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Friday lay day – worst sustained British productivity performance since 1948

Its the Friday lay day blog and a public holiday to boot. So not much today. I wrote earlier in the week a blog about the latest British employment data – Employment growth in the UK but of dubious quality. It was part of a series of blogs I have written documenting the gap between the political hubris coming from the Conservatives about how successful their austerity strategy has been and the reality on the ground. Yes, Britain is growing in the sense that real GDP growth is no longer negative. But in this environment of weak growth the essential conditions for longer term prosperity are being eroded. On Wednesday this week, more information came out to support this hypothesis. The British Office of National Statistics (ONS) published the latest – Labour Productivity, Quarter 4 (Oct to Dec) 2014 – Release – which showed that “labour productivity fell by 0.2% in the fourth quarter of 2014” and is the worst sustained performance since 1948 (no growth in the last seven years). Some claim to success. I remind readers that rising material standards of living in any nation rely on productivity growth. Without it societies with ageing populations are headed for mediocrity or worse.

The ONS summary of the labour productivity was:

1. “output per hour fell by 0.2% in the fourth quarter of 2014 compared with the previous quarter. In 2014 as a whole, labour productivity was little changed from 2013, and slightly lower than in 2007, prior to the economic downturn”.

2. “These estimates show that the absence of productivity growth in the seven years since 2007 is unprecedented in the post-war period”.

3. “Despite weak productivity growth, unit labour costs have increased only modestly, by less than 1% per year on average over the last five years. This reflects low growth in labour costs per hour worked”. In other words, real wages have gone backwards faster than productivity growth – a perfect storm for generalised stagnation.

The following graph shows the movement in output per hour (red) and output per worker (blue) since 1948. The hourly series only began in 1971.

The differences between the two series are explained in detail in the publication linked to above. They essentially related to “movements in average hours which, though typically not large from quarter to quarter, can be material over a period of time. For example, a shift towards part-time employment will tend to reduce average hours. For this reason, output per hour is a more comprehensive indicator of labour productivity”.

The data shows zero productivity growth since 2007, which is amazing. In fact, productivity per hour worked is lower now than it was pre-crisis in 2007.

UK_LP_1948_2014

Productivity typically slumps during a recession because real GDP falls faster than employment (or working hours) as firms hoard their skilled labour given the costs of hiring and firing are higher than the costs of keeping them on and working less intensively.

In a recovery, an economy typically gets a quick boost in productivity because those workers that were on short-time or administrative workers who were not working to capacity quickly start producing more without any incremental labour input (in persons or hours) being necessary.

This is also why employment growth lags behind output growth in a recovery.

That dip is noticeable in the data but the recovery is weaker than expected – largely due to the early attempts to nuke the British economy with austerity in the early days of the current Conservative government.

They realised that this approach would be disastrous and relaxed the austerity program and the rising deficit allowed growth to resume, though weakly.

The weak productivity growth also explains why employment growth has been so strong given the parlous real GDP (output) growth.

Productivity is the ratio of output to employment. So if an economy is highly labour intensive productivity will tend to be lower than if it is capital intensive. People dig bigger holes faster with machinery than with hand shovels!

Strong productivity growth also reduces the amount of labour input required to produce a given output. The opposite is the case when productivity growth is slow, which means that much weaker growth will give a higher employment dividend.

That sounds good but it is really a poisoned chalice. It implies that a lot of unproductive jobs have been created in the UK in the last 5 or so years.

This dovetails with what we saw in the labour force data this week where the growth in self-employment was easily outstripping the growth in employees.

Putting the two data releases together suggests that a lot of those in self-employment are really doing very little. That is also consistent with the fact reported by ONS that real incomes had fallen among that cohort over the last year.

It gets worse when you realise that real wages have fallen in the UK.

So this is race-to-the-bottom territory – low wages growth, negative productivity growth, weak output growth.

I wouldn’t hold my hand up and take credit for that if I was a British politician.

Conclusion

The only pity in the UK is that the Labour Party appears to be advocating a softer version of the Tory approach. Neither will deliver prosperity.

The Labour Party needs to abandon its neo-liberal Groupthink and argue that the fiscal deficit is too low at present and private debt is too high.

That won’t happen and this malaise – the end-point of 20-30 years of neo-liberalism will drag on to the detriment of all but the wealthiest.

Advance notice: Workshop – 70th Anniversary of the White Paper on Full Employment – Sydney, May 30, 2015

My research centre is staging a workshop in Sydney on May 30, 2015 to mark the occasion of the presentation of the White Paper to the Australian Parliament on May 30, 1945.

