Expanding your labour supply is not good for you!

An item on the Guardian website looks at why UK productivity is low.

“But it is still the case that the UK sticks out against other countries that have at least had some growth,” she said.

Studies have looked at whether the near collapse of the banks restricted the supply of credit to companies and prevented them making productivity-enhancing investments. Riley said this would have had some impact.

The rapid expansion of mainly low-level service jobs that carry low levels of pay is another reason. In France and Germany, the coffee shop and online delivery culture is still in its infancy by comparison with the UK. These are businesses that provide a valued but unsophisticated service with limited room for productivity improvements.

It means the UK has lower unemployment and a bigger workforce, with fewer people economically inactive than France – but lower productivity and lower pay.

In France, and to a lesser extent Germany, restrictions on working hours are other factors at play. For instance, widespread industrial pay bargaining and limits on redundancies make hiring workers a more costly proposition than in the UK. This encourages French and German firms to invest in the latest machinery and limit employment.

Bill Martin, a former City economist who is now at Cambridge University’s Judge business school, has argued that the UK’s poor productivity is “more plausibly interpreted as a symptom of a largely demand-constrained, cheaper-labour economy”.


A lesson here for Cornwall? Just expanding the labour supply (which boosts overall output but not per person) is not really a good idea.

Far better to improve the jobs available for the existing workforce, upgrade and upskill and make more productive (and more sustainable).

That needs investment – public and private – not in roads and airports but renewables, IT and sustainable activities.


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