The British productivity gap

I have found that discussions of Brexit would be improved by considering the British productivity gap.  Often I hear talk that a Britain set free from EU strictures can pull ahead and overtake those countries, at least in terms of economics.  Yet a look at the historical record is sobering.

If you compare British productivity per labor hour, it is about thirty percent below the levels of France, Germany, and Ireland.  It is subpar before North Sea oil, during North Sea oil, and after North Sea oil.  It is well below par even when Germany is at or near full employment, so this is not mainly a composition effect resulting from Britain putting to work more lower-quality laborers and thus lowering their average.  It also tends to hold on a sector-by-sector basis, though of course not for finance.

In terms of productivity, Britain ranks below even Italy by these metrics, pre-crash too.  Don’t bother to ask about the Nordics.  The UK, however, does beat Japan.

You will note that this phenomenon is quite distinct from the recent, post-crash UK productivity stagnation, as it is a story about initial levels.  Before 1973, when Britain joined the then-EEC, the productivity gap was slightly larger than it is today.  In other words during its EU membership the country closed the productivity gap somewhat, though of course this may not be due to EU membership in any direct way.

There are various explanations for the British productivity gap, some of them involving education, or management, but I wonder whether these are explanations or mere restatements of the basic facts.

I’ll never forget the first time I visited the Netherlands in 1985.  I was in Dordrecht and reading through the comments of a guest book for a modest hotel.  The writer was British, and apparently was visiting the Continent for the first time.  He/she expressed shock at seeing that virtually everywhere in the Netherlands was a nice place, compared to the home country, much of which was not so clean and not so nice.  He/she lamented and apologized for this feature of Great Britain, and that is yet another way of expressing the productivity gap.

At least in some sectors, there are reasons to believe that the productivity gap dates at least as far back as the late nineteenth century, when Britain lost a good deal of ground to Germany.  The debate is murky, but it is wrong to think of this as a recent problem, try here and here.

As of late, the United Kingdom has punched far above its weight by (re)creating London as a service center and financial capital of most of Europe.  Post-Brexit, London indeed might keep this role, albeit in a probably diminished capacity, and there is some risk of London losing it altogether.  While there is a “Dutch disease” problem (sterling appreciation hurts other British exports), on net the success of London really does help pay the bills elsewhere.

In the meantime, it is not obvious that productivity miracles will be blossoming elsewhere in the British economy.


It is indeed a sobering thought — most of all for the Leave case — to contemplate the British productivity gap.


I question the "nice place" - productivity link, because of the US. Our productivity is pretty high, but we're nothing like northern Europe in terms of every place being pretty nice.

A great deal of the "nice place" extra money for the US is spent on things like (large, effective) clothes dryers in every house, larger houses, cars, and various things like that, including the energy to run them. (For example, the percentage of people in the lowest income quintile with a "full set" of appliances, defined by the Census Bureau as "clothes washer, clothes dryer, refrigerator, stove, dishwasher, and a landline or cellular phone" is similar to the percentage of European households that own a clothes dryer at all.)

You can, of course say that those sorts of nice things are not what you associate with "really" being a nice place, and strongly disagree with the Americans who travel to foreign countries and find certain comforts that they're used to small, shabby, and not working well, even as other things are done very well. (I would certainly include the UK, Japan, and Canada in such.) You can greatly prefer the things that the Northern European countries spend their money on (or are massively more efficient at-- in the case of public transport and public transport capital projects, the US spends as much as anywhere, just very, very inefficiently for a lot of reasons) and I won't blame you.

However, the measure of productivity is one measure of the possible. Simply because people from the USA have the wrong preferences from your point of view doesn't necessarily mean that having lower productivity doesn't reduce what is possible.

Do note that in a lot of these countries, the typical life is still a suburban life, which the US does very well. That other countries have nicer touristy or expensive city center areas is important, but not the only metric or even the metric for the average person.

Seems correct. In Germany, sorry for sounding a bit prior_ here, even rich people share clothes dryers in apartment blocks.

And to sound like myself, a surprising high number of Germans have several objections to clothes dryers - the first being that clothes don't last as long when dried that way (think fluff, and where it comes from), air/sun drying is considered superior in terms of 'freshness,' with the last major reason being that the energy used seems wasted, in general. (Most people find the combination washer/dryer system overpriced compared to its normal lifespan.)

There is also a general German element to this - being able to plan your laundry so as to take into account the time it takes to dry is just considered a basic skill, one that does not require spending hundreds of euros to take care of.

air/sun drying is considered superior in terms of ‘freshness,’

Apparently the miasma theory of disease still lingers deep within the German psyche.

Nope - as anyone who has experienced wearing the same clothes dried outside or in a dryer knows, there is a difference that can be recognized (unsurprisingly). Which of the two one prefers is a matter of taste, obviously.

Yes, we all know that anything Germans do can be explained away as "actually, when you really think about it, much better"

They're not too POOR to buy clothes dryers, they are just uniquely able to recognize that clothes dryers are unnecessary. And they happen to be poor, but it's not related.

You are completely eliding the enormous inconvenience of line drying and the many hours wasted. What if you are line drying and it rains? Oops. Want to wash clothes at night? Sorry, you can't. You actually have to plan your whole life around your line drying, plotting the weather, time of day, capacity of the line, clothes pins, etc. But I'm sure for Germans that is actually a fun hobby.

Well Prior when I am in Australia I dry my clothes outside, and when in Germany I dry them in the drier. The only difference I have noticed is that the ones done in the drying machine as less wrinkly.

In Germany, for long periods of the year, the choice is not between drying your clothes outdoors and in a drier, but between drying them in the drier or indoors somewhere.

This is the canonical p_a "Germany is superior" comment. Never before have we seen one this perfect, nor will we ever see the likes of it again!

