UK’s productivity gap larger than estimated

UK manufacturing may be suffering from a larger productivity gap with the other major industrialised economies than previously thought.

UK manufacturing may be suffering from a larger productivity gap with the other major industrialised economies than previously thought, according to research by Professor Anton Muscatelli, Professor Jim Malley and Dr. Ulrich Woitek from the University of Glasgow’s Economics Department.

These findings are reported in a research paper published as part of an ESRC-sponsored research project.

The project, directed by Professor Muscatelli and his colleagues, has constructed a new data set for the comparison of overall productivity levels and rates of growth in the G7 economies.

The data can be obtained via the project web-page http://www.gla.ac.uk/economics/TFP/

One of the main problem with existing studies on overall productivity growth (what economists call ‘total factor productivity growth’) is that it is difficult to disentangle the underlying trend in productivity from the effects of the upswings and downswings in the business cycle. The study by the Glasgow team overcomes this problem by matching new statistical techniques and combining different sources of data for a variety of industrial sectors in the countries studied.

A key conclusion of the study is that the UK lags behind its other major competitors (the USA, Germany, France, and Italy) in terms of manufacturing productivity. In particular the productivity gap with Germany and the USA is much bigger than previously estimated by other recent studies, e.g. by HM Treasury.

What the University of Glasgow study suggests is that, in the manufacturing sector, the UK is suffering not only from a problem of low investment, but that the lower rate of innovation and R&D is a key problem.

The only positive sign is that, in the 1990s the UK at last begun to close the gap with its competitors, albeit at a slow rate. However, at current growth rates, it will take some considerable time to close the rest of the gap.