So, that settles that as a cause then
From the Resolution Foundation:
Productivity in the UK – a vital measure of economic health – is growing more strongly than official figures suggest
OK, and here’s the money line:
Labour productivity – the amount of output the average worker produces in an hour – is the keystone to economic growth and improving living standards. Strong productivity growth before the financial crisis delivered consistent real-wage gains for British workers, and its subsequent slowdown was the biggest contributor to the period of wage stagnation that followed.
Something useful to know there. It wasn’t cuts, austerity - neither of which happened of course - it was the failure of total factor productivity growth. Which is, according to this claim, now returning and there we are.
Almost all of the pickup has come from faster productivity growth within sectors, not from the reallocation of hours between them. For example, the share of employees working in hospitality – often held up as a low-paid sector being hard hit by higher employment costs – is no lower today (6.6 per cent in Q2 2026) than it was in the late 2010s, and sits only 0.3 percentage points below its brief post-Covid peak (in Q4 2022). Digging down, there is also scant evidence that this within-sector growth is being driven by low-paid jobs simply falling away. Looking across around 400 occupations, growth in below-median-paid roles was 2 percentage points stronger in the year to April 2025 than growth in jobs above median pay. Whatever is raising productivity is doing it with the same workers, in much the same jobs, in much the same sectors. And nor can it be explained by capital deepening: investment has been flat at 19 per cent of GDP since 2023, and it would take a sustained or sharp rise in investment to move productivity this much.
This isn’t, therefore, an effect of government policy. There is no knob to twiddle in Whitehall to make it happen. This is markets working. For the claim here is that this is a microeconomic phenomenon - even if with macroeconomic impact - for it’s the little platoons just organising themselves a little bit better each year and month. This is not something achieved by planning. As Paul Krugman famously pointed out, it’s wholly possible that the Soviet Union achieved not one single scrap of TFP improvement in its entire 70 years of existence.
Which does give us at least the possibility of a plan. Reduce the constraints the Lanyards put on the little platoons and wonder as the process continues and even speeds up. Which would be nice, no?
Tim Worstall