Has it occurred to anyone that the numbers here might just be wrong? FRED has per-capita GDP data for the UK, Germany, Denmark, and many other countries (as a percent of the USA). The numbers are UK (82.59% for 2010), Germany (82.22% for 2010), and Denmark (83.20% for 2010), France (75.63% for 2010).

Of course, per-capita GDP isn't the same as real GDP per hour. However, does anyone really believe that the Brits works 23% more hours than Germans. Germany's LFP rate is quite high (for both sexes) and unemployment is low. Of course, German work hours per year are not that high. However, do Brits really work that much more than Germans? I doubt it.

Note that Wikipedia has much more believable per-hour GDP statistics. See "List of countries by GDP (PPP) per hour worked". However, even these numbers raise eyebrows. Is Canada really that much less productive than the USA (per-hour)?

An ancient computer expression is GIGO (Garbage In, Garbage Out).

Well, in 2005, according to the Penn World tables 7, the difference was even bigger: Germany's per hour GDP was 110% of the US and 130% of the UK. France's GDP per hour was 2% higher than Germany's as well. Over the past 10 years the US managed to close the productivity gap between Germany and France.

If you measure by real wages per hour the difference is even bigger: In 2012 PPP compensation costs per hour worked in manufacturing in Germany were 156% of the US's and 160% of the UK.

Correction: Germany's PPP hourly manufacturing compensation costs in 2012 were 133% of the US's and 149% of the UK.


The CIA World Factbook has PPP per-capita GDP numbers. They are Germany ($46,900 - 2015), UK ($41,200 - 2015), Denmark ($45,700 - 2015). USA ($55,800 - 2015). France ($41,200 - 2015). If Germany's per-hour output was really 110% of the U.S., Americans would have to work far more hours than Germans to have a per-capita GDP 19% higher.

The CIA World Factbook puts UK per-capita GDP 12% below Germany. If German per-hour productivity was really 29% higher, UK residents would still have to work far more hours than Germans.

This doesn't sound all that believable. Note that the BLS data does support some of the original claims. However, the BLS data only goes to 2011. The BLS data shows that productivity gap between the UK and Germany declining (slowly) over time. It also shows higher productivity per-worker (not per-hour) in the UK versus Germany.

Americans DO work a lot more hours than Germans!
Americans work about 1700 hours/year, Germans only work about 1400.

I'm not exactly sure of the point Tyler is trying to make here, but I would note that the US seems to have a lot of nice places, whereas Britain has a lot of very pretty small villages, a lot of dismal mid-sized cities, and then London. Really, as a young person in the UK, the only cities I would like to live in are London (but rents are a nightmare), Manchester, Edinburgh and maybe Cardiff (though I live there now so I'm biased).

Then again Germany's large cities also appear to be not that great.

Have you ever been to Germany? Berlin, Hamburg, Munich, Cologne, even Dresden and Leipzig are all great cities with lots of amenities/culture. Some of them offer great value for money. Unlike the UK, you have multiple urban areas which are thoroughly interesting.

There are other nice cities. Brighton, Bristol, Bath, Oxford, York, etc... I'd much rather live there than Manchester.

@Britonomist. True, these cities are quite nice (love Bristol). But they're also quite small. They mostly lack amenities like good museums, opera houses etc.

As someone who looks for hiking trails and Trader Joe's, I feel kind of lost on the whole opera thing.

Museums as amenities is one I never got. You can go to the British Museum for a day and see it all. You don't gain anything by moving to London and re-visiting every few months.

The British Museum in one day?! Come on.
And what about temporary exhibtions? Smaller galleries?

You can walk through the British in one day.
And you can listen to an opera in half time, if you speed it up.

Of course you can see the museum in one day, unless you're really interested in how Etruscans stored things in pots differently from how Attics stored things in pots.

Bristol ha about 500,000 people in it. 'Small' it is not.

I would rather take the train from Oxford to London on the weekend than drive into Chicago.

Forgot Bristol and Bath! I believe Oxford and Brighton have similar issues with rent to London?

Cambridge is also lovely but is being swallowed by the London housing boom.

Yes, it may or may not be so that places that the Netherlands is a clean and "nice" place generally.

But a straightforward connection to productivity would imply that Japan is not a clean / nice place, compared to Germany / France.

But of course it is.

Given the interest of other countries (most visibly France) in taking over London's role as a financial center, it's hard to see how the UK negotiates the trade terms it would need to retain that role. If London is keeping the UK "punching above its weight", they don't have very good leverage both to keep financial services and get the immigration concessions necessary to satisfy the Leavers.

London was a major financial center 'ere it joined the EU and New York and Chicago have managed to be major financial centers without ever having joined.

Time zones matter. Also, NY could be a major financial centre by virtue of the size of the US economy even if the entire rest of the world was banned from doing business with it.

Last week you were telling us that Zurich was a 'major financial centre'.

What's next? Utica, NY?

"Given the interest of other countries (most visibly France) in taking over London’s role as a financial center, ..."

It takes more than "interest" to be successful.

France is interested in becoming Europe's financial center much in the same way it is interested in being a premier military power--sounds nice in theory, but when faced with the opportunity costs the revealed preference is readily apparent.

Well put. France is interested in maintaining the self-illusion (I don't even think they really care if the rest of the world buys into the illusion which is France is a more pleasing place than external validation obsessed Germany) of being a world power/ financial center. Which is nice because frankly Austria and France are the two places on earth that have earned the right to rest on their laurels and a far more pleasant places when they are mired in complacency.

I agree it's a long shot due to the generally business hostile policies and attitudes, but keep in mind fully one quarter of quants worldwide are French (thanks to the importance of mathematics in the French educational system). While London is an easy sell due to its world-class culture and amenities, Frankfurt, er, less so.

London's a harder sell if you have kids or are not on $$$$$$$.

You'd be surprised about Frankfurt. I've found quality of life there extremely high. Opera, ballet, theater, museums are all excellent. It is surprisingly small, making it easy and quick to navigate and commute. The surroundings are very pleasant, including the famous Rhine valley. Generally pleasant weather. And of course it is much cheaper than London.

