Why does the UK have such low productivity compared other advanced economies?

[Fifi1010]

Our economic productivity has grown 0.8 percent per year on average since 2008 compared with 2 percent before. Why is that? High productivity increases the tax receipts , money for schools and healthcare. If we don't improve productivity living standards will further decline. Where have we gone wrong? I know Brexit is a problem but this started 8 years before.

I’d also look at benefits system and compare with others and see if it disincentives in any major way

💯 %, nowadays people just expect to be subsidized as if it was their birthright ...so sad.

But how is that the taxpayer's problem? If you decide to have a kid you should have the means to either: live on one wage, have family to help with childcare, organise different shifts with your partner, or had improved your earning potential before having said child, so they can attend paid childcare. Our life choices are not anyone else's responsibility.

Other European countries actually subsidize parents of very young children but once the children are eligible for child care, which is much cheaper than in the UK due higher levels of state funding, then parents are expected to work.

In fact until you are 18 lots of European countries give you a lot but then once you are a working adult you pay more direct taxes to fund it.

Wish you Tories would make up your minds and stick to it
NEW: Father-of-six Jacob Rees-Mogg has said that the UK pension age will HAVE to rise as Brits aren't having enough kids - something which he and Boris Johnson led "by example" with

@Moreorlessmentallystable sorry didn't make it clear doing that from 9 months is ridiculous. Most European countries expect you to do that at 2.

If people in their 20s and 30s could afford housing maybe the birth rate would increase.

Most countries support you having children.

If we don’t have them unless we can tick all your boxes how will the population reproduce. It is absolutely the tax payers job to support children. We need a young population.

How do they work.out productivity?

I've just retired early and part of the reason was technology has taken over and often doesn't work so I ended up being unproductive whilst I mend it/probe to find out the issue/wait for IT to mend it/wait for updates/wait for third party tech to work again because its having tech issues.

I used to spend 85% of my time working and 15% max adminey/unproductive stuff. It became more like 66% productive 33% other stuff.

Unemployment benefit in UK is one of the lowest among the advanced economies.

This link has good cross-country comparison (click on the 'table' tab) : https://data.oecd.org/benwage/benefits-in-unemployment-share-of-previous-income.htm

UK unemployment beneift, measured as a percentage of previous income, is 5th from the bottom. There are a large number of significantly more productive economies with much better benefits.

I wonder if they have similar split with higher proportion paid in benefits than paying taxes, only recently but still

They do. Benefit payment as percentage of GDP in UK is below EU average.

Among countries that spend more on benefit payment than UK are France, Sweden, Denmark, Norway, Germany, Belgium, Finland and Austria -- all with more productive economy than UK.

We also should to be careful conflating Covid influenced statistics with the norm. The specific statistics you are mentioning is probably during 2021/2022 lockdown?

According to ONS, it was caused by government's response to the pandemic , though that didn't stop Daily Mail and similar papers from having a field day with the numbers.

Reductions in indirect taxes and increased benefits-in-kind, largely in response to the coronavirus (COVID-19) pandemic, drove the proportion of individuals receiving more in benefits than they paid in taxes increased from 47.5% to 54.2% in FYE 2021, the largest annual increase since records began in 1977.

Productivity is a measure of output per unit of labur.

Most commonly used number is output in Pounds (or Dollar) per hour of work.

It answers the question :

What is the value of goods (or service) an average representative UK worker produces for an hour of work?

For UK, the answer in 2019 was abotu $54
For Germany, the answer was $69

So an average German worker produced over 25% more an hour than an average UK worker in 2019.

Or another way of looking at it is :

An average German worker produces in 4 days what an UK worker produces in 5 days. To achieve the same standard of living as UK, Germans need to work just 4 days a week (but obviously they work 5 days, hence higher standard of living!)

Ultimately, this number determines prosperity of nations, wages and standard of living, quality of public services and so on.

