Productivity in the UK - (06.06.02)

Productivity growth in the UK has often been seen as lagging behind other countries. Indeed, recent data from the OECD seemed to show the UK lagging behing the US, Italy, Germany and France in manufacturing productivity gains in the 1990s.

One reason the OECD gives for the gap between Europe in general and the US is the complications of labour and product market regulations that stifle new firms investment. However you would not expect this to apply to the UK in particular even if this was generally true for Europe, after all the UK has prided itself in being easier to do business in and avoided EU social legislation for much of the 90's for this very reason. Even when items such as the minimum wage were introduced in the UK their impact would not appear to be on productivity, given the lack of any impact on unemployment that might have been expected to accompany this.

Far more likely than regulation is the size of the market. US firms have easy access to a large market that can be exploited without currency and language barriers. The UK suffers more from an island mentality, particularly in manufacturing. A track record of developing technology internally rather than quickly taking new ideas from elsewhere may be the main reason for low UK manufacturing productivity growth. This is turn results in low capital investment, rather than a reluctance to invest per se. It could be argued that labour market regulation that makes labour relatively expensive to capital increases apparent productivity, at a cost of the higher unemployment that there exists in continental Europe.