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We examine the levels and growth of UK productivity compared to France, Germany and the US. UK labour productivity is much lower than in other countries, and almost all of this gap is due to lower capital and skills rather than Total Factor Productivity (TFP). There has been a marked slowdown in labour productivity growth: comparing the dozen years before vs. after the Global Financial Crisis, annual growth has fallen from 2.5 percent to 0.5 percent. Just over half of this two percentage point slowdown is due to slower TFP growth, which is broadly similar in magnitude across countries. Britain experienced a much larger slowdown in the growth of capital intensity than other countries and it is this (alongside a smaller contribution from slow skills growth) which accounts for the particularly severe 'productivity puzzle'. These findings suggest that UK policy should focus on the problem of chronic under-investment.
John Van Reenen and Xuyi Yang
27 November 2023 Paper Number CEPSP41
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This work is published under POID and the CEP's Growth programme.