Regardless of any trade barriers the EU sets up, no bank in its right mind is going to move to Paris where it can be subject to the insane winds of French political opinion, including punitive taxes rates and regulation. If they leave London, they will be headed to more accommodating environs.

Hey Tyler -- Next year some time, when it becomes obvious that Britain leaving the EU is not the disaster you currently claim it to be, do you expect this will change your belief system at all?

Or will you just pull a Krugman, pretend you never wrote 100 posts about it, and find something else to doom-monger about?

I'm sure eurogeddon is still on schedule in Prof. Cowen's calendar. Particularly as any day is a reasonably precise term that can stretch out over years.

"Next year some time," Britain will still be in the EU.

British productivity should improve significantly when Scotland leaves, no?

Scottish productivity per capita is only around 4% lower than English productivity.

It's Wales and Northern Ireland that are the real laggards with productivity per capita 15%-20% lower than the English average.

One theory I have heard is it stems from the drinking culture. Looking around London, the pubs in any business area are packed from early afternoon on, and often at lunch too if it's nice out.

Could possibly explain Japan as well.

well, professional economists just can't figure out why this British 'productivity-gap' exists -- but they have been whining about it for years.

Labor Productivity is a prime area of theory & analysis in economics... and their are mountains of current data & statistics on the British labor sector and overall economy. Yet professional economists are unable to determine the cause or cure to this problem.

Of what value are professional economists to us ?

What is their labor productivity ? Is it rising or declining ?

'Over rated'

Drinking in Japan happens after normal working hours. I've heard from people who work at Japanese companies that a bigger premium is put on being in the office than on getting anything done, though.

Nope, all of northern Europe drinks heavily - from Ireland right across to Russia. Yet productivity varies widely.

But, apparently, what was earned in London mainly stayed there ...

'In other words during its EU membership the country closed the productivity gap somewhat, though of course this may not be due to EU membership in any direct way.'

Want to guess why the Japanese auto industry has such a large presence in the UK? First, some information from 2014 - 'However, Britain's long beleaguered auto industry is staging a big comeback. And it’s mostly due to some not-so English names: Nissan, Toyota and Honda.

Indeed, local production is forecast to hit an all-time high of 2.07 million vehicles in 2017. That exceeds the record 1.92 million from 1972 and is way up from just 999,460 in 2009. Last year, the UK produced more cars than France for the first time in decades: 1.51 million to France's 1.46 million.


The resurgence isn't thanks to homegrown brands. The engine for Britain's auto boom is actually the Japanese.

Nissan, Honda and Toyota each have plants there and account more than half the country's output. Nissan, the country’s top manufacturer, churned out half-a-million vehicles last year alone. Toyota was No. 3 in output and Honda was No. 5.

The second biggest was Land Rover [owned by Tata], while Mini [BMW] came in fourth.

It's difficult to overstate the Japanese impact.

When British car output was at its peak in 1972, there were no Japanese plants in the country at all. Now, output is nearing record levels, and the Japanese account for half that volume.

"The change that happened in the 1980s was that the UK became very much more open. You saw companies like Honda, like Nissan like Toyota coming in," Hawes said. "They brought with them some new ideas, some new ways of working, higher degrees of quality, different production processes."

Britain’s modern auto industry is a good fit for the Japanese in one big way – it is heavily export dependent. In fact, last year, 77 percent of all UK-built cars were shipped overseas.'

Anyone want to guess where most of those Japanese company made autos go to - and the they are made in the UK to begin with? Further, anyone want to guess what those Japanese auto companies are now planning that the UK may no longer have the same access to the EU common market?

None of this is obscure, to put it mildly - and the leave voters apparently cared nothing about one of the UK's last remaining selling points to international companies, which was membership in the EU common market. Specifically, in this case it means that any car produced in the UK and exported to anywhere in the EU is not subject to the long standing EU restrictions concerning imported Japanese vehicles (Japan, a non-member, gets all the benefits and privileges of non-membership, such as 'informal' import quotas starting back in the 1980s).

Most likely Poland, the Czech Republic and so on. That's one way to reduce Polish immigration: ship the jobs to Poland instead.

So the improvement in productivity in the UK is due to the influence of the *least* productive coun try in the G7? That what you are trying to say?

"He/she expressed shock at seeing that virtually everywhere in the Netherlands was a nice place, compared to the home country, much of which was not so clean and not so nice."

Is this a fair way to judge productivity? Whenever I've crossed the US Canada border, either the west and east side, I'm always shocked at how much cleaner and less shabby the Canadian side is. But statistics show the US is more productive.

The good parts of the U.S. don't want to be on the border with Canada, but the good parts of Canada do want to be on the border with the U.S., what does that tell you?

It tells you the weather gets worse as you go north of 45 degrees, duh.

What a lyrically nonsensical answer. For example, Montreal was undoubtedly sited so as to be closer to a then non-existent nation. While New Orleans was undoubtedly founded to be as far south from Canada as possible.

Let's just skip the reason that those two cities just happened to be sited on waterways that allowed both fresh and salt water transportation (to a certain extent, with each other), along with the amazing coincidence of having French names.

" For example, Montreal was undoubtedly sited so as to be closer to a then non-existent nation." Foresight is everything in the real estate game. Location, location, location.

I believe that this post and that fact tells me that you think that Canada should obviously favor greater political union with the US, far beyond NAFTA, for the same reasons as the UK should favor the EU. Furthermore, any Canadians who oppose such a thing yet are horrified by Brexit should at least try to reconcile their opinions and perhaps understand the other side.

About 90% of the population of Canada and all but about a half dozen cities (Prince George, Grand Prairie, Edmonton, Saskatoon, Halifax, St. John) are within a two hour drive of the border. Alberta and the Maritimes are the only provinces where the frontier of settlement encompasses most of the land area. Go a two hour drive from the border in the other direction and you're in Battle Creek, Michigan or about 15 miles east of Rochester, NY.

