Two days after the budget, the Office for National Statistics announces that it intends to publish a series of articles on how to understand the data around the UK’s biggest economic issue.. These will use available evidence to discount or support the main arguments around the productivity puzzle or where gaps in the data exist.
Essential reading for the Great South West, Heart of the South West and anyone else planning to double our local economy in 20 years – Owl
Productivity measurement – how to understand the data around the UK’s biggest economic issue
Introduction
In December 2019, the Royal Statistical Society announced that the UK Statistics of the Decade award had been awarded to the Office for National Statistics’s (ONS’s) labour productivity series. This series reveals that average annual growth in the decade after the 2008 economic downturn was only 0.3% a year, a period of weakness deeper and more prolonged than any seen in the UK since the 1890s. This weakness has implications for profits, wages, living standards, tax revenue and public services.
In response to the interest this has generated, the ONS is keen to contextualise its data and has commissioned a series of short “explainer” articles from expert academics, each providing a view on the measurement of productivity in the UK. These articles will explore where the data and methods are strong, where improvements are possible, and where the data support or do not support some of the main proposed explanations of the UK productivity puzzle.
Each article should provide a brief summary or assessment of a particular aspect relating to the measurement of productivity, drawing out where the available data provide evidence to discount or support the main arguments around the productivity puzzle or where data gaps exist. These articles, which will be published over the coming months, will provide an entry point for those looking to understand the main issues concerning the productivity puzzle.
We have planned a series of articles, including this one, on the following topics:
- Productivity measurement – how to understand the data around the UK’s biggest economic issue
- Measurement of productivity statistics, by Nick Oulton
- Measurement of output data used in productivity statistics, by Martin Weale
- Measurement of capital data used in productivity statistics, by Jonathan Haskel
- Measurement of labour market data used in productivity statistics, by Richard Heys and Stuart Newman
- How the production boundary influences productivity measurement, by Diane Coyle
- How management and uncertainty issues influence productivity measurement, by Paul Mizen
These articles take the enhanced set of productivity statistics now being published by the ONS to evaluate some of the different theories around the UK’s productivity puzzle, to provide clarity on the lessons emerging from these data.
The productivity puzzle
The productivity puzzle is now a firmly established part of the UK macroeconomic landscape. For five decades before the 2008 economic downturn, the average output each UK worker produced in an hour of work increased steadily by around 2% a year. In contrast, the productivity record since the economic downturn has been historically weak, enduring its slowest recovery from an economic downturn since the Second World War. While other countries have seen similar slowdowns, the UK’s productivity puzzle is deeper and more persistent than elsewhere.
The fall in productivity growth is even more perplexing because it comes at a time of apparently rampant technological innovation and the strongest labour market performance since the 1970s, with high levels of employment and low unemployment. At the Office for National Statistics (ONS), our role is to provide the best possible estimates of productivity growth to understand what is going on and perhaps assist policymakers in finding solutions. As productivity has become a bigger issue, we have invested more time and effort into detailed productivity statistics than ever before. We have established a new research centre, the Economic Statistics Centre of Excellence (ESCoE) in collaboration with the National Institute for Economic and Social Research (NIESR) and a network of universities to improve our methods and data, alongside investigating further the detailed, firm-level data that we collect in our surveys and from administrative sources.
These are the main headings under which the causal theories of the productivity puzzle can be grouped and will be examined:
Structural arguments eg Changes in financial regulation
Labour and managerial arguments eg Weak UK management practices
Measurement arguments eg is productivity growth already captured in GDP measures
Capital arguments eg Banks’ inability to lend against intangible assets
Innovation arguments eg A slowdown in the flow of ideas or new technologies
Uncertainty arguments eg Uncertainty caused by rapid technology change causing firms to delay capital investment
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