The productivity crisis in the UK
This is not mainly an AD crisis:
The latest jobs numbers out Wednesday morning show the British economy continues to generate good jobs growth. Yes, unemployment also rose, but that’s only because more people were coming back into the workforce — generally a good thing.
These employment numbers would normally offer at least some explanation for why inflation has been persistently sticky above the Bank of England’s 2% target. Except that none of the price pressure is coming from wages, which continue to trend down, and overall economic growth has been flat.
These conflicting forces — strong employment, poor GDP growth, sticky inflation — are in part reconciled by Britain’s terrible labor productivity. The most recent data showed that output per hour worked for the whole economy declined 2.4% during the third quarter of last year from the same period a year earlier.
That is from Alen Mattich. He offers one possible hypothesis:
…[it] reflects a deeper restructuring of the economy from high value added financial services and oil production (deceptively so in the case of financial services) to generally lower value added activities. Productivity might be poor because the economy’s new activities are actually old ones–retail, distribution, low value added manufacturing.
On the new budget, Martin Wolf has interesting comments, mostly it won’t matter.