NCPA - National Center for Policy Analysis

Britain Lags U.S. In Productivity

June 19, 2000

In several respects, the British economy over the past decade has mirrored America's strong performance. Economic growth there, as here, has been noteworthy. Inflation has been kept in check. Unemployment has plummeted from over 10 percent in early 1993 to around 4 percent.

But the courses of the two countries has diverged in the matter of productivity growth.

  • U.S. productivity grew at an average 2.5 percent annual clip between 1995 and 1999 -- but British productivity advanced at a mere 1.2 percent rate, far slower than in earlier decades.
  • Goldman, Sachs & Co. economist Ben Broadbent points out that corporate America has been investing in information technology at an accelerating rate in recent years -- adding about 0.6 percent a year to overall U.S. productivity growth.
  • Whereas efficiency gains in computer output itself have added another 0.6 percent to U.S. productivity growth, British production of semiconductors and other hard technology items is "negligibly small," he says.

British capital investment has lagged in recent years and more hiring may have brought more less-skilled workers into the labor force. Both these factors probably contributed to the moderation in productivity rates.

Source: Gene Koretz, "Why John Bull Is Hanging Back," Business Week, June 19, 2000.

 

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