Boasts debunked as France gets last laugh over UK on productivity
Ferdinando Giugliano and Sarah O’Connor in London
The chancellor’s Budget speech on Wednesday was peppered with references to Britain’s fine economic health compared with France.
The UK “grew faster than any other major advanced economy in the world last year [. . .] and seven times faster than France”, said George Osborne, adding that, between 2010 and 2013, more jobs were created in Yorkshire than on the other side of the English Channel.
Mr Osborne’s jibes can be justified on some measures. Unemployment in France was 10.2 per cent last year — almost twice the UK rate. Gross domestic product in the UK grew by 2.6 per cent in 2014. In France it was a meagre 0.4 per cent.
However, on a measure that is crucial for both competitiveness and living standards, Mr Osborne should be envious of what is happening in France. Labour productivity — the amount of output per worker or hour worked — is substantially higher there and, since the financial crisis, has grown faster than in the UK.
Data show that in 2013, output per worker in France was 13 per cent higher than in the UK. But because Britons work longer hours than the French, on a comparison of GDP per hour, the difference jumps to a whopping 27 per cent.
Over the past two decades, French workers have, on average, been 20 per cent more productive than their UK colleagues. But the gap in output per hour worked has grown wider since the crisis. While labour productivity in the UK in 2013 was exactly where it was in 2008, in France it rose by about 3 per cent.
The trouble for the chancellor is that the gap between the countries is not the result of French exceptionalism. Output per hour worked in France was roughly on a par with Germany and just below the US. In the league of the world’s seven most advanced nations, Britain is behind every one except Japan.
The Office for Budget Responsibility, the fiscal watchdog, is confident that, having halted in 2008, productivity growth will return to its pre-crisis trend. But in their twice-yearly economic and fiscal outlook, the OBR’s economists give warning that this recovery will be slow, and may not occur at all.
“We continue to assume that productivity growth will pick up slowly to more normal rates, but that remains the most important and uncertain judgment in our forecast,” the OBR said.
The worries over productivity growth in the UK have led economists to urge the government to take action to boost the supply side of the economy.
“The fundamental fact of the British economy over the past seven years has been unprecedentedly poor productivity performance, leading to an unprecedented squeeze on living standards,” said Jonathan Portes, director of the National Institute of Economic and Social Research.
France-England-productivity-chart
“The question is: what should the government do? It should go hell for leather on doing whatever it can to boost productivity, like infrastructure investment and housing. We should be throwing the kitchen sink at it.”
The UK Treasury insists it is tackling the problem. “We are implementing a far-reaching programme of structural reforms,” it said, “including a pipeline of over £460bn of infrastructure investment; a plan to rebalance growth across the country . . . and a wide-ranging programme of school reform.”
However, there was some disappointment with the Budget. “I was dismayed that the productivity issue just didn’t feature,” said Prof Geraint Johnes, director of the Work Foundation think-tank. “There was nothing to encourage investment, innovation, patent protection.”
France-England-productivity-chart
Yet Michael Saunders, an economist at Citi, said low unemployment and low productivity since the crisis was much better than the French alternative of high productivity and high unemployment.
“Obviously, you’d be worried if low productivity growth continues once you get the economy back to full employment,” he said.
“But at a time when you’ve got lots of labour market slack, it’s much better to have the price of labour adjust, at the expense of weak productivity, to get the unemployed back into work, rather than leave them out of work for a long period and then they become unemployable.”
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