On Wednesday, May 30, 1945, Mr John Dedman, Minister for Post-war Reconstruction and Minister in charge of the Council for Scientific and Industrial Research in the Curtin Labor Government, stood up to present the White Paper on Full Employment to the House of Representatives of the Australian Parliament.

He drew attention of the Members “to the importance of the document and the fundamental character of the policy outlined in it” and “sets forth boldly and unequivocally the Government’s intention to secure full employment for the people of Australia after the war” and outlined “the method by which the Government proposes to achieve this aim”.

The White Paper and the policy framework that was implemented to achieve the aim of full employment defined the Australian government’s socio-economic strategy until the mid-1970s, when the rising dominance of what we now call neo-liberalism, saw the Federal Government abandon its commitment to full employment.

The Workshop will seek to explore the relevance of the White Paper approach to Full Employment in the context of the apparent contradictions of the policy stances that are now entrenched and causing the prolonged global unemployment crisis.

Further details at the – Workshop homePage.

There will be several speakers and discussion.

We hope to see a lot of people at the workshop to protest at the impoverished macroeconomic policy framework in Australia at present.

Educational innovation and fun

This video – Chemical Party – is really entertaining and perfect for a Friday. The European Union does fund some good things.

Music from the late Shake Keean

This is what I was listening to this morning as I worked.

Ellsworth McGranahan “Shake” Keane – was a flugel horn player from a jazz tradition who in his later years worked with some of the hottest reggae musicians (30 May 1927, Kingstown, St Vincent, West Indies – 11 November 1997, Oslo, Norway) was a jazz musician, poet and government minister. He is most well known today for his role as a jazz trumpeter, principally his work as a member of the ground breaking Joe Harriott Quintet (1959-1965).

His nickname ‘Shake’ is a shortened version of Shakespeare, which he inherited during his school days because he loved reading and poetry. He was also known as a successful poet and when he left St Vincent in 1952 at the age of 25 for Britain he gave poetry readings on BBC radio.

His first big band was the ‘free jazz’ band led by – Joe Harriott – which prospered from Shake’s great capacity to improvise ‘outside’.

Here is an – Obituary – following his death in 1997.

This track – Prague 89 – is part of his collaboration with English poet Linton Kwesi Johnson and the Dennis Bovell Band (featuring drummer Jah Bunny and guitarist John Kpiaye).

It was released on the LKJ Label in 1991.

Saturday Quiz

The Saturday Quiz will be back again tomorrow. It will be of an appropriate order of difficulty (-:

That is enough for today!

(c) Copyright 2015 Bill Mitchell. All Rights Reserved.

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    This Post Has 23 Comments
    1. I’m hoping to get time to dig deeper into the UK productivity figures because I’m sure there is an interesting story there that is hidden by the aggregate numbers. The UK didn’t have an unemployment explosion after the financial crisis like other countries and that will have shown up in the productivity figures.

      At the same time there has been an oil crisis and weakness in the oil extraction sector meaning that the sector has to put more effort in to get anything out. That has been skewing the figures downwards (much as it probably skewed the figures upwards when the wells came on stream). January’s economic review covers the sector breakdown.

      Then of course there was the pre-crisis growth in ‘productivity’ from the finance sector – which was an illusion and has now completely disappeared.

      February’s economic review analysis into multi-factor productivity shows a definite increase in hours worked and a drop off in capital investment. These are experimental statistics and of course I don’t know if the approach taken has validity or is tainted by mainstream beliefs about how businesses work.

    2. This article reads like a typical growthist lament. Productivity is just another one of the flawed economic measures,like GDP,that economists use to push their growth at any cost barrow.

      And in Australia just what the hell are we supposed to be producing anyway? Our fearless (as in stupid) leaders and their hangers on have exported our manufacturing industry overseas. Even jobs like service centres have gone to India and the Philippines with an absolute cock up result. If you have had to deal with Telstra you might know what I mean.

      We are pretty good at exporting minerals in large quantities – a nonrenewable resource. Have any of the clever dicks thought about what happens when the holes run dry? We are also good at exporting primary produce but at the cost of environmental degradation in many cases.

      All of this madness is in the name of profit maximisation and obscene levels of management remuneration.

      For the purists it’s all about efficiency,globalisation,privatisation and bending the knee to some long dead and not very bright economists like Adam Smith et al.

