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One of the most important factors in determining living standards is productivity – how much output is produced for a given input (such as an hour of work).

The more efficient the economy is, the more that can be produced in a sustainable fashion. In other words, higher productivity growth leads to a higher long-term growth rate of the economy.

Economic theory states that labour productivity also determines wages: the more productive an employee is, the more they are likely to be paid.

UK productivity

In Q4 2020, productivity fell by 4.3% compared with the previous quarter (following a 6.5% rise in Q3). Productivity was 0.7% lower in Q4 2020 than a year ago (Q4 2019).

The effects of the pandemic present significant challenges in the measurement of productivity. This likely means underlying productivity trends will be difficult to discern for some time.

Historically, UK labour productivity has grown by around 2% per year but since the 2008/2009 recession it has stagnated (see chart above).

International comparisons

In 2016, ranked on GDP per hour worked, the UK came fifth highest out of the G7 countries, with Germany top and Japan bottom. UK productivity was 16% below the average of the rest of the G7 countries, the largest since at least 1995 (when the ONS data series began).

G7 comparison of productivity levels

Recent evidence from the OECD showed that the UK’s productivity gap with the G7 average is not as great as previously thought, due to the different ways countries measure hours worked. The ONS is exploring this research and plans to recommence publishing its international comparisons of productivity bulletin later in 2021.

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