07 June 2024

NIER's Maroni: Productivity

This briefing focuses on the UK's poor productivity performance at national, regional and sectoral levels since the last election in December 2019, and policy recommendations to boost productivity, notably supply-side reforms as well as higher levels of both public and business investment.

Key points

• Productivity, defined as output per hour worked, is one of the main drivers of economic performance; over time higher productivity boosts incomes and living standards as producing more goods and services per unit time leads to higher wages.
• Most advanced economies have faced a secular decline in productivity growth over the past two decades, but the United Kingdom has performed particularly poorly compared to its peers.
• Since 2019, UK productivity growth has continued to be weak, with an annual average growth in output per hour worked of just 0.5 per cent.
• Regional and sectoral productivity disparities have widened, notably a fall in productivity in parts of the Midlands and in sectors such as electricity and gas.
• If UK productivity had grown at 2 per cent per year since 2008 (as it did in the preceding three decades), it would have meant an extra £5,000 in output per worker per year on average.
• Boosting UK productivity growth will require at-scale investment in skills, transport infrastructure, housing, research and development (R&D) and an industrial strategy to channel investment into key strategic sectors such as renewable energy.
• We propose raising public investment to at least 4 per cent of GDP per year to benefit from the direct economic effects and to unlock greater business investment, based on a new fiscal framework (see the NIESR GE Briefing on the Macroeconomic Context).

 

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