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Ec 111 week 4b(1)

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  • 1. EC-111 British EconomyRecent UK MacroeconomicTrendsDr Catherine RobinsonF26, Richard Price BuildingOffice Hours: Mondays 10.30-11.30 and Thursdays 9.30-10.30Appointments: c.robinson@swansea.ac.uk
  • 2. Productivity Considering trends in economic growth and productivity Helps put the UK into context Structured around 3 papers Muellbauer‟s 1991 paper on competition and productivity O‟Mahony and Robinson (2007) Disney, Jin and Miller (2013), „The ProductivityPuzzles‟, IFS Green Book, Chapter 3ALL AVAILABLE ON BLACKBOARD
  • 3. The Basics:Economic Growth Growth in GDP But this stems from Increasing labour Increasing capital Improving the way these two are combined through technology PRODUCTIVITY Growth Krugman‟s 1991 quote: “productivity isn‟t everything, but in the long run, its almosteverything” Producing more output from inputs (technology or betterorganisation) Sectoral perspective
  • 4. Early Work of Muellbauer Focussed on productivity and competitiveness inmanufacturing “Manufacturing is the bell-wether for theeconomy”(Muellbauer, 1991, p.99) International competitiveness, 1966-1990 relative input prices, relative export prices and relative unitlabour costs (figure 1) In all cases, we see a rise in costs/prices overtime, especially from 1978 onwards Noticeably worse in the late 1980s than in the late 1970s Substantial labour shedding in 1991 expected to stabilise ULCmeasure
  • 5. Productivity growth in UKmanufacturing (1980s-1990s) Manufacturing experiences faster productivity growththan other parts of the economy Easier to measure? Noticeable speeding up of labour productivity in the1980s In part yes, a speeding up, but also followed on from a veryslow 1970s period Muellbauer looks at the slow-down and the upturn
  • 6. Labour productivity index (1995=100)0.020.040.060.080.0100.0120.0140.0160.0_1970_1971_1972_1973_1974_1975_1976_1977_1978_1979_1980_1981_1982_1983_1984_1985_1986_1987_1988_1989_1990_1991_1992_1993_1994_1995_1996_1997_1998_1999_2000_2001_2002_2003_2004_2005_2006_2007TOTAL MANUFACTURINGDEUKLEMS, 2009releaseGross value added per hour workedMuellbauer, 1991O‟Mahony andRobinson, 2007
  • 7. Causes for the 1970sslowdown Raw material prices Oil crises Exacerbated by inappropriate capital Suitable for low energy prices Became inefficient with the change in prices Global recession Led to scrapping of plant, machinery, buildings ALTERNATIVE VIEWS Bruno and Sachs (1982) – all down to measurement Labour markets and industrial relations Adjustment costs because of the input price shocks
  • 8. Causes for the 1980s upturn(Muellbauer) Capital productivity and unobserved scrapping of the earlier periodreverses UK manufacturing firms were too optimistic and hoarded labour Great labour shake-out followed with the Thatcher administration Industrial relations Over valued exchange rate, high interest rates, withdrawal ofsubsidies and state-financed rescues and the SCALE of recessionput managers under pressure to cut costs and improve workpractices Improvement in the quality of workers New technology Catch-up hypothesis (Crafts, 1991)
  • 9. Muellbauer in conclusion…. Not just a manufacturing phenomenon but data outsidemanufacturing are ropey Links it back to macro policy Weakening of union power did help to increase productivitygrowth in unionised plants more than non-unionised plants(Metcalf 1989) Long run education and training of workers crucial toproductivity growth and competitiveness UK housing market hindered labour mobility Warnings about interest rates as sole policy response Too much faith put in the Thatcher Miracle Tax cuts and other improvement in incentives and institutions torevolutionise the UK economy
  • 10. Productivity and growth from aninternational perspective, 1970-2004 Data from EUKLEMS UK compared with France, Germany and US Takes a more whole-economy approach Splits the period in two 1970-1995 1995-2004 Notes that recent performance shows RLP growth faster thancomparable countries BUT a relatively lower starting base (Table 2) Still a significant productivity gap
  • 11. In part, education?
  • 12. Sectoral sources of growth Need to take into account thesector size as well as theproductivity growth UK sees a collapse inproductivity growth intraditional manufacturingsectors (not shown) But in marketservices, outperforms Franceand Germany This is due to financial andbusiness services (rather thanretail/wholesale – in whichGermany does well)
  • 13. US outperforms Europe First mover advantage with technology Different sectoral mix US has natural advantages A more entrepreneurial spirit US has greater organisational capital Institutional differences Europe has more labour and product market regulation
  • 14. The Current ProductivityPuzzle Until this last quarters figures, there were more peoplein employment now than before the recession BUT Output per worker fell by 3.2% between 2008(Q1)and 2012(Q3) Why? ....previous recessions saw smaller drops becauseemployment fell faster than output
  • 15. Disney et al (2013) provide someexplanations Measurement issues (again) Industrial composition…productivity falls in some sectors morethan others Changes in workforce composition Fall in real wages Level and allocation of capital Impact of recession has fallen disproportionately on the publicsector (6% decline since 2009) While output has increased – productivity gain BUT all sorts of problems measuring productivity in the publicsector
  • 16. Or to put it another way…. The Economist…
  • 17. Summary Two periods of productivity growth in the UK economy The Thatcher Miracle Concentrated in the manufacturing sector The ICT adoption Splits along ICT using and producing lines, not traditionalsectoral breakdowns UK, like the rest of Europe, seems to lag the US Some cause for optimism in UK performance stemming fromthe business and financial services sector BUT – 2007 saw the credit crunch and the start of thefinancial crisis Productivity has fallen and employment held up Labour hoarding/capacity utilisation Public sector productivity improvements?
  • 18. ReferencesONS podcasts – great one on Balance of Payments, and also some onunemployment etc. Tend to be short term, but informativenonetheless, especially with current data. http://www.ons.gov.uk/Muellbauer, J. (1991) ‘Productivity and Competitiveness’, OxfordReview of Economic Policy, 7(3), 99-117O’Mahony, M, and C. Robinson (2007) ‘UK Growth and Productivityin an International Perspective: Evidence fromEUKLEMS’, National Institute Economic Review, 200, 79-85Disney, R. W. Jin and H. Miller (2013) ‘The ProductivityPuzzles, Chapter 3, IFS Green Budget’, available athttp://www.ifs.org.uk/publications/6560