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Productivity on the Decline in the UK

Monday, April 25, 2016

Recently, the Office for Budget Responsibility in the United Kingdom decreased its growth estimates for the next five years. While one of the main reasons for this is a stagnation of the global marketplace, another reason lies at the heart of the decline: Productivity growth is slowing across the country. Years ago productivity grew at a fairly steady rate of 2.2 percent across the United Kingdom. However, after the global economic crisis, that number shrank to 0.5 percent. While this is bad, the worse news is that no one knows how to fix it. Certainly there isn’t one single solution. One argument is that the pessimism over productivity is actually tied to the lingering effects of the economic crisis, and will eventually end. But with each passing year of slumping productivity, the “wait it out” solution seems less likely to work. The decline in productivity may create waves beyond local economies as well. If a worker’s output rises by 2 percent without an increase in their hours, giving that worker a 2 percent raise seems straightforward. However, when productivity is flat, that 2 percent raise will cut into profits and raise prices. 

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