The UK is now properly right into a second decade of sluggish productiveness progress, with far-reaching penalties for individuals’s way of life, for the sustainability of public providers, and (arguably) for the broader political atmosphere. It has grow to be common to this point the start of this new interval of sluggish productiveness progress to the worldwide monetary disaster round 2008, however I more and more suspect that the roots of the malaise had been already in place earlier within the 2000s.
UK Labour productiveness. Information: ONS, Output per hour labored, chained quantity measure, 7 July 2023 launch. Match: non-linear least squares match to 2 exponential progress capabilities, steady at break level. Greatest match break level is 2004.9.
My plot reveals the newest launch of whole-economy quarterly productiveness knowledge from the ONS. I’ve fitted the info to a operate representing two durations of exponential progress, with completely different time constants, constrained to be steady at a time of break. There are 4 becoming parameters on this operate – the 2 time constants, the extent on the break level, and the time of break. My finest match reveals a break level at 2004.9.
Residuals for the match to the quarterly productiveness knowledge proven above.
The plot of the residuals to the match is proven above. This reveals that the goodness of match is comparable throughout the entire time vary (except for the spikes representing the impact of the pandemic). There are deviations from the match comparable to the impact of booms and recessions, however the deviations across the time of the International monetary disaster are comparable with these in earlier growth/bust cycles.
How delicate is the match to the timing of the break level? I’ve redone the suits constraining the 12 months of the break level, and calculated at every level the normalised chi-squares (i.e. the sum of the squared variations between knowledge and mannequin, divided by the variety of knowledge factors). That is proven beneath.
Normalised chi-squared – i.e. sum of the squares of the variations between productiveness knowledge and the 2 exponential mannequin, for suits the place the time of break is constrained.
The goodness of match varies easily round an optimum worth of the time of break close to 2005. A time of break at 2008 produces a materially worse high quality of match.
Can we quantify this additional and fix a chance distribution to the 12 months of break? I don’t assume so utilizing this method – we’ve got no purpose to suppose that the deviations between mannequin and match are drawn from a Gaussian, which might be the belief underlying conventional approaches to ascribing confidence limits to the becoming parameters. I consider there are Bayesian approaches to addressing this downside, and I’ll look into these for additional work.
However for now, this leaves us with a speculation that the character of the UK economic system, and the worldwide context by which it operated, had already made the transition to a low productiveness progress state by the mid-2000’s. On this view, the monetary disaster was a symptom, not a trigger, of the productiveness slowdown.