Perhaps weak productivity is a temporary feature of economies that suffer credit busts. A new study from the Bank of England says not. GDP typically falls harder and climbs back more slowly after banking troubles than after garden-variety recessions. But persistently weak productivity was not common after previous rich-world crises, says the study. Britain's mix of deep recession and shallow job losses (see chart) is unusual.
A bleaker conclusion is that British workers are less handy than they were before crisis struck. It is hard to explain why businesses are hiring more staff unless they could not produce without them. If the productivity slump is permanent, there is less scope for the economy to shoulder its debts and to grow without sparking a burst of high inflation.
Yet a recent paper by Bill Martin and Robert Rowthorn of Cambridge University cautions against the notion that workers have suddenly become less capable. Weak productivity is a symptom of an economy with weak demand and cheap labour, say the authors. Most of the jobs created since employment stabilised at the end of 2009 have been in low-productivity trades—in hotels, restaurants, office-cleaning and the like. Such labour-intensive, low-cost businesses have benefited most from the fall in real wages. In sectors with higher-than-average productivity, by contrast, labour hoarding has been commoner than hiring. Firms have clung to staff because skilled workers will be hard to recruit once things return to normal.
Some high-wage service industries have seen strong jobs growth of late—a puzzling switch from hoarding to hiring. But trades such as consultancy and finance rely on big transactions to drive profits. Workers may be pitching as hard as ever but winning less business while demand is so weak.
