Tuesday, October 22, 2013

Do Tax Cheats Solve the U.K.’s Productivity Puzzle?

From Real Time Economics:
Economists in Britain have long been scratching their heads over the nation’s troubling “productivity puzzle.”
Now Markit, the financial information provider that publishes the purchasing managers’ indexes used to gauge activity in the global economy, has tentatively suggested that former tax cheats might be muddying the waters.

Britain has a bigger workforce than it did before it tipped into recession in 2008 yet is producing far fewer goods and services. This mismatch between output and jobs has led to a collapse in productivity, a measure of how effectively an economy uses its resources that’s an important driver of future growth prospects.
Official data suggest productivity in the U.K. is roughly 15% lower than what it would have been had the economy continued on its prerecession path and that British productivity has fallen behind that of similar wealthy economies in the past few years.

The reason is that official data show many more people in Britain have stayed in work than in previous recessions even though economic output has nosedived. More surprising still, data show the economy appears to have created many new jobs.

Quite why this has happened is the puzzling bit, and every economist has a different explanation. Some reckon firms hung onto skilled workers instead of laying them off. Some blame dysfunctional banks for leaving unproductive firms alive instead of moving capital to slicker rivals. Others cite a big increase in part-time jobs, self-employment and freelancing.

In a report Tuesday, Markit suggested there’s no puzzle at all. By analyzing three separate business surveys, including one of its own, it concluded the official data may have massively overstated the number of new jobs created in the economy, thereby exaggerating the fall in productivity....MORE