2014
DOI: 10.1111/ecoj.12146
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The UK Productivity and Jobs Puzzle: Does the Answer Lie in Wage Flexibility?

Abstract: UK GDP per worker fell by almost 4% in the five years following Lehman's collapse in 2008, something unprecedented in post‐war history. A possible reason for poor productivity is low growth in the effective capital–labour ratio. This is likely to have occurred because there has been a fall in real wages and increases in the cost of capital due to the financial crisis. We simulate various changes in the capital–labour ratio and after accounting for these changes, the evolution of total factor productivity appea… Show more

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Cited by 81 publications
(91 citation statements)
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References 27 publications
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“…As reported earlier, a fall in the ratio of wage-to-capital costs is likely to be associated with the substitution of employment for capital. The ratio did fall significantly in the UK during the recession, both with respect to declining wages and rises in the cost of capital [6].…”
Section: What Accounted For the Mild Employment Responses In The Uk Amentioning
confidence: 90%
See 1 more Smart Citation
“…As reported earlier, a fall in the ratio of wage-to-capital costs is likely to be associated with the substitution of employment for capital. The ratio did fall significantly in the UK during the recession, both with respect to declining wages and rises in the cost of capital [6].…”
Section: What Accounted For the Mild Employment Responses In The Uk Amentioning
confidence: 90%
“…2008Q2 2008Q3 2008Q4 2009Q1 2009Q2 2009Q3 2009Q4 2010Q1 2010Q2 2010Q3 2010Q4 2011Q1 2011Q2 2011Q3 2011Q4 2012Q1 2012Q2 2012Q3 2012Q4 2013Q1 2013Q2 2013Q3 2013Q4 2014Q1 2014Q2 below the latter until mid-2014, and thereafter (not shown on the graph) remained pretty much equal until the end of 2015. In fact, the UK pattern of GDP per hour is reasonably in line with Germany, France, and Italy between 2008 and 2012, in contrast to the relatively strong productivity growth seen in the US from 2009 [6]. The superior US productivity performance followed its much stronger propensity to reduce the sizes of both employment and person-hours.…”
Section: Robert a Hart | Hours Vs Employment In Response To Demand Smentioning
confidence: 94%
“…Hence, Harvey (2005) explicitly links employer perspectives on flexibility (i.e., to use employees as mere resources which can be dismissed when no longer necessary), with employee perspectives on flexibility (i.e., the chance to set one's own working conditions), with the latter being used to convince the public of the rhetoric of flexibility as constituting the future of work and employment relationships. However, long-term analyses have shown that this rhetoric of flexibility has primarily served organizations, rather than employees, as real wages have stagnated or decreased on average over the last 30 years (Harvey, 2005;Pessoa & Van Reenen, 2014), and income inequality has increased substantially (Piketty, 2014).…”
Section: An Ideological Perspective On Flexibilitymentioning
confidence: 99%
“…Grice 2012;Hughes & Saleheen, 2012;Patterson, 2012;Goodridge et al, 2013;Pessoa and Van Reenen, 2013) by focusing on wages rather than productivity as the outcome of interest, and examining three potential explanations for why wages (and hence productivity) have fallen so much during this recession compared to previous recessions in the UK.…”
Section: Growth In Real Gdp Per Hour and Average Real Hourly Wagesmentioning
confidence: 99%
“…A final piece in the puzzle -discussed extensively in Pessoa & Van Reenen (2013) -is that the reduction in productivity might be driven by a reduction in the capital-labour ratio as a result of an increase in the cost of capital (particularly for small and medium sized firms) or the continuing misallocation of capital to less efficient firms or projects. There has certainly been a sharp reduction in business investment over the course of the recent recession, which has been significantly larger than in previous recessions (Benito et al, 2010) and amongst small and medium-sized firms .…”
Section: Growth In Real Gdp Per Hour and Average Real Hourly Wagesmentioning
confidence: 99%