It's easier to find a warmer winter when you don't have to get a new passport to do so?

Having said that, I'd take Canadian winters over American cops and obnoxious pharma and political advertising any day.

We are smarter in one way; we put all our political advertising on one station that no one listens to.

I’d take Canadian winters over American cops

And since when do you know American cops from tiddlywinks?

Canadian winters are far more deadly. No one accuses Winter of discrimination, but I'd wager it target immigrants.

but I’d wager it target immigrants.

Not if you give them bus tickets to go to British Columbia.

Based on the % of Canadians living in the US vs. the % of Americans living in Canada, I'm pretty sure yours is a minority view.

1) there are eight states contiguous with Ca-the other 42 have to be somewhere else

2) please define 'good parts of the US' for us

3) please see TRNorth's comment @ 9:14 am

That its really damn cold if you go too much further north into Canada?

My default assumption is that on any policy question, Canada is smarter.

It's not perfect, but good for a first pass.

My default assumption is that on any policy question, Canada is smarter.

The land of Justin Trudeau is 'smarter'?

The folks in Davos thought he was smarter. Or they thought he was cool. Or whatever. I reflexively protected my wallet when I read that.

A Canadian person is a bit different than Canadian policy. We'll see how he charges outcomes, but from my casual awareness, no catastrophe yet.

The saving grace will be the lack of funds to actually do all the wonderful things they dream about.

At least that is the fond hope of Canadians.

Personnel is policy. Trudeau is working in an elite matrix wherein a critical mass of people thought it a grand idea to put a lapsed high school teacher (main specialty, drama) turned serial grad-school drop out in parliament and then in the party leader's position.. That's what peer review gets you in the Liberal Party of Canada. They were right about one thing, though. You couldn't sell an accomplished academic (Michael Ignatieff) to the public, but you could sell Justin Trudeau. The Canadian electorate appears to follow Roman Hruska's dictum that there a great many mediocre people in this world and they deserve a little representation in high office.

It's easier to make good policy when entrenched interests are basically unable to buy elections and must resort to actual argumentation of the societal benefits of the policies they propose.

And yet another caricature from you. It's been an education.

Ah, that explains the persistence of supply management, Canadian Content regulations, and other such trade restrictions on the behalf of Canadian cartels and duopolies.

The roads leading to border crossings in Canada are noticeably wider and better maintained than the roads leading to the US side. Once you get away from the border crossings, it isn't the same.

Probably something to do with the amount of commercial traffic going one way.

You clearly are just spouting things instead of knowing things.

The standards for roads in Canada are vastly inferior to those in the US and this is especially apparent as one goes across the border.

I say this as someone who has actually crossed the border thousands of times.

I'll show you one day if you like. It depends where of course, but the ones I see are on the Canadian side near towns but on the US side are unimportant rural side roads.

I’m always shocked at how much cleaner and less shabby the Canadian side is.

On the American side would be (1) Detroit and (2) the Buffalo exurbs. Not many cities were hit harder by the regional shift than Buffalo (and it was a sooty heavy industry town before that) and Detroit's core city has been run by the grossly incompetent since 1962.

Don't criticize Irishmen like former mayor Kilpatrick ;-)

Your previous effort was deleted and now you have to give everyone a reprise.

Yes, we noticed this; we didn't think our whining about sock-puppetry was really of much concern to the moderators. Well, just goes to shows: cuckservatives are indeed viewed as useful idiots to be humored by liberals from time to time.

Now if you'll excuse me, I have to do upbraid some evil non-movement conservatives who have noticed the racial aspect of the Dallas shootings. Hey, being a cuckservative means swallowing a lot of pride (as well as other bodily fluids).

Incompetent = Black, yes?

It's worth about as much or as little as any other isolated anecdote. You'd think an economist would know that.

If America had won the war of 1812 and successfully conquered Canada, what would the population of modern day Canada be? 5 million? Less?

I have a feeling that Toronto would be a small backwater like Buffalo, NY. Saskatoon would be as big as Fargo. Montreal would be as populous as Albany. Dozens of towns in the prairies just wouldn't exist.

Canadians are hemmed in by the US border. Given free movement and a single unified government, relatively few people would choose to live in modern day Canada.

Britains productivity isn't very different if it is in or out of the EU, so how does that inform the debate?

Showing that those blaming British problems on EU's regulatory Behemoth probably should look closer to home and spend more effort considering the beams in their own eye. Or at least asking themselves why Britain can't be more like Europe?

Why would Britain want to be more like Europe? They had their own vendor financed empire, it didn't work very well, and probably don't want to have anything to do with the fallout of Germany's.

On the flip side, if EU membership hasn't meaningfully solved Britain's problems, what's the point of staying?

From the productivity point of view, which admittedly is only one of many, it is probably indifferent (Brexentering was a mistake, as I have pointed out before, de Gaulle was right about, England's economy not belonging to the group). So much for the complaints about a dynamic Britain bound by the unreasonable eurosclerotic regulations.

Yes, UK productivity hasn't increased much in the last 20 years and there's no clear evidence that the increase is do to membership in the EU. So, it's hard to see how this information tells us much of anything.

Tyler is mainly making this point: (that the productivity gap is an economic drag)

"Often I hear talk that a Britain set free from EU strictures can pull ahead and overtake those countries, at least in terms of economics." The productivity gap won't be a help in this endeavor.

Really scraping the barrel here, Tyler.

