The UK productivity and jobs puzzle: does the answer lie in wage flexibility?
Joao Paulo Pessoa and John Van Reenen
UK GDP per worker fell by almost 4% in the five years following Lehman's collapse in 2008, something unprecedented in post‐war history. A possible reason for poor productivity is low growth in the effective capital?labour ratio. This is likely to have occurred because there has been a fall in real wages and increases in the cost of capital due to the financial crisis. We simulate various changes in the capital?labour ratio and after accounting for these changes, the evolution of total factor productivity appears much more similar to earlier severe recessions and likely to be related to underutilised resources.
1 May 2014
The Economic Journal 124(576) 2014
https://academic.oup.com/ej/article/124/576/433/5077339
This Journal article is published under the centre's Growth programme.