Question

To ask Her Majesty’s Government, further to the Written Answer by Lord Livingston of Parkhead on 13 October (HL1890), what they consider to be the reasons for the differences between the output per worker per hour in the United Kingdom and those of the other G7 countries, as reported by the Office for National Statistics in its statistical bulletin <i>International Comparisons of Productivity—Final Estimates 2012</i>; and what plans they have to improve the United Kingdom’s relative position.

The most up to date productivity data for 2012 are in the table.

Current Price Productivity, 2012, G7 countries, Index UK=100

Source: International Comparisons of Productivity, First Estimates for 2013, ONS (Oct 2014)

http://www.ons.gov.uk/ons/rel/icp/international-comparisons-of-productivity/2013---first-estimates/index.html

Analysis undertaken by BIS (2012) to support Lord Heseltine’s Review of UK Competitiveness examined UK productivity in comparison to France, Germany and the USA. An analysis of productivity across all G7 countries has not yet been completed. The full analysis can be found here but the main findings were:

The analysis decomposed the productivity gap (measured by output per hour worked) into two components:

• Sector productivity effect – the share of the gap arising due to productivity in a given sector being higher in another country than in the UK.
• Sector mix effect – the share of the gap arising due to employment in another country being more concentrated in high productivity sectors than in the UK.

When UK productivity is compared to France, Germany and the USA, the sector productivity effect in each of the comparator countries fully explains the gap. As such, higher productivity across almost all sectors in each of these economies accounts for the entirety of their lead over the UK. In fact, the UK’s favourable sector mix went some way towards reducing the gap, particularly against France.

Naturally, the factors driving the gap vary by country. However, at the aggregate level, the UK tends to have lower capital per head than France and Germany and a less efficient use of inputs in production (Total Factor Productivity) than the USA (BIS, 2010). There is also a (smaller) gap between the UK and its major competitors in terms of skills. This is generally characterised as a gap in intermediate skills with France and Germany, and a gap in higher level skills relative to the USA.

Plans to Improve UK Productivity

Government policy focuses on delivering growth which in turn depends on productivity in the longer term. In this sense, the majority of longer run Government economic policy is ultimately about raising productivity.

The Government’s industrial strategy and ‘The Plan for Growth’ are creating the right environment for businesses to invest and grow. This will continue to support UK long-term productivity growth.

Data Revisions

Recent changes to national accounts methodology have slightly reduced the productivity gap between the UK and other leading G7 economies. Data for 2012 were revised and are provided in the table above. In case it is of interest, the most recent data for 2013 is also included in the table below. A full decomposition of the productivity gap has not yet been undertaken using the revised data.

Current Price Productivity, 2013, G7 countries, Index UK=100

Source: International Comparisons of Productivity, First Estimates for 2013, ONS (Oct 2014)

http://www.ons.gov.uk/ons/rel/icp/international-comparisons-of-productivity/2013---first-estimates/index.html

References

BIS (2010) Economic Growth, BIS Economics Paper No. 9

https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/32101/10-1213-economic-growth.pdf

BIS (2012) Benchmarking UK Competitiveness in the Global Economy, BIS Economics Paper No. 19

https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/34647/12-1207-benchmarking-uk-competitiveness-in-the-global-economy.pdf