      Naturally the “ageing” population gets a run as well. Demographics is a science and I doubt if many,if any economists,not being scientists,understand the subject. The “ageing” hobby horse is really just another excuse for growthists to push insane immigration levels. That is another really big hole we are digging for ourselves.

      Jesus bloody well wept – and that is my Good Friday rant for 2015

    3. The UK is not and never was a nation.( It was / is a market state.)
      England is now Londons green belt.

      The stagnation is a result of the difficulty
      arising from the absorption of euro and Asian surplus goods.

      Look I am a fan of telescopes, I used to order great home made stuff from a wonderfull man in Nottingham, all that stuff is long gone.
      The Chinese are now making decent optical gear at absurd prices and flooding the market with the stuff.
      Very like the post war Japanese ( although their build quality was higher in most Respects)
      There is a general breakdown of the now worldwide production distribution and consumption loop and London happens to be in the center of this vortice.

      Nothing will change until they move the capital to Winchester or something.

    4. Bill, Keane was fabulous. This is the first I think I have heard anything by him. Thanks for that. But I could have done without the photo of the bronzed arm with the turntable needle resting just on top of a prominent vein.

    5. Bill…..another two-cents worth…

      President Obama/Council of Economic Advisers:

      It is a common scenario—tunnel vision—and frequently occurs in wrongful convictions—when the police or prosecutor are convinced they have the guilty party—and by closing their mind,
      convict the wrong person….too often the reason is government intractability—the inability to admit that a mistake has been made—and innocent people are being released almost daily, now, given DNA evidence…..

      But this mind-set has broad application, and can be applied to many other situations….

      For instance, the belief that “the market can provide anybody wanting a job, with a job.”–it is patently false, and only ONCE since WW II has this method of job creation in America resulted in an unemployment rate below 3%–in 1953—and if we remove this belief from Boehner’s grandiose claim that the Republicans are “job creators”–the entire Republican agenda collapses into a pile of dirt….

      In the first scenario, as a result of this tunnel vision—it almost always results in a gross injustice….and in the latter the injustice is perpetrated on the American people…86% of Americans believe that “anybody wanting to work should be able to find a job”–but we are not looking for a solution on behalf of the American people—because we believe we have the solution….

      The larger question is: If we are committed to job creation in America [and we need to create 200,000 jobs monthly, just to keep up with the birthrate]—but our method for achieving this is wholly inadequate—how do we solve our pervasive unemployment problem—unquestionably the most serious “social” problem facing America, today?

      America is a “can do” nation—if we had decided to put a lawn mower engine in the Saturn V rocket, in our spectacular trip to the moon—we would never have gotten there—a consummate metaphor for our current job creation methodology in America.

      We can hardly blame the Democrats for celebrating our current 5.5% UE rate, given the vitriolic climate in Washington, as we inch downward—but…..

      We have the solution at our fingertips—a “legal authorization” to limit our UE rate to “3%”, tomorrow—at no time should our UE rate in America exceed 3%–but save for Congressman Conyer’s deficit-neutral HR 1000—implementing this Pro-Market solution has been obscured by tunnel vision…..IMHO

      Ref: OUR GREED AND IGNORANCE, Amazon

      Jim Green, Democrat opponent to Lamar Smith, 2000

    6. Podargus, with all due respect, I don’t agree that productivity is just ‘another one of the flawed economic models’. There are of course areas where it is hard to increase productivity — construction would be a notable one. But rising productivity does actually mean that people are producing more goods and services in the same amount of time, and is also a measure of how engaged they are in the economy. And it is certainly true that with an ageing population who go into retirement, that having a more productive economy is essential as it will then be able to provide the goods and services that that ageing and non-employed segment of society will be consuming. If those goods and services aren’t there and available, then you will definately face greater inflation and competition for the remaining goods and services.

    7. What an extraordinary mind Bill Mitchell has….I never cease to be amazed by his prolific output….on a daily basis….two feet into the weeds on economic theory, and I’m lost—but his insight brings clarity on these complex issues…even with my limits….and his love of Jazz…I feel sorry for those who do not appreciate this art form…where the musicians chat among themselves, and we are let in on the dialogue—THX, Bill

    8. Keith Wresch – I didn’t write that productivity was a model. I wrote that it was a measure.Like all measures,depending on how they are designed and interpreted,they can tell the truth or the most atrocious lies.

      I don’t know whether you have noticed but it is taking fewer and fewer people to provide for the needs as opposed to the wants of the total population. This is due to automation.I don’t know if that process will continue or where it is going to end.

