everything “good” is considered temporary, not permanent. Think of the basic PIH model. A windfall of cash, like a lottery winning, results in only a small bump in current consumption as that windfall is distributed through the future in the typical “consumption smoothing” manner. The flip side is that something like a wage increase is considered permanent and leads to a larger current increase in consumption as that income rise is projected to continue in future years.

Given the multiple dip recessions, the crisis of 2007, people’s retirement accounts going kablooey, etc. There really isn’t anything anyone considered a “permanent” increase anymore. It’s all temporary. A new job isn’t as different from winning the lottery as it was once thought to be since that job may end up being quite short-lived should the country dip (yet again) into recession.

So, if all gains are considered temporary gains, even if for somewhat irrational psychological reasons, you won’t see the bump in consumer spending behavior you may have previously when optimism regarding the future was higher.

Just a rough idea…not fully thought out.

anon February 9, 2013 at 8:22 pm

everything “good” is considered temporary, not permanent.

We never own anything forever, we are only renting.

Li February 9, 2013 at 2:09 pm

How about – the native, high IQ, high-productivity population is aging out of the workforce and being replaced by lower skill, lower IQ, less productive immigrants.

Britain is undergoing a demographic transitions and transforming itself into a dumber, poorer country.

Therapsid February 9, 2013 at 2:21 pm

Did you get the sense that the people interviewed in the article were mostly non-native?

“Like almost everyone without a job in Rugeley, a mostly white working-class town of about 22,000, Chris Martin started scouring the internet for application details as soon as he heard Amazon was coming…”

If immigration was the principal issue, rather than simply one of many factors, we should see a bifurcation between countries like the UK with high numbers of non-European immigrants and European countries that still have only tiny percentages of non-whites.

HBD is largely correct but it’s also a lazy excuse for high IQ whites who have in recent decades become less industrious and innovative. There are more than enough high IQ people to produce the level of innovation that their ancestors did.

ladderff February 9, 2013 at 2:30 pm

There are also plenty of high IQ people getting paid to make sure the other high IQ people don’t produce or innovate anything.

There is no puzzle. I understand that Tyler’s paycheck depends on his pretending that there is a puzzle. But there is no puzzle.

Mario February 9, 2013 at 2:27 pm

While I think the first part of your idea is possible (in general), high-productivity workers would be aging out of the system regardless of the level and quality of immigration, so the net effect of increased immigration would still be positive, in terms of both total productivity and general welfare, no matter the skill level of the immigrants.

john personna February 9, 2013 at 3:02 pm

Do you suppose Tyler ranks ethnic restaurants by the IQ of the wait-staff? If not, why not? Surely you are telling me that their productivity (and the experience of the meal) is gated by race and IQ.

Anon. February 9, 2013 at 5:57 pm

Don’t see that as a plausible explanation. The brain drain from the rest of Europe is mostly directed toward London.

JonF February 9, 2013 at 3:26 pm

Re: While I think the first part of your idea is possible (in general), high-productivity workers would be aging out of the system regardless of the level and quality of immigration,

And the younger people are somehow not as productive? Why? Again, assume a region (or country) with relatively little immigration whose work force is largely made up of people whose ancestors have lived in the general vicinity for generations. Why would they (quite suddenly) be less intelligent/productive than their ancestors? Especially given that modern technology provides the tools for them to be more productive?
I don’t think there’s a demographic for this conundrum at all.

Mario February 9, 2013 at 10:50 pm

You’ve misunderstood. I was accepting the premise that the older generation was more productive to make a point about immigration under that scenario, I wasn’t arguing in favor of that premise.

Careless February 12, 2013 at 2:47 pm

We’ve been selecting for stupidity and incompetence for a couple of generations now. Being able to use birth control=low fitness in a country where your kids won’t be allowed to starve.

Bill February 9, 2013 at 3:32 pm

Your comment really makes a lot of sense. The dramatic change in immigration policy in the last three years means….what, there was no change…never mind.

Jack Cunningham February 9, 2013 at 5:42 pm
GW February 9, 2013 at 6:39 pm

Add in all of those parents whose family financial planning has been suddenly thrown a loop by the introduction of 9K GBP in fees per year for their children in higher education.

ChrisA February 9, 2013 at 8:32 pm

Reading the article I am struck by the sense of nostalgia the writer has for the days of coal mining. Surely working in a warehouse is infinitely better than working in a coal mine? I know which one I would prefer. And why the concern over performance managing people – every single business tries to do that. And a concern over a job that requires physical activity while at the same time bemoaning the lack of “traditional” industries? There are far too many humanities students writing for the FT.

The GDP/Employment puzzle seems fairly obvious to me as well, it is clear that the huge fall in profitability of the financial sector and fall in oil output is the main cause. Both these sectors of the economy are high profit per worker industries, so GDP has fallen but overall there is a rise in employment. There is not a lot in the short term that the Government can do about this. In the long term we will see a growth in new industries to replace these ones, which is what seems to be happening. Arnold Klings recalculation hypothesis applies here, investors (aka as capitalists) are trying to see where the new growth areas are, part time workers fit into this approach better than full time workers. Part time workers will then turn into full time workers. NGDP can help here by lowering real interest rates, causing quicker investment in the new sectors, but this will take time (mostly I am in favour of NGDP because it is simpler than inflation targeting and removes some of the central bank discretion – thus it will have long term effects mainly).

To believe that there is no new industries or services that the UK can move into to replace oil and gas and financial services is just too pessimistic given the history of the UK over the last 200 years. Think of the huge sectoral changes that it has already gone through many times over just in the last 50 years. We can’t know what the new industries are but it doesn’t mean that they don’t exist. We are most unlikely in my view to be living at peak innovation.

Richard February 9, 2013 at 11:57 pm

Decline in oil and gas output is a big factor but how much the financial sector was contributing to productivity growth is way overstated.

anon February 9, 2013 at 8:38 pm

Our small business has used Ransdtad (mentioned in the article) to fill positions using temp to perm, but each temp has a 90-day limit at which point they must be hired or you try another temp.

Last time we used Randstad this way it took us 2 tries before we found a fabulous colleague – who had been unable to find work because he didn’t have a college degree. We offered him a permanent position after 4 weeks.

The Randstad fee was worth every penny.

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