Since the Global Financial Crisis of 2008, UK labour productivity has lagged behind a number of other developed economies, and crucially has grown at a significantly lower rate than the pre-2008 trend. This project aims to explore the extent of this so called 'Productivity Puzzle', and examine the potential causes of this fall in productivity growth. I will examine data from across the world on productivity, investment and industrial policy, and demonstrate that the UK is facing structural issues that underpin our dissapointing labour productivity.
I have used sklearn to conduct a linear regression on data from before 2008. The UK has clearly decoupled from its previous trend of steady productivity growth.
It is important to consider how productivity has developed in other countries to see if the UK really is an outlier.
The data seems to suggest we are not alone: other strong European economies such as Germany, the Netherlands and Belgium have also faced low growth.
The chart measures GDP per hour worked. I have re-indexed the data to 1995 as the base year so that the recent development in productivity
is clear.
The next chart uses data on output per worker. This shows actual output rather than indexes. I have calculated the 'shortfall' in British productivity, shown in the lower section of the visualisation. This is the percentage difference in productivity between each country and the UK. It is immediately evident that the UK has been lagging behind other major economies since the 90's.
Capital investment is a key contributor to labour productivity; in general we would expect a greater capital to labour ratio
to correspond to higher productivity.
The data is quoted as percentage of GDP, this allows for comparison between countries and gives an indication of the capital-output
ratio across countries. From the data we can see that the UK has had consistently lower capital formation than many other developed
economies.
In the chart below I have conducted seperate regressions on 4 different periods using sklearn, in an attempt to control some exogenous factors such as the GFC. What is evident is a strong correlation between capital investment and productivity since 2008. The graph is also interactive: scroll to zoom in on individual graphs.
Another cause of low productivity is a shift from high to low productivity sectors. The chart shows relative productivity (compared with national average), against employment for each industry. The right hand chart shows the change in employment up to 2023 by industry.
The last chart shows the proportion of GDP spent on R&D by major economies.
The data in this project has been obtained from the ONS, Eurostat and the World Bank. The majority of datasets were accessed via APIs. A few datasets, specifically productivity data from the ONS is only available as an excel, in this case I have still used python to directly access the excel file on the ONS webpage. All data was first cleaned in Python, before being exported as JSON files for use in vega-lite. Links to my colab files are here:
Finding data has been relatively easy due to the nature of my project: macroeconomic indicators are freely published by national and global bodies such
as the ONS, Eurostat and the World Bank.
I faced some difficulties cleaning and utilising the ONS productivity data. The data was taken from excel files,
however ther was difficulty when merging datasets as the labelling and formatting of different British industries varies across datasets.
My solution was to label all the industries with SIC 2007 codes using a python dictionary; some rows had to be summed due to groupings of different industries, however
I successfully managed to merge my required datasets using industry codes.
Throughout the project I have made use of interactivity to ensure I can display all the necessary data. Interactive visuals
have allowed for comparisons between countries and across time periods with multiple variables, to ensure the full picture can be understood.
The data shows that the UK is facing a significant issue with labour productivity. Low business investment and a shift in industry towards lower
productivity service sectors is holding the UK back from maintaining pace with other developed economies. Additionally, British spending on research and development is lower than
many other major economies, likely hindering it from achieving the same level of productivity.
The 'Productivity Puzzle' is an enormous issue, and there is far more data that could be analysed to try and examine its causes. In particular,
there is a need to examine British investment into upskilling workers, either through
formal education, apprenticeships or re-training programs, to better understand how we can invest in human capital.