Productivity - Fraser of Allander Institute Blog

Scotland’s “Middling” Productivity – An International Perspective

Mark Mitchell and Robert Zymek

University of Edinburgh

It is now well understood that differences in labour productivity – the value of goods and services that can be produced in an average hour of work – explain many observable economic differences between countries. Evidence shows that that highly productive economies outperform their less productive counterparts in in terms of per-capita income, population health, subjective wellbeing, and state-capacity (Caselli, 2005; Jones, 2015; Sacks, et al., 2012). For this reason, it is a cause for concern that labour productivity in Scotland – just as in the UK as a whole – is fairly low compared with other advanced economies. It suggests that Scotland could do better, and improve the lives of its citizens by moving up the productivity tables.

In work published earlier this year by the David Hume Institute (Kelly, et al., 2018), we examined Scotland’s productivity performance in an international context. We found that relative to member countries of the OECD – a club of advanced economies – Scotland’s labour productivity is only middling: Scotland is more productivity than most poorer OECD countries; but it is less productivity than many of its EU neighbours, including countries such as Finland, Denmark, Belgium and Ireland.

Data on Scotland’s economic growth- what’s the difference?

One of the interesting features of the Scottish economic data landscape is that both the Scottish Government and the ONS produce their own separate measures of economic growth for Scotland.

Recently we got some new National Accounts data from the Scottish Government as well as new data from the ONS for GVA growth across the devolved nations and English regions.

With two different datasets on economic growth in Scotland being released relatively close to one another, it’s possible to see whether or not they tell the same story, and if not, why not?

Scottish productivity statistics: Q3 2017

Yesterday saw the publication of the latest Scottish Government official estimates of productivity in Scotland.

Headline results

The latest figures show that labour productivity – as measured by output per hour – fell by 0.7% during the three months Jul-Sept 2017.

This was 8^th quarter in a row of falling productivity in Scotland.

Unpicking Scotland’s recent productivity performance relative to the UK: is it all that it seems?

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.

Productivity update

As usual, Wednesday’s labour market figures grabbed the attention of most people with the focus once again on the sustained rise in employment and fall in unemployment over the year.

However with Scotland’s labour market close to ‘record’ levels but more fragile growth in the economy overall, another set of statistics also published on Wednesday laid out the ongoing productivity challenge facing our economy.Continue reading