      In our society, the first 20 years or so of a persons life are non-productive viewed from the narrow slit in the self imposed wall around the economics profession. Vast resources are mobilised to cater for this population segment and rightly so.

      With our somewhat healthier life styles and better medical care more people are living 20 years or so beyond the normal retirement age. Some work beyond that age by choice. Some,believe it or not, are weary after a lifetime of struggle. Very few of this cohort need vast resources to cater for their needs.

      Above all,it should always be remembered that life is not all about work.

      One of the fundamentals of MMT,and a sensible one,is that a sovereign government with its own currency can always pay for whatever it requires in that currency. The limiting factor is resources. I doubt if there is any prospect of there being limited resources to cater for the needs of the non-working aged.

      So,tell me,just what is the problem with an ageing population provided there are enough,just enough children being produced to take their turn on the treadmill?

    9. Insofar as technological advancement leads to increased productivity, then increased productivity leads to rising unemployment.

      A classic case study in this process is the typing pool containing twenty typists leading to the single secretary using a word processor. Those other 19 typists had to be displaced into other forms of “employment”. But those other forms have also, in their own way, been downsized due to their own varieties of technologically induced gains in “productivity”.

      It seems clear to me that the terms employment and productivity need to be redefined.

    10. “So,tell me,just what is the problem with an ageing population provided there are enough, just enough children being produced to take their turn on the treadmill?”

      There is one word that is significant by its absence – COMPETITION. It may not play an important part in the sociology or psychology of humanity but it certainly does in the economics of humanity.

      Competition is not the only influence on the distribution of resources, of course, but it appears to play an important role vis-à-vis other countries if import/export ratios are influential in setting living standards.

      Perhaps someone will clarify that perception for us all.

    11. The world trade system is based on usury and more importantly on the monopoly of credit centered on London.

      The UK is acting very much like Venice in its latter stages , it has lost much of its physical power to project and is now a one trick pony relying solely on subterfuge and its dominance of finance to redirect goods from its (global) hinterland into its cold dead heart.

    12. I think there might be a funny idea going about that businesses like investing in real capital, and the only reason why they sometimes do not invest is because the government keep getting in the way etc

      I think the vast majority of businesses are not the captains of industry as portrayed by politicians, but small groups trying to earn a living doing something the enjoy. They do not invest in real capital unless they need to for some reason. A shortage of workers might require them to increase investment in order to expand output without hiring more workers.

      Those who think of themselves as captains of industry blame workers and the government for their low investment, but actually they hate investing in real capital, and would rather take on cheap labour to expand output – hence they approve of policies that keep a pool of unemployed people disciplining wage down.

      I think high unemployment generates low investment because labour is cheap and plentiful.

    13. Is the pact made with the money power coming unstuck. ?

      The symbiotic union of Westminister and the city ……you scratch my back……

      Continued centralization based on usury which went ballistic after the usury act of 1545.
      The social creditors have been proven correct.
      Democracy without purchasing power is fake.

      PS
      Can anybody actually sit down and watch political debates today without cringing ?
      Official politics today ( and yesterday )is a new proto planet which has gone in a hyperbolic trajectory ( escape velocity) from our everyday gravitationally bound solar system life.
      A world where you can afford a previously horrendously expensive piece of optical gear but not a regular pint in the local.
      Why is this ??? Because the real costs of this trade system is socialized on the masses.

    14. Gogs – Why is competition so important for that you feel compelled to shout the word?

      Import/export ratios may be important for a nation but only if the government of that nation has decided to deregulate that nation out of existence.

      The European Monetary Union is currently finding out the hard way that not every nation can be net exporters. Germany is the principal net exporter in the EMU but it has had to tie itself into contortions to maintain that status to the great disadvantage of its citizens. Several EMU nations have been driven into poverty by the mercantilist ambitions of Germany.

      So there is just one aspect of competition which you might like to clarify in your own mind without the help of “someone”.

    15. The reason for emphasising the significance of competition arose because I came across the following reference: “Does rising income inequality justify trade barriers like quotas and tariffs? Only if it also justifies barriers to technological progress. After all, both technological progress and international trade have remarkably similar effects. They both raise living standards and benefit the country as a whole. And they both disproportionately benefit high-wage workers while causing harm to many low-wage workers. If concern for low-wage workers is grounds for opposing international trade, then the logical consistency suggests it is grounds for opposing technological progress too.
      Most economists believe that neither technological change nor international trade should be opposed. Rather, we should take advantage of the higher average living standards they enable, and use other policies to address the problem of low-wage workers more directly.”

