Productivity has once again jumped back up to the top of the news agenda.
UK productivity growth remains exceptionally weak. And as we discussed in our Budget Briefing event on Friday, the decision by the OBR to revise their forecast for productivity has had a major impact on the outlook for the UK’s public finances.
But what about productivity in Scotland? Scotland had been catching up with the UK – at least until 2015. But as we highlighted in a recent blog, the latest figures show that Scottish productivity has since slipped back, with output per hour down 4% on where it was at the end of 2015. The next set of official comparisons between Scotland and the UK will be published in January 2018.
In this blog, we unpick recent trends to see what had been driving this relative improvement in Scotland vis-à-vis the UK up until 2015. Did it reflect an improvement in Scottish efficiency per se or is something else happening at the UK level?
We show that the key reason for Scotland ‘catching up’ with the UK does not appear to be strong growth in Scottish-specific productivity (which is relatively obvious given the fragile economic growth that we have seen recently). Instead, it is because the UK has been creating jobs at a much faster rate.
Why does this have an impact on productivity? Remember, productivity is the ratio of output to labour input. So, if the number of people working is increasing faster than the growth in output, the average contribution of each worker (or hour worked) will fall. With Scotland creating fewer jobs, Scotland’s relative productivity compared to the UK will improve.
Whether or not this form of ‘catching-up’ is a good thing is open to debate.