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Tag Archives: UK productivity

Is increasing workers’ bargaining power a way of raising real wages?

There is no doubt that the last decade has been a terrible period for average real wages in the UK, with levels still belowwhere they were before the Global Financial Crisis. It is very tempting to related this to the weak baragining power of workers. After all, we were being told before Brexit that the economy was strong, so if the benefits were not going to wages they must have been going somewhere else. Some people go further and say that one of the reasons that the bargaining power of UK...

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The IPPR Commission’s plan for a new economy

The final report of the IPPR’s Commission on Economic Justice is released today, with the full title of Prosperity and Justice: A Plan for a New Economy. [1] I was lucky enough to get an advance copy, and it is a very impressive document: very well researched and well argued. It is nothing less than a blueprint for a new progressive government. Of course there are some proposals I have doubts about, but it is sufficiently authoritative that in future anyone should ask of any progressive...

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A new mandate for monetary policy

John McDonnell wantsto raise UK investment not by cutting corporation tax but by diverting funds from parts of the financial sector away from property to new investment by UK firms. That is a laudable aim. But giving the Bank of England that task with a 3% productivity target is not the best way to do that. However that is not because I think central banks cannot influence productivity. The kind of toy model many people work with is that monetary policy is all about stabilising the business...

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The Output Gap is no longer a sufficient statistic for inflationary pressure

One of the features of the latest OBR forecastis that they believe the economy is operating slightly above its sustainable level (a positive output gap), where the sustainable level is the level that would keep inflation constant. To see how startling that hypothesis is, here is the latest version of a chart I have probably posted more than any other since I started writing this blog. It is UK GDP per head (source), which is a pretty good measure of average prosperity, and a trend line in red...

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UK productivity: too soon to get excited

And why the costs of austerity and Brexit may be bigger than we imagined UK productivity per hour increased by 0.9% in 2017Q3, and is estimatedto have risen by 0.8% in 2017Q4. Numbers like that would not have caused much excitement before the financial crisis, but they sound great compare to what has happened since. However, if you put them in a graph you would quickly put the champagne back in the cellar.          UK output per hour, % change on a year earlier As I...

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Disentangling the UK productivity problem

As it has become clear to the non-FT/Economist media, and as it has been clear to economists for a long time, productivity growth is a far more important problem for the UK than the deficit. However I think discussion can get confused if it fails to distinguish between three aspects to the problem. First, the UK is not alone in seeing large falls in productivity growth. Now some of that may be related to the global financial crisis, but not all of it is. As this chart taken from...

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The Brexit interest rate increases and misunderstanding inflation

Last week’s rise in UK rates has been extensively analysed (see for example Tony Yates here) so I will be very selective. First, the justification for the title of this post is provided by an extract from the inflation report:“The overshoot of inflation throughout the forecast predominantly reflects the effects on import prices of the referendum-related fall in sterling. Uncertainties associated with Brexit are weighing on domestic activity, which has slowed even as global growth has risen...

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Forecast errors compared

And a coda defends experts against Aditya Chakrabortty A recent conversation got me thinking about different types of macroeconomic forecast error, and what implications they might have for macroeconomics. I’ll take three, from a UK perspective although the implications go well beyond. The errors are the financial crisis, the lack of a downturn immediately after Brexit, and flat UK productivity. The immediate cause of the Global Financial Crisis (GFC) was the US housing market crash, but...

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The OBR, productivity and policy failures

Chris Giles had an articlein the FT yesterday about the UK’s continuing dreadful productivity performance, and the implications this might have for forecasts of the public finances. It has the following chart comparing successive OBR forecasts and actual data. I want to make two points about this. The first is about the OBR’s forecast. [1] It is easy to say looking at this chart that the OBR has for a long time been foolishly optimistic about UK productivity growth. Too often growth was...

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Productivity and monetary policy

The Bank are warning of imminent rises in interest rates. As Chris Giles pointsout, we have been here before, and before that, but that shouldn’t mean we should dismiss this talk, because one day it will happen. [1] They (the MPC) certainly sound serious. But why when current growth is so slow are they even contemplating it? Here is a clue from Mark Carney’s latest speech(my italics).“On the supply side, the process of leaving the EU is beginning to be felt. Brexit-related uncertainties...

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