Perhaps there is a critical period of development as economies are first undergoing rapid growth while urbanizing away from agriculturally production when enduring social-business norms can become established. As I recall Lester Thurow in his book Head to Head wrote about Germany in the 1800s luring factories and technicians away from England. Thurow was comparing that to what was possibly happening between East Asia and North America. (Though Hong Kong to Vancouver B.C. might eventually prove to be an interesting minor wrinkle.) Further back, in the earliest history of the formation of public corporations, there's an idea along the lines that members of rural England communities bought shares together financing one trading ship voyage at a time. Perhaps such crowd-funding (crowd-entrepreneur-"ship"?) might work early on to accelerate economic networks but comes at a cost later one when almost everyone tends to thinks of themselves as captains of industry instead of a deckhands. (Minor aside: "Eurosclerosis", from the nGram word frequency count, went as a term from zero in 1980 to it's peak in 1993 after which it was jagged then declined steadily and considerably. Is there somewhere a good review of whatever happened to Eurosclerosis?)

Hobsbawm doesn't say that Germayn so much "lur[ed] factories and technicians away from England", as that Germany took technologies that the UK pioneered and refined them. He adds that as the first in the market, the British had already invested in plant and methods that were suboptimal, but good enough when you are the industrial pioneer with no competition. There are disadvantages to being the first in any new field.

To some extent, Germany is still the master of refinement rather than innovation.

I wonder what the German economy will look like after Deutsche Bank collapses:

Depends - how easily and quickly the German government can nationalize it (at least those parts of DB within German jurisdiction) is the basic framework. Much of the practical framework has been put into place since the nationalization of Hypo Real -

Including, as was seen by Commerzbank's partial nationalization, the ability of the German government to remove top management - which seems to be major explanation for why DB management did everything in its power to avoid that happening during that turbulent period.

" I wonder what the German economy will look like after Deutsche Bank collapses"

In case of fire, break glass:

"As of late, the United Kingdom has punched far above its weight by (re)creating London as a service center and financial capital of most of Europe".

I think this is true. I know many smart Germans and Frenchies who went to Oxbridge/LSE etc, opting to work in the City afterwards (anecdotal mevidence, but still). So far London has been a huge magnet, getting some of the smartest graduates from the continent (for a variety of industries like finance, services, creative, academia etc.). We'll see if that continues.

Goldman Sachs just hired Barroso to advise them on Brexit. The FT quoted Barroso saying that London would remain a very important financial centre. I laughed out loud at the irony of Brexit resulting in Barroso moving to London.

One way to raise productivity metrics is to hide more of the economy from the taxman, i.e., pay people underneath the table.

Viola, production happens and gets counted at other stages in the value-added stream and it is done with fewer recorded hours.

Countries like Italy include estimates of the illegal sector (I.e. Mafia) in their GDP statistics.

As for "viola", not sure whether you mean the stringed instrument or the past participle form of "to rape" in French.

He's playing the world's largest violin for the British economy.

I don't think it can be anything other than compositional. I do not think it is education (we have a glut of graduates and post graduates), nor management. I see no evidence, if you compare like for like businesses in the UK and another country, output is substantially different. Instead, we simply have a lack of highly 'productive industries' (like Germany's manufacturing behemoth), and a large amount of less productive ones (media/creative, retail, real estate, sports, hotels/tourism, education).

i.e., Baumol's Cost Disease

Yeah, sure. Aircraft, jet engines, power generation, automobiles, software, medical technology, petro-chemicals, pharmaceuticals, electronic equipment, machines, engines, pumps, organic chemicals, plastics. Never heard of them, right?

I just quoted the UK's top ten good exports, by the way. Anyone can look this stuff up.

And are those as big as the service industries he mentioned?

And then we can drill deper: why does Britain not compete effectively in those apparently very productive industries any more? TC has a point that it started losing ground to the US and Germany back in the 19th century.

Compared to Germany, you can easily see how managment and education both come in to it. Vocational education in Germany is more effective and more respected, so there is a large class of highly skilled machinists etc -- I have met such workers in Britain too, but they are rarer are and more expensive.

German Mittelsände often have engineer-heavy management teams. This doesn't make them good managers in most things, but it could explain how a German company is able, over the longer term, to keep making widgets of high quality.

Brit workers are famous for being lazy slackers who spend half their workday either drinking tea or beer.

However they're funny and amusing to hang out with; while Germans or Nordics are complete bores.

So cheers for Brit unproductivity. May the rest of Europe learn to enjoy life as Brits do.

Out of interest, in relation to the point of Brit workers not working at very high intensities, does anyone know what the average hours worked per week vs productivity per hour relationship is, on the national scale? A positive relationship, whereby more hours per week tends to be more productivity per hour, or a weaker or inverse one, or no relationship?

The UK is probably worse off economically than the other Germanic nations of Europe. But it is not economically worse off than France, Italy, or Spain. Why, then, is France more "productive" than the UK and about equally productive as Spain and Italy? Stats here:

It's the same reason why productivity will sometimes increase in recessions. The people who lose their jobs are the least productive, but them losing their jobs is not a good thing for them or the wider economy, as GDP per capita clearly shows. In Spain and Italy, a huge fraction of the least productive workers, the young and/or unskilled, are unemployed or not in the labor force. The remaining workers are on average more productive. It's not because Italians and Spanish, being more productive, get to enjoy more vacation. Those who actually have jobs work slightly more hours than their counterparts in the UK(the French do work less):

GDP per capita is a better measure of the overall success of the economy, and it clearly shows Britain with a substantial advantage over Italy and Spain and a smaller advantage over France. Look at where people are trying to immigrate to. Are they trying to get into Spain or Italy, or Britain? Even France isn't good enough for the "migrants" camped out at Calais.

It is worse off than France, maybe not in the south but certainly as seen from the north, and the migrants probably want to speak English in the informal economy rather than French.

Great comment, Jason. You could make a similar argument about wage statistics that are always thrown around too.

There may be a diminishing returns effect with work hours. Or, if you give workers a lot of vacation as Germany and the Nordics do, employers will respond by cramming more work into the remaining working hours.

This always struck me as the more effecient arangment.

