Working Paper: CEPR ID: DP17321
Authors: John Fernald; Robert Inklaar
Abstract: The UK’s slow productivity growth since 2007 has been referred to as a “puzzle”, as if it were a particularly UK-specific challenge. In this paper, we highlight how the United States and northern Europe experienced very similar slowdowns. The common slowdown in productivity growth was a slowdown in total factor productivity (TFP) growth; we find little evidence that capital deepening was an important independent factor. From a conditional-convergence perspective, most of the UK slowdown follows from the slowdown at the U.S. frontier. From the mid-1980s to 2007, the UK’s relative productivity level moved closer to the level of the U.S. and northern Europe, driven by essentially complete convergence in market services TFP. In contrast, manufacturing lost ground relative to the U.S. frontier prior to 2007, and remains far below the frontier. The relative ground lost after 2007 is modest—cumulating to about 4 percentage points—and is largely attributable to somewhat unfavorable industry weights and industry-specific issues in mining, rather than a systematic UK competitiveness problem.
Keywords: productivity growth; great recession; convergence
JEL Codes: D24; E23; E44; F45; O47
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Common slowdown in TFP growth across advanced economies (O49) | UK productivity growth slowdown since 2007 (O49) |
| Improvements in market services TFP (O49) | UK’s relative productivity level convergence to that of the US and Northern Europe (O47) |
| Idiosyncratic factors in mining sector (L72) | UK’s productivity divergence from US post-2007 (O49) |