The UK productivity shortfall in an era of rising labour supply
A paper on the UK’s productivity shortfall. The paper is co-authored with Garry Young at NIESR and focuses on the role of an expanding labour force and reduced capital deepening in contributing to the UK’s pre-Covid productivity slowdown.
We find that the UK’s pronounced labour force expansion accounted for 4pp of the UK’s 25 log point productivity shortfall between the mid-2000s and 2019.
We reconcile this finding with labour productivity being independent of labour supplied in the long-run and with the micro-evidence that higher inward migration has only a small effect on real wages. Both of these views depend upon the amount of capital-per-worker adjusting in response to the expanded labour force – a process that may have been slowed in the era of rising labour supply after the financial crisis.