      I was merely asking for someone who had been exposed to the ramifications of this scenario to explain the those ramifications – Creating demand in a struggling economy whilst continuing to suck in imports has implications presumably. An example of adversary overcome would be enlightening and educational.

    16. We seem to have entered a new and extended period where r>g as Piketty puts it. The formula indicates a return on capital greater than the rate of growth. In that situation more and more wealth accrues to the capitalists and the workers (and non-workers) become poorer and poorer in the long run.

      The difficulty that countries like the UK now have in growing might well go deeper that just austerity, although austerity is a part of it. The deeper reasons are the shift in production to the developing world, especially China, and the near approach of the world economy to the limits to growth. In particular, old fully grown nations like the limited island nation of the UK have hit and indeed exceeded their real limit to growth (meaning their own ecological footprint. It is only resources from other countries that keep the UK running. It cannot sustain itself from its own land and resources.

      What eventually becomes true of one country, will with continued growth become true of the whole world. That principle is certain. If one country can exceed its sustainable footprint, then the whole world can. The difference when the whole world does so is that we cannot import food from Mars. Instead we will have done irreparable ecological damage. The carrying capacity of the earth will decline rapidly causing a population crash.

      Unfortunately, even the most progressive of economists (outside of biophysical economics) have not yet grappled with these relatively simple scientific principles. The attempt to grow out of trouble will grow us into more trouble.

    17. Keith: agree with you and would go further. There is no area, including construction, that can’t see huge gains in productivity. Take a look at the guy in China (Zhang?) who wants to build ‘Sky City’. They use modular construction, building blocks in a factory, and then assembling on site in astonishing times … 30 story build in 15 days, etc.

      You could even take this to an ultimate progression with AI and robotics we could end up with infinite productivity (if measured only by human labor), where we produce everything we need with almost no one working.

      Podargus is a limits to growth pessimist and says the same thing almost every time … we are doomed blah, blah, let’s go back to living in grass huts and preserve the Earth.

    18. Bill’s comments about the Labour Party have been noted in many places. In fact I recently read an article on the collapse of center-left parties around the World (wish I could remember where … RT?) and the rise of alternatives (Syriza, Podemos). The ‘socialist’ parties still exist in Greece (almost gone there) and Spain, but maybe for not much longer.

    19. Gogs – There are plenty of third world nations who have heaps of international trade and next to no technological progress.

      Generalisations tend to descend into absurdity.

      “Most Economists”? I think I hear the distant bleating of sheep.

    20. «So if an economy is highly labour intensive productivity will tend to be lower than if it is capital intensive. People dig bigger holes faster with machinery than with hand shovels!»

      And here lies one of the great misunderstanding that economists make, and this is the very example that I make to illustrate it.

      People DO NOT “dig bigger holes faster with machinery”, but with FUEL. Without the fuel the machinery has zero productivity.

      The enormous rise in productivity *per person* in the paste century or two has been due entirely to the enormous productivity of fuel, from relatively heavy coal first to lightweight oil derivatives later.

      A digger is like a shovel: both without a source of “fuel” are just lumps of wasted resources. The productivity of the shovel is given by it being powered by a human, and the productivity of a digger is given by it being powered by a fuel tank.

      A site once asked what was the innovation that had the most impact, and I said “self propelled machines”, that is machines (and tools) that can carry their own power source, that is move under their own power.

      For a very long time machines (and tools) needed an external power source to operate, and the only self-propelled entities were animals and humans, and (on land) it always took animals or humans to provide external power to mobile machines or tools. Note: arguably wind powered ships were an exception, and indeed their economic importance was colossal.

      So what matters is not “capital intensive” in the sense of machines or tools, but in the sense of “fuel” or power input.

      I have even come to think that Marx labour theory of value is just a narrow case of a more general energy theory of value, in that what gives value is not so much embedded labour as such, but the motive power of humans or other power sources.

    21. Blissex humand and animals are not self-propelled. Try to not eat anything in a couple days and see how much self-propelled you are.

      Reality is complexity, hierarchy and organisation (and our highly inefficient modern societies have a lot of those three things) require energy. This a law of our universe, because there is this thing economists (non-scientists) ignore called ENTROPY.

      Until economists understand the concept of entropy anything that comes our of their mouth is worthless. And most of them do not, by a long shoot.

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