David Cobham's picture
Affiliation: 
Heriot Watt University
Credentials: 
Professor of economics

Voting history

The UK Productivity Puzzle

Question 4: Which of the following policies would be your second choice of policy to boost private sector productivity, in addition to or absent your first choice?

Answer:
None of the above, other, or no opinion
Confidence level:
Very confident
Comment:
There needs to be a gradual but sustained reversal of the benefits cuts and the excessive pressures on people to take poor-quality jobs that have been introduced in the last decade (without abandoning the basic idea of ‘universal’ benefits), combined with investments in human education, notably via FE colleges and apprenticeships, so that individuals can more easily choose to get some retraining before re-entering the labour market at a higher point (and with higher skills).

In the last two questions you are asked which government policies are best suited to help the UK emerge from its productivity growth slowdown. Question 3 asks for your most preferred policy option, while question 4 asks for your second choice. You may use the comment section to outline specific policy recommendations.

Question 3: Which of the following policies would best help improve private sector productivity?

Answer:
Aggregate demand management through fiscal and/or monetary policy
Confidence level:
Very confident
Comment:
There needs to be a gradual but sustained reversal of the public expenditure cuts involved in the decade of austerity – not just a large increase in NHS spending plus a few large infrastructural projects, but a reversal of the cuts in other areas such as education and, above all, local authority funding. This in turn will encourage a revival of private sector investment.

Question 2: Which of the following was the second most important cause for the slowdown in UK productivity growth?

Answer:
Labour market factors
Confidence level:
Very confident
Comment:
What’s most important here is the wider context of the labour market, that is, the cuts in unemployment and related benefits plus increasing pressures on people to take jobs: these have led to a proliferation by employers of offers of low skill/low wages and terms and conditions /low productivity jobs, which people have been obliged if not compelled to take, even when those jobs do not take them out of poverty. The result is a fall in actual unemployment and in equilibrium unemployment (the NAIRU), which at first glance appears benign or even a success, but in this case is negative for the individuals concerned and highly negative for the longer term health of the economy.

Question 1: Which of the following was the most important cause for the slowdown in UK productivity growth?

Answer:
Low demand (including due to the financial crisis, austerity policies, or Brexit)
Confidence level:
Very confident
Comment:
Over the longer term (beyond 2010 or so) this low demand is mainly down to austerity, a misconceived strategy introduced by the Coalition government and continued by successive Conservative governments, whose defects have been highlighted by both academics and the research department of the IMF. But it’s important to see low demand as interacting with the second factor, as below.

Labour Markets and Monetary Policy

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Question 2: Do you agree that, in a period of great uncertainty and after a prolonged period of weak real wage growth, monetary policy makers can afford to wait for greater certainty about real wage developments and building inflationary pressure before raising interest rates?

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Answer:
Strongly Agree
Confidence level:
Very confident
Comment:
Yes, the MPC should wait: it is not yet clear that real wages are rising in any significant way, particularly if account is taken of the continuing high level of underemployment as highlight in the article by Davids Bell and Blanchflower in the latest National Institute Economic Review.

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