This report by Daniel Harari for the House of Commons, explains why productivity is important to growth, the public finances and living standards, analyses whether the stagnation in productivity is temporary or permanent, looks at the impact of Brexit on productivity growth and outlines Government policy. International comparisons are also included.
Productivity is directly linked to living standards, with a country’s ability to improve its standard of living over time almost entirely dependent on productivity growth.
Productivity has stagnated since the financial crisis
Historically, UK labour productivity has grown by around 2% per year but since the 2008/2009 recession it has stagnated. The level of labour productivity in Q1 2017 was still 0.4% below what it was over nine years earlier in Q4 2007.
The persistent weakness in productivity has puzzled economists and there are many alternative theories to explain it, including: