The slowdown in productivity since the crisis has been the worst since the start of the Industrial Revolution when steam power was still in its infancy. Productivity is measured as output per hour worked or per worker. Increasing productivity and the amount of output a worker can generate is seen as the key to unlocking higher wages and better living standards for Britons.
However, the Office for National Statistics estimates that median productivity growth of 0.3pc in the 2010s is less than a quarter of the gains made during the decade before the crisis. The average private sector worker would be £5,000 better off if productivity had continued its pre-crisis trend, it estimates.
Britain also lags well behind international peers, with productivity 30pc higher in France and the US. David Miles, a former rate setter at the Bank of England, says “no one has a single convincing explanation” for Britain’s productivity problem.
A Centre for Macroeconomics (CFM) poll of economists in February found 39pc believed low demand after the financial crisis was the most important cause. Factors related to the jobs market was the second most popular explanation, followed by skills and a mismeasurement of productivity.
Miles explains that companies have become “more wary after the crash of 2008 in committing to very large-scale investment”. They have instead relied on boosting output by hiring workers on flexible contracts that can be quickly shed in a downturn, creating a jobs boom but little in the way of productivity growth. Miles argues that coronavirus is “largely a big, black cloud” on productivity. “I find it hard to see how the Covid-19 virus can be good for productivity, at least for many years to come,” he says.