It is my Friday Lay Day blog and it is going to be relatively quick. There was an article in the Wall Street Journal (December 23, 2015) – Economists Say ‘Bah! Humbug!’ to Christmas Presents – that says a lot about how my profession struggles to appreciate reality in all its dimensions. Every year, it…
Its the Friday lay day blog and a public holiday to boot. So not much today. I wrote earlier in the week a blog about the latest British employment data – Employment growth in the UK but of dubious quality. It was part of a series of blogs I have written documenting the gap between the political hubris coming from the Conservatives about how successful their austerity strategy has been and the reality on the ground. Yes, Britain is growing in the sense that real GDP growth is no longer negative. But in this environment of weak growth the essential conditions for longer term prosperity are being eroded. On Wednesday this week, more information came out to support this hypothesis. The British Office of National Statistics (ONS) published the latest – Labour Productivity, Quarter 4 (Oct to Dec) 2014 – Release – which showed that “labour productivity fell by 0.2% in the fourth quarter of 2014” and is the worst sustained performance since 1948 (no growth in the last seven years). Some claim to success. I remind readers that rising material standards of living in any nation rely on productivity growth. Without it societies with ageing populations are headed for mediocrity or worse.
The ONS summary of the labour productivity was:
1. “output per hour fell by 0.2% in the fourth quarter of 2014 compared with the previous quarter. In 2014 as a whole, labour productivity was little changed from 2013, and slightly lower than in 2007, prior to the economic downturn”.
2. “These estimates show that the absence of productivity growth in the seven years since 2007 is unprecedented in the post-war period”.
3. “Despite weak productivity growth, unit labour costs have increased only modestly, by less than 1% per year on average over the last five years. This reflects low growth in labour costs per hour worked”. In other words, real wages have gone backwards faster than productivity growth – a perfect storm for generalised stagnation.
The following graph shows the movement in output per hour (red) and output per worker (blue) since 1948. The hourly series only began in 1971.
The differences between the two series are explained in detail in the publication linked to above. They essentially related to “movements in average hours which, though typically not large from quarter to quarter, can be material over a period of time. For example, a shift towards part-time employment will tend to reduce average hours. For this reason, output per hour is a more comprehensive indicator of labour productivity”.
The data shows zero productivity growth since 2007, which is amazing. In fact, productivity per hour worked is lower now than it was pre-crisis in 2007.
Productivity typically slumps during a recession because real GDP falls faster than employment (or working hours) as firms hoard their skilled labour given the costs of hiring and firing are higher than the costs of keeping them on and working less intensively.
In a recovery, an economy typically gets a quick boost in productivity because those workers that were on short-time or administrative workers who were not working to capacity quickly start producing more without any incremental labour input (in persons or hours) being necessary.
This is also why employment growth lags behind output growth in a recovery.
That dip is noticeable in the data but the recovery is weaker than expected – largely due to the early attempts to nuke the British economy with austerity in the early days of the current Conservative government.
They realised that this approach would be disastrous and relaxed the austerity program and the rising deficit allowed growth to resume, though weakly.
The weak productivity growth also explains why employment growth has been so strong given the parlous real GDP (output) growth.
Productivity is the ratio of output to employment. So if an economy is highly labour intensive productivity will tend to be lower than if it is capital intensive. People dig bigger holes faster with machinery than with hand shovels!
Strong productivity growth also reduces the amount of labour input required to produce a given output. The opposite is the case when productivity growth is slow, which means that much weaker growth will give a higher employment dividend.
That sounds good but it is really a poisoned chalice. It implies that a lot of unproductive jobs have been created in the UK in the last 5 or so years.
This dovetails with what we saw in the labour force data this week where the growth in self-employment was easily outstripping the growth in employees.
Putting the two data releases together suggests that a lot of those in self-employment are really doing very little. That is also consistent with the fact reported by ONS that real incomes had fallen among that cohort over the last year.
It gets worse when you realise that real wages have fallen in the UK.
So this is race-to-the-bottom territory – low wages growth, negative productivity growth, weak output growth.
I wouldn’t hold my hand up and take credit for that if I was a British politician.
The only pity in the UK is that the Labour Party appears to be advocating a softer version of the Tory approach. Neither will deliver prosperity.
The Labour Party needs to abandon its neo-liberal Groupthink and argue that the fiscal deficit is too low at present and private debt is too high.
That won’t happen and this malaise – the end-point of 20-30 years of neo-liberalism will drag on to the detriment of all but the wealthiest.
Advance notice: Workshop – 70th Anniversary of the White Paper on Full Employment – Sydney, May 30, 2015
My research centre is staging a workshop in Sydney on May 30, 2015 to mark the occasion of the presentation of the White Paper to the Australian Parliament on May 30, 1945.
On Wednesday, May 30, 1945, Mr John Dedman, Minister for Post-war Reconstruction and Minister in charge of the Council for Scientific and Industrial Research in the Curtin Labor Government, stood up to present the White Paper on Full Employment to the House of Representatives of the Australian Parliament.
He drew attention of the Members “to the importance of the document and the fundamental character of the policy outlined in it” and “sets forth boldly and unequivocally the Government’s intention to secure full employment for the people of Australia after the war” and outlined “the method by which the Government proposes to achieve this aim”.
The White Paper and the policy framework that was implemented to achieve the aim of full employment defined the Australian government’s socio-economic strategy until the mid-1970s, when the rising dominance of what we now call neo-liberalism, saw the Federal Government abandon its commitment to full employment.
The Workshop will seek to explore the relevance of the White Paper approach to Full Employment in the context of the apparent contradictions of the policy stances that are now entrenched and causing the prolonged global unemployment crisis.
Further details at the – Workshop homePage.
There will be several speakers and discussion.
We hope to see a lot of people at the workshop to protest at the impoverished macroeconomic policy framework in Australia at present.
Educational innovation and fun
This video – Chemical Party – is really entertaining and perfect for a Friday. The European Union does fund some good things.
Music from the late Shake Keean
This is what I was listening to this morning as I worked.
Ellsworth McGranahan “Shake” Keane – was a flugel horn player from a jazz tradition who in his later years worked with some of the hottest reggae musicians (30 May 1927, Kingstown, St Vincent, West Indies – 11 November 1997, Oslo, Norway) was a jazz musician, poet and government minister. He is most well known today for his role as a jazz trumpeter, principally his work as a member of the ground breaking Joe Harriott Quintet (1959-1965).
His nickname ‘Shake’ is a shortened version of Shakespeare, which he inherited during his school days because he loved reading and poetry. He was also known as a successful poet and when he left St Vincent in 1952 at the age of 25 for Britain he gave poetry readings on BBC radio.
His first big band was the ‘free jazz’ band led by – Joe Harriott – which prospered from Shake’s great capacity to improvise ‘outside’.
Here is an – Obituary – following his death in 1997.
This track – Prague 89 – is part of his collaboration with English poet Linton Kwesi Johnson and the Dennis Bovell Band (featuring drummer Jah Bunny and guitarist John Kpiaye).
It was released on the LKJ Label in 1991.
The Saturday Quiz will be back again tomorrow. It will be of an appropriate order of difficulty (-:
That is enough for today!
(c) Copyright 2015 Bill Mitchell. All Rights Reserved.