Yes, indeed. Spanish productivity/head has risen steadily since 2006, as its ujnemployment level has risen from 7% to 25%.

Isn't GB experiencing a productivity gap because of the size of the financial sector, a notoriously low productivity sector. Indeed, if finance exits London because of Brexit, won't GB productivity go up, even as income goes down?

And is the pound overvalued like the Swiss franc because of the financial economy? There seems to be a productivity gap in Switzerland as well, but I could find recent data.

International productivity/worker differentials are almost always more about capital than skill, though the two tend to go together. There's truth to the idea that it goes back more than a century, and that the very high productivity of London/North Sea oil causes/d a kind of Dutch disease for the rest of Britain. (The US has a similar problem.)

(The US has a similar problem.)

Extractive industries account for about 3% of value added in this country, and the share is not much different in Britain. So, no we don't. and no they don't.

If anything, it would be fairer to talk about Canada in such a framework.

The latest argument from the Mercatus crew is that Brexit's a bad idea because it won't solve a problem that was not solved in 43 years of EU membership.

Note that Canada is at the same level as the UK. I consider the real message of this post (perhaps intended by Tyler) to be that one's views should be similar on the UK relationship with the EU and greater political integration of Canada with the US, and that differences are partly mood affiliation.

DIM is appropriate for imaginative literature only and 'mood affiliation' is the moderator's pointless jargon. While we're at it, i'll wager the vast majority of Anglophone Canadians find the prospect of joining the United States about as attractive as getting a colostomy. As for the Quebecois, they have a mutual contempt society with the rest of the world, including the Acadiens in the Maritimes.

While we’re at it, i’ll wager the vast majority of Anglophone Canadians find the prospect of joining the United States about as attractive as getting a colostomy.

Indeed, but do you wager that the majority of them took the fashionably horrified view of Brexit? How do you reconcile that, other than simple tribal affiliation and refusing to give the Brits the same consideration they give their own patriotism?

Good points made, but productivity is a bit overrated. A lot of highly productive countries take time off for leisure, so it improves the quality of life but it doesn't add to GDP. Hence Japan makes up for poor productivity by working longer hours, and their GDP is high. Greeks also claim to work more hours than Germans, for what that's worth.

well more than that - everybody gets very excited if productivity data shows Germany better than UK because it fits impressions. But Ireland 30% more productive than the UK? Really? If that's what the data shows, then perhaps the data isn't that interesting.

He/she expressed shock at seeing that virtually everywhere in the Netherlands was a nice place, compared to the home country, much of which was not so clean and not so nice. He/she lamented and apologized for this feature of Great Britain, and that is yet another way of expressing the productivity gap.

That was my experience of the UK too. At least when I was there, I found it to be weirdly both more expensive than the U.S. and not so clean and not so nice. Normally one expects one of those things, but not both at once!

Clean and nice are a function of GDP. If the UK is 2/3rds of the GDP per capita as the USA, then it will be not so clean and not so nice. Charity comes from people who are rich, who have fulfilled the Maslow hierarchy of needs. That said, I personally prefer the Third World, for personal reasons. You can have clean and nice and the kindness of strangers, it's overrated IMO.

"for personal reasons"


Ray, I'm sure the people who look to recreate the same conditions as the Third World in the United States and other countries, perfectly understand your personal reasons ;)

Tuition was a lot cheaper in the UK at the time. People instead spent their money on things like hospitals for the poor.

It strikes me that after Tetlock, this is a very anti-Tetlock article and discussion.

At first I didn't comment on-topic, because I have no idea what national productivity means, nor in the British context.

Then I realized, neither do you.

There is a paradox. Productivity is good to have, but not always best. Strippers have higher productivity than nuns, but we should not really prefer a society with many more of the former.

The next shoe to drop is the Conservative government saying:

We need to cut corporate taxes and change the social safety net to be competitive.

Austerity to prosperity!

The 'social safety net' in the UK has meant in the past masses of public housing conjoined to rent regulation, a command economy in medical services, cash doles for trashy single mothers, and extensive syndicalization conjoined to horrible industrial relations. Partial replacement of these practices has been tonic for Britain. Replacing the rest is overdue.

Art, I actually thought you were going to say something like: Look at Japan. If they only followed the British their productivity would be much better.

When Italy is ranked as more productive than Japan, you have to wonder about the data, but so far no one in the comment section has.

Productivity is measured per hour.

The Japanese work substantially more hours per year than the Italians.

Tyler I think such cross-country comparisons (your conclusions from which I thoroughly agree) would be greatly augmented by detailed city-to-city studies. Imagine how much we could learn from a detailed comparison of, say, Bremen, Liverpool, and Baltimore, maybe Nara -- all about the same urban population and metro region population, all ports -- in terms of urban and transportation design, law enforcement, education, political organization, markets, family life, etc. Surprising how little comparative work like this is done, considering the potential for useful insights. It'd make a good dissertation or three -- anybody at Mason who could fund something like that?

@DCBob - it's all been done with the simple observation that like GDP/capita gives like people. For example, if you make in the top 10% in Berlin, you'll compare favorably in look and feel to a person making in the top 10% in San Francisco or Singapore (developed countries only of course; top 10% in Africa is another story). Likewise, if you're in the bottom 10% in any city, you'll match up with another city's bottom 10%. This is a rule that's pretty golden, so if you wish to challenge it, you must find exceptions to this rule. That's where the 'good dissertation' comes in; to prove this rule is not valid. BTW this observation also holds for bureaucracies (as per the observation that an apparatchik in Moscow is no different than a bureaucrat in Belgium), though arguably the French bureaucrat is superior to all others since the best and brightest go into service for the state in France, compare to the USA.

Is it really plausible that the British productivity gap persists because of something that happened in the 19th century? Catch-up growth should have erased that by now. Singapore caught up with and surpassed Europe in the span of forty years or so. It seems to me that for a productivity gap to persist, the causes of the productivity gap must persist.

