THE PRODUCTIVITY MYSTERY

Martin Wolf, The Financial Times, March 5, 2015

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n analysis by the Institute for Fiscal Studies has revealed the weakness of the recovery. Estimates are that real median incomes have dropped 4% between 2009-2010 and 2011-2012. This is similar to what happened in the mid-1970s and early 1980s. However, real median incomes are predicted to increase only 1.8% during the three years after 2011-2012, while real median incomes increased 13.2% and 9.2% in the three years following the plunges of the 1970s and 1980s, respectively. With that said, the improvement of standards of living (a metric partially based on income) has been weak during this recovery. In the third quarter of 2014, consumption per capita of nondurable goods was 3.8% less than that of the first quarter of 2008. At the same phase subsequent to the slowdown of the 1980s, consumption per capita was 14.4% greater. The younger segment of the population suffered most, while government protected the older segment. On top of that, the real GDP of last year’s third quarter is the same as that of 2006, making it somewhat of a lost decade for the UK. Keeping in mind the strong employment performance, the poor recovery in GDP per capita seems to be mainly responsible for this sluggish recovery in standards of living. Increasing standards of living will depend on finding a sustainable solution to the slowing productivity.

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THE PRODUCTIVITY MYSTERY

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