The UK productivity shortfall in an era of rising labour supply
An updated and extended version of the paper on UK productivity growth with Garry Young at NIESR. The paper 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 21 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.