@BB - well they found persistent poverty gaps in Potosi silver mine communities, that's lasted several hundred years, so yes a long-lasting reason is possible. That said, lead and silver are often found together. so Potasi offspring could simply have more Pb in their bloodstream. As for the UK, the laid-back, understated "English way" of doing things might be a productivity killer.

Singapore has not really surpassed Europe. All those people whining about small European cars and no air con seem to forget that huge numbers of certain ethnic groups in Singapore are consigned to poor lives in government housing.

Actually, Singapore`s productivity is lower than Britain

News Flash. The U.K. just voted to leave the EU. Based on your posts, this seems to have been overlooked. I'm still waiting for your concrete predictions.
The Happiness Index has more non-EU but European nations happier than the U.K.
But the HI has 28% of EU inhabitants living in countries with higher HI than the U.K and ~60% in less happy countries
And the UK's GDPper capita is higher than only ~46% of the EU members (weighted by population). So, it seems you may be correct that GDP was a driver for the Leave vote (if that is your contention). Since this can never be settled, I'm not understanding why your attempting to establish a causal framework - perhaps just a balm for a bruised ego? The hackneyed phrase "Let's move on" comes to mind here. Dwelling in the past is abandoning the future. Fear drives choice more strongly than rational analysis.

France has high productivity per hour because it's least productive workers are kept out of the labor market by regulation.

UK labor "protection" is least strict of the 4 european countries, probably has something to do with it. Employers willing to hire at less productive margins. Of course exceptions Japan and Germany support their export heavy economies with competent education/worker development.

Strictness of employment protection – individual dismissals (regular contracts)/Unemployment rate

US: 0.26/4.9
GE: 2.68/4.2
FR: 2.38/10.2
IT: 2.68/11.5
CD: 0.92/6.8
JP: 1.37/3.2

Many good points on the above. As others have said, it seems strange to link how "nice" a country looks with their measured productivity. I can't think of a country with better infrastructure and more neater than Japan, yet they are at the bottom of the pack. If there really is something in the UK being less "nice" than many continental countries (which I doubt) probably it is something to do with the more strong property rights in the UK. Your home being your castle and all that. It is note worthy that many people find Houston to be the most ugly city in the US which is probably also due to less regulation on property. Another possible reason - the UK has more busy roads and railways near to housing (when compared to other countries) and this housing tends to be occupied by lower sections of society and is likely rented out, which explains why a lot of it looks so shabby to visitors. When you get away from the busy transport routes then you tend to see much nicer areas (again similar to Houston). And most US inner cities look awful to me, much worse than the UK minor cities. But thanks to airports/interstates, most US people never go near them.

On the productivity gap - I think this due largely to a lack of capital investment in highly capital intensive industries and a tendency to invest in low capital service industries (which have a tendency to have less measured productivity). There are a number of reasons for this lack of capital investment, first in my mind is due to the political environment. The UK had a major political party, the Labour Party, explicitly with nationalization of industry as its aim (Clause 4). With that in mind, any potential investor faced significant risk for any non-movable assets to be expropriated. Even if that was not a factor the very labour friendly environment in the 1950's through to the end of the 1970's meant that capitally intensive industries basically became targets for any rent seekers. You would be very foolish to invest in businesses that have that risk and need a lot a capital. Services suffer much less from this effect, if the employees go on strike you have much less capital involved and so can withstand unreasonable demands much easier. The Japanese car plants had a good defense against this being foreign and able to move production abroad, plus less able to be strong armed by local politicians. Also they arrived mostly after Thatcher tamed the unions.

Other reasons for lower investment in capitally intensive industries in the UK include that the UK is an island off the coast of a major continent. For many large capitally intensive industries it makes sense for them to be on the continent due to the economies of scale. So over time we should see capitally intensive industries move from the UK to Europe. This has certainly been true of petrochemicals and port infrastructures. Yet another reason is the very congested and difficult to navigate planning rules in the UK. This means that setting up any business that occupies large areas of land is very hard in the UK and very expensive. Services tend not to need large areas and are much more scalable (or don't have such economies of scale as capitally intensive industries). Yet a further reason is opportunities elsewhere - the UK investment landscape is much more international than most countries probably due to the colonial history. So if you want to invest in capitally intensive industries you can choose projects in Australia say rather than the UK. Hence you see a lot of extractive industries based out of the UK thanks to access to finance (BHP, RTZ, RDS, BP etc etc) that do most of their investing overseas. The profits from these investments tend to get re-invested overseas not back in the UK as well.

But at the end of the day does this productivity gap matter? When you measure median wealth per head it seems like the median wealth UK is among the richest in the major countries more than Germany or the US. Potentially this is due to high house prices, but that just illustrates the example that productivity measurements (and GDP measurements as well) just ignore increases in asset values. To put it another way, the UK was among the most richest countries in the world in 1900 and now 100 years later, despite this gap in productivity remains so. This suggests an issues with the way that economists measure economic growth.

a) Most of German wealth was destroyed during the world wars.

b) and Eastern Germany staid poor during the communist years.

c) After reunification the rebuilding of Eastern Germany, at a cost of 100% western yearly GDP, had to be financed by high taxes

That means that German wealth is still in the catchup phase to all the other G-7 without that past burden

See OECD "Annex Table 28. Household wealth and indebtedness" (formerly Annex 58)

d) Germany did not have the real estate bubble in the 2000s decade. Outside of a few bubbly places like Munich most houses are reasonably valued, and the mortgages low

Yes the German people have been through several periods of financial repressions due to poor governance. But that is my main point. The rich countries of a 100 years ago are still largely the same as today, despite the best efforts of different governments bad and good have had (instead of median wealth I could have made the same point with PP GDP). So what is considered important by economists, like an industrial policy geared to say increasing productivity, is probably not going to change things significantly.

