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.

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Air pollution: 5 steps to vanquishing an invisible killer

A new report looks at the economics of air pollution. 

110, 150, 520... These chilling statistics are the number of deaths attributable to particulate air pollution for the cities of Southampton, Nottingham and Birmingham in 2010 respectively. Or how about 40,000 - that is the total number of UK deaths per year that are attributable the combined effects of particulate matter (PM2.5) and Nitrogen Oxides (NOx).

This situation sucks, to say the very least. But while there are no dramatic images to stir up action, these deaths are preventable and we know their cause. Road traffic is the worst culprit. Traffic is responsible for 80 per cent of NOx on high pollution roads, with diesel engines contributing the bulk of the problem.

Now a new report by ResPublica has compiled a list of ways that city councils around the UK can help. The report argues that: “The onus is on cities to create plans that can meet the health and economic challenge within a short time-frame, and identify what they need from national government to do so.”

This is a diplomatic way of saying that current government action on the subject does not go far enough – and that cities must help prod them into gear. That includes poking holes in the government’s proposed plans for new “Clean Air Zones”.

Here are just five of the ways the report suggests letting the light in and the pollution out:

1. Clean up the draft Clean Air Zones framework

Last October, the government set out its draft plans for new Clean Air Zones in the UK’s five most polluted cities, Birmingham, Derby, Leeds, Nottingham and Southampton (excluding London - where other plans are afoot). These zones will charge “polluting” vehicles to enter and can be implemented with varying levels of intensity, with three options that include cars and one that does not.

But the report argues that there is still too much potential for polluters to play dirty with the rules. Car-charging zones must be mandatory for all cities that breach the current EU standards, the report argues (not just the suggested five). Otherwise national operators who own fleets of vehicles could simply relocate outdated buses or taxis to places where they don’t have to pay.  

Different vehicles should fall under the same rules, the report added. Otherwise, taking your car rather than the bus could suddenly seem like the cost-saving option.

2. Vouchers to vouch-safe the project’s success

The government is exploring a scrappage scheme for diesel cars, to help get the worst and oldest polluting vehicles off the road. But as the report points out, blanket scrappage could simply put a whole load of new fossil-fuel cars on the road.

Instead, ResPublica suggests using the revenue from the Clean Air Zone charges, plus hiked vehicle registration fees, to create “Pollution Reduction Vouchers”.

Low-income households with older cars, that would be liable to charging, could then use the vouchers to help secure alternative transport, buy a new and compliant car, or retrofit their existing vehicle with new technology.

3. Extend Vehicle Excise Duty

Vehicle Excise Duty is currently only tiered by how much CO2 pollution a car creates for the first year. After that it becomes a flat rate for all cars under £40,000. The report suggests changing this so that the most polluting vehicles for CO2, NOx and PM2.5 continue to pay higher rates throughout their life span.

For ClientEarth CEO James Thornton, changes to vehicle excise duty are key to moving people onto cleaner modes of transport: “We need a network of clean air zones to keep the most polluting diesel vehicles from the most polluted parts of our towns and cities and incentives such as a targeted scrappage scheme and changes to vehicle excise duty to move people onto cleaner modes of transport.”

4. Repurposed car parks

You would think city bosses would want less cars in the centre of town. But while less cars is good news for oxygen-breathers, it is bad news for city budgets reliant on parking charges. But using car parks to tap into new revenue from property development and joint ventures could help cities reverse this thinking.

5. Prioritise public awareness

Charge zones can be understandably unpopular. In 2008, a referendum in Manchester defeated the idea of congestion charging. So a big effort is needed to raise public awareness of the health crisis our roads have caused. Metro mayors should outline pollution plans in their manifestos, the report suggests. And cities can take advantage of their existing assets. For example in London there are plans to use electronics in the Underground to update travellers on the air pollution levels.

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Change is already in the air. Southampton has used money from the Local Sustainable Travel Fund to run a successful messaging campaign. And in 2011 Nottingham City Council became the first city to implement a Workplace Parking levy – a scheme which has raised £35.3m to help extend its tram system, upgrade the station and purchase electric buses.

But many more “air necessities” are needed before we can forget about pollution’s worry and its strife.  

 

India Bourke is an environment writer and editorial assistant at the New Statesman.