Focus on Productivity

Raising productivity was one of the key aspects of Philip Hammond's budget yesterday. The 'Productivity Puzzle' - namely why the UK's productivity has been lagging for so long - is a supply-side problem that has been much debated by economists as well as politicians, and it can be hard for an A level economist to get their heads around.

Two BBC resources based around the Budget might help.

The first is a brief video report recorded by Simon Jack at the Museum of Science and Industry in Manchester, which presents a visual interpretation of why growth in productivity is needed in order to fund rises in wages. The link here should take you to that item in the BBC's reporting stream for the Budget.

The second is a more in-depth article exploring the UK's 'decade of flat productivity.' It explains clearly the issue, and the reasons for the OBR's repeated over-optimism in predicting rises in productivity as we emerge from recession.

Students reading the article could use it to identify examples of:

- Factors determining Demand for Labour or Marginal Revenue Product of Labour

- The multiplier

- The accelerator

- Automatic Stabilisers in action

- Real Wage stagnation

- Tertiary sector of the economy

- and perhaps consider whether it is inevitable that an economy which earns most of its GDP from the tertiary sector will find it harder to raise productivity than one which earns more from the secondary, manufacturing sector.