Productivity's down, but can it recover?

There probably isn't a long-term drop in productivity.

The standard explanation for the divergence between the (quite good) employment data and the (abominable) GDP data is that productivity has, for whatever reason, plummeted.

Various explanations have been proffered. It may be that the productivity slump is specific to this recession, and is caused by the government's desperate desire to "rebalance" the economy from the public to private sectors. If it's achieved this by laying off a lot of productive workers, they will find themselves working less well in their new jobs in the private sector, and so there will be a productivity slump – even while employment goes up.

Alternatively, the productivity slump might be a short-term effect of the slump. In this recession, for whatever reason, the drop in demand didn't lead to people laying off workers, but instead caused them to keep them on in the hope that the slump would end and they could start using their slack capacity again. This is the preferred explanation of Free Exchange, which writes:

Supporters . . . argue that high inflation doesn't mean there is no capacity in the UK economy: recent high inflation was down to a rise in commodity prices and the VAT increase; it has since dropped. Business surveys are often unreliable and don't account for what happens when demand picks up. The financial crisis doesn't explain everything: look at the USA and Spain. These countries have had much stronger productivity growth. Indeed, Bill Martin and Robert Rowthorn, of Cambridge University, have lent much support to this "temporary" explanation in a May publication. They show that the shift in jobs from high- to low-productivity sectors only amounts to a 1/4 percentage point of the productivity shortfall.

Then, of course, there is the argument that there isn't actually any problem at all. The FT reports

The single biggest puzzle for economists is the fact that the GDP data simply do not tally with the message from the labour market which is that employment, and the number of jobs, are growing. “It is difficult to reconcile the weakness of today’s [Wednesday’s] official GDP data with any other indicator of economic or labour market activity,” said Kevin Daly, economist at Goldman Sachs.

Mr Daly noted that in the three months to May, employment rose by 0.6 per cent or 182,000 jobs while the unemployment rate fell by 0.2 percentage points to 8.1 per cent. That, he said, was consistent with annualised GDP growth of 1.0 to 1.5 per cent for the second quarter.

It's Goldman Sachs versus the ONS. Of course, last quarter it was Goldman Sachs versus the ONS as well, and the ONS were very definitely proved right. Don't expect much different this time.

Osborne isn't too happy. Photograph: Getty Images

Alex Hern is a technology reporter for the Guardian. He was formerly staff writer at the New Statesman. You should follow Alex on Twitter.

Photo: Getty Images
Show Hide image

The Fire Brigades Union reaffiliates to Labour - what does it mean?

Any union rejoining Labour will be welcomed by most in the party - but the impact on the party's internal politics will be smaller than you think.

The Fire Brigades Union (FBU) has voted to reaffiliate to the Labour party, in what is seen as a boost to Jeremy Corbyn. What does it mean for Labour’s internal politics?

Firstly, technically, the FBU has never affliated before as they are notionally part of the civil service - however, following the firefighters' strike in 2004, they decisively broke with Labour.

The main impact will be felt on the floor of Labour party conference. Although the FBU’s membership – at around 38,000 – is too small to have a material effect on the outcome of votes themselves, it will change the tenor of the motions put before party conference.

The FBU’s leadership is not only to the left of most unions in the Trades Union Congress (TUC), it is more inclined to bring motions relating to foreign affairs than other unions with similar politics (it is more internationalist in focus than, say, the PCS, another union that may affiliate due to Corbyn’s leadership). Motions on Israel/Palestine, the nuclear deterrent, and other issues, will find more support from FBU delegates than it has from other affiliated trade unions.

In terms of the balance of power between the affiliated unions themselves, the FBU’s re-entry into Labour politics is unlikely to be much of a gamechanger. Trade union positions, elected by trade union delegates at conference, are unlikely to be moved leftwards by the reaffiliation of the FBU. Unite, the GMB, Unison and Usdaw are all large enough to all-but-guarantee themselves a seat around the NEC. Community, a small centrist union, has already lost its place on the NEC in favour of the bakers’ union, which is more aligned to Tom Watson than Jeremy Corbyn.

Matt Wrack, the FBU’s General Secretary, will be a genuine ally to Corbyn and John McDonnell. Len McCluskey and Dave Prentis were both bounced into endorsing Corbyn by their executives and did so less than wholeheartedly. Tim Roache, the newly-elected General Secretary of the GMB, has publicly supported Corbyn but is seen as a more moderate voice at the TUC. Only Dave Ward of the Communication Workers’ Union, who lent staff and resources to both Corbyn’s campaign team and to the parliamentary staff of Corbyn and McDonnell, is truly on side.

The impact of reaffiliation may be felt more keenly in local parties. The FBU’s membership looks small in real terms compared Unite and Unison have memberships of over a million, while the GMB and Usdaw are around the half-a-million mark, but is much more impressive when you consider that there are just 48,000 firefighters in Britain. This may make them more likely to participate in internal elections than other affiliated trade unionists, just 60,000 of whom voted in the Labour leadership election in 2015. However, it is worth noting that it is statistically unlikely most firefighters are Corbynites - those that are will mostly have already joined themselves. The affiliation, while a morale boost for many in the Labour party, is unlikely to prove as significant to the direction of the party as the outcome of Unison’s general secretary election or the struggle for power at the top of Unite in 2018. 

Stephen Bush is editor of the Staggers, the New Statesman’s political blog.