I'm not sure how these figures were calculated - how is "output" measured? I wonder if the calculation and averaging of productivity figures hides the true picture here.

For example, in 2013, UK spent 9% of GDP on health care - £150 billion (NHS £125 billion, private £25 billion), for universal coverage (albeit with some expensive drugs and treatments only available privately because the cost per QALY is too high). The vast majority of healthcare workers (1.5 million) are employed by the NHS ( Unfortunately I can't find figures for the number of private sector healthcare workers in the UK, so I'll calculate averages using just the NHS figures. Total expenditure per NHS employee is £83,000 ($133,000 at 2013 exchange rates)

By comparison, the US spends 17.5% of GDP on health care - $3.0 trillion (, employing 12.2 million people ( That's a mean expenditure of $246,000 per employee.

Now, I know that the health outcomes of US and UK are not completely identical, but they are ballpark-comparable - they stop people dying before their time. UK life expectancy 81.2, US 79.3 years ( Let's be charitable to the performance of US healthcare and assume that the shorter life expectancy in the US is down to gun crime, lower usage of car seat belts, and poor diet (e.g. 24oz high fructose drinks), rather than poor performance of the healthcare system.

So, if you were truly measuring performance, the cost of the average US health care worker is 85% higher than the average UK worker. And yet 1.5 million UK workers keep a population of 64 million healthy (43 each), to comparable levels as the 12.2 million US workers looking after a population of 316 million (26 each).
Assuming the UK private health sector employs another 300,000, the UK health worker productivity is 35 people kept healthy per worker, compared to 26 in the US, at a fraction of the cost.

And yet, it wouldn't surprise me if the higher costs of US health care is represented in the productivity figures as higher, not lower productivity. Can anyone confirm this? Have I made any glaring errors (e.g. are many U.S. health workers self employed, and thus not included in the 12.2 million).

You're right. Productivity, as a metric, is worse than useless - it creates false perceptions.

Output is measured via spending. The more your country's consumers are buying, the more they are claimed to be producing. If they produce the exact same amount of stuff but price rises, they appear more productive. When you go on a giant debt-fueled spending binge, you get to 'produce' more (or buy additional copies of zero-added-work electronic goods), and your productivity rises. When foreign capital floods into your country, your "productivity" rises as long as you don't need to add more people to facilitate the purchase of additional things, which is as often as not the case.

If the entire data series was removed from the world with very precise lasers, we'd be less ignorant.

Corelli Barnett wrote about this in his Pride and Fall Sequence (The Collapse of British Power. The Audit of War, The Lost Victory, and The Verdict of Peace). He basically says Britain coasted on its early industrial revolution lead, and didn't take the necessary steps to achieve the productivity of its industrial peers. Lack of sufficient education (vocational, technical, and professional), inferior management, poisonous union/labor relations, lack of ambition among its business cadre, squandering post-WWII American loans and Marshall Plan aid to fund the New Jerusalem instead of installing new machine tools and plant, and diverting too many funds to prestige projects like running the empire. While the rot is very old, the decisions made by the post-WWII Labor government was particularly egregious.

Not until Thatcher did some of this finally get reversed, but much of its legacy is still there.

I think it is a case where such a dominant lead created a large parasitical class who benefited from the way things were done, and could not tolerate any change as it would disrupt their current method of feeding. So Britain failed to adapt to new (and better) ways of doing things. This wasn't unique to the British. It happens to most great empires, and in many ways is happening to the US now (and has for decades).

Excellent comment, Chris.

Many modern progressives make statements like "the colonial empires made Britain rich and stole from the poor third world peasants. That's why Britain is rich and Africa is poor".

However, in many cases, colonies operated at a loss. A handful of possessions, mostly the white settler colonies of Australia, NZ, Canada, contributed the essentially all of the imperial profits. Most of the African colonies were a huge net cost to the UK economy. It cost a fortune running the empire and middle class British taxpayers were heavily burdened to maintain a pointless imperial project that merely enriched a handful of elites.

Britain was a major capital exporter throughout the 19th Century but the return on that capital was pitiful.

It is a little weird to have a link that just links to a Google search of the text contained in the link...

To get by the paywall.

"I’ll never forget the first time I visited the Netherlands in 1985. I was in Dordrecht and reading through the comments of a guest book for a modest hotel. The writer was British, and apparently was visiting the Continent for the first time. He/she expressed shock at seeing that virtually everywhere in the Netherlands was a nice place, compared to the home country, much of which was not so clean and not so nice."

I think this is part of why Japan has such low productivity -- they pour a lot of labour hours into keeping things clean and nice. Fixing windows that aren't actually broken yet.

How is France as productive as the US, despite lacking any great urban centres outside Paris and being generally a socialist hell-hole? Does the average employed Greek average really work 1.5 times as much as the average employed German? (This stuff, by the way, is the crux of the Saez/ Piketty contention that Europe is not really less productive than the US - they've just solved a global vacation coordination problem. Output per person was 3/4th that of US in the 70s, is 3/4ths now, but they work only 3/4ths as much as the average American while hours wroekd/person were roughly similar in the70s)

You could entangle yourself in puzzles like this, or you could just acknowledge that the metrics used to evaluate the Ford Motor plant at Dearborn in the 1960s are hopelessly out of date for evaluating a modern financialised economy, and look for better ones.

It IS true, however, that continental Europe feels a lot nicer and posher than England/ UK. Some of it may be because of the intensity of post-war reconstruction, which was likely much larger than the UK - a lot of UK still looks the way it might have in the 1930s (bombs notwithstanding). Some of it may be because of the immigration patterns - even before 1973, UK has taken in significantly more and significantly lower-skilled migrants than most places in the developed world, which may explain the productivity as well as the 'niceness' of places. Some of it may just be the quality of the public infrastructure and its related spillovers. Netherlands, Germany feel nicer. France outside of Paris, not so much. And some of it is probably just the weather.

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