Sir Charles Bean's picture
Affiliation: 
London School of Economics
Credentials: 
MA Cambridge
PhD MIT

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:
Regulatory and competition policies, possibly including financial regulation
Confidence level:
Confident
Comment:
Suitable reforms to financial markets and executive remuneration packages could encourage businesses and their owners to adopt a longer-term perspective and foster a higher rate of investment.

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:
Investments in human capital including education and job retraining
Confidence level:
Confident
Comment:
While human capital is not the main reason for the slowdown in productivity growth since the financial crisis, the UK's relatively poor skill levels (including those of management) appear to be a key factor behind the UK's pre-existing lagging productivity performance (i.e. the second puzzle referred to above). We may not yet fully understand the reasons behind the slowdown but UK policy makers can at least attempt to tackle these long-standing deficiencies.

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

Answer:
None of the above, other, or no opinion
Confidence level:
Not confident
Comment:
Since the slowdown is common across the developed economies, we should focus on common, rather than the UK-specific, factors. Also in the US, the slowdown dates from before the financial crisis. That said, I think the slowdown is likely to reflect the interaction of several factors that together have resulted in a slowdown in investment in both fixed capital and R&D, as well as reduced entry by new businesses (ie a reduction in the rate of 'creative destruction'). These include: increased concentration in some markets; the impact of the de-risking of bank balance sheets during and after the financial crisis on the availability of funds for investment; the discouraging effect on costly-to-reverse investment of heightened uncertainty following the financial crisis and, latterly, the vote to leave the EU. The flexibility of UK labour markets has amplified the last of these by leading firms to prefer to expand output by taking on more labour rather than expanding capacity. Productivity mis-measurement is also a subsidiary factor in some sectors and industries.

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

Answer:
None of the above, other, or no opinion
Confidence level:
Not confident
Comment:
Since the slowdown is common across the developed economies, we should focus on common, rather than the UK-specific, factors. Also in the US, the slowdown dates from before the financial crisis. That said, I think the slowdown is likely to reflect the interaction of several factors that together have resulted in a slowdown in investment in both fixed capital and R&D, as well as reduced entry by new businesses (ie a reduction in the rate of 'creative destruction'). These include: increased concentration in some markets; the impact of the de-risking of bank balance sheets during and after the financial crisis on the availability of funds for investment; the discouraging effect on costly-to-reverse investment of heightened uncertainty following the financial crisis and, latterly, the vote to leave the EU. The flexibility of UK labour markets has amplified the last of these by leading firms to prefer to expand output by taking on more labour rather than expanding capacity. Productivity mis-measurement is also a subsidiary factor in some sectors and industries.

Wages and economic recoveries

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Question 2: Do you agree that the different behaviour of UK real wages relative to Eurozone wages during the Great Recession is in large part due to the UK having different labour market policies?

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Answer:
Agree
Confidence level:
Confident
Comment:
The difference in labour market performance between the UK and the euro zone is surely a reflection of the greater flexibility of the former. But the better employment outcomes in the UK also reflect differences in macroeconomic policies - in particular, a more timely and aggressive monetary policy response in the UK than in the euro zone.

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