In your specific example, it would appear that your productivity at work fell due to poor decisions by your employer. If that happened to everyone else in the company, then the productivity of the business had fallen too.

Thankfully in the entire economy, something like that usually doesn't happen, and productivity normally rises over time - due to innovations, investment and improvement in skills. Obviously the experience of individual businesses will differ, some will fail, some will do well.

Because the Government is more interested in increasing benefits by 10% than giving workers an increase during a time of high inflation so more and more people are opting not to work or to work part time when it makes little different to the money they receive and they have a guaranteed income with inflation proof increase each year without having to worry about working.

Also, taxes are so high now that work is almost seen as something to be punished for doing and assets are taxed less than PAYE jobs. Lots of people have given up bothering.

Also, taxes are so high now that work is almost seen as something to be punished for doing and assets are taxed less than PAYE jobs.

Despite what the government wants you to believe, UK income tax is relatively low when compared with much of the rest of Europe. But you are correct, assets and non-earned income (rent, interest, capital gains etc.) is taxed at a lower rate than earned income, so there is a disincentive to doing PAYE jobs as opposed to investing or using a limited company through which to earn dividends rather than a wage.

It’s really not; there are some huge cliff edges where the effective rate of tax is 70% and over 100% if you have children and hit 100k. The chancellor himself commissioned a study which told him this is a huge problem by actual economists.

A better way to put it, I think, is that bottlenecks, marginal tax rates and cliff edges function as a real disincentive to work more at various income points in the UK system.

Sometimes that calculation is made by a person who relies on top up benefits to pay the bills, other times by a person who doesn't want to take on the extra job because it's not worth the effort once they hit 50k once you factor child benefit in, other times by someone who doesn't want to go over 100k because they lose their personal allowance and the 30 hours. For whatever reason, we haven't addressed this, and fiscal drag means it's probably going to become more common.

An average German worker produces in 4 days what an UK worker produces in 5 days. To achieve the same standard of living as UK, Germans need to work just 4 days a week (but obviously they work 5 days, hence higher standard of living!)

Actually, the average German worker only works 34.6 hours a week, around 2 hours a week less than the average UK worker. Many workplaces close at 1 pm on a Friday. And they still have a higher standard of living and more leisure time than the UK worker because of investment in automation and decent rates of pay - as well as far better healthcare provision, childcare, public transport etc. and a culture that does not condone overtime and work-martyrs who work all hours. Nor do Germans generally accept long commutes.

Tax needs to be viewed as a whole though: income tax isn't the whole story. A like for like comparison would need to include national insurance and VAT, plus take into account benefits and goods and services that are provided subsidised or free in the countries being compared. You've only to look around you in the UK and other European countries (France and Switzerland are the two I've been to most recently) to see how crap our infrastructure has become and how much worse poverty has got.

The NHS waiting lists alone explain why productivity's gone into reverse.

It really isn't that much of a "puzzle": well educated, well treated, well housed, healthy people working with good tools, equipment and systems are motivated and productive! Especially if they think their children will be better off than them. How many of us truly believe that?

I’d break it down into sectors and look at which are most productive and least

Not sure it necessarily means the least productive should be decreased but changes are hard

Increased productivity can mean fewer people. Aiming for fewer people doesn’t always go down well as we’ve seen recently.

I find the earn more at the supermarket line interesting as a sector it is investing in other ways to pay etc therefore reducing number of staff. That’s not always seen positively but in times of labour shortage it probably is.

Tax needs to be viewed as a whole though: income tax isn't the whole story. A like for like comparison would need to include national insurance and VAT, plus take into account benefits and goods and services that are provided subsidised or free in the countries being compared. You've only to look around you in the UK and other European countries (France and Switzerland are the two I've been to most recently) to see how crap our infrastructure has become and how much worse poverty has got.

Yes, very true.

The cliff edges are a problem and a disincentive to work for some; they should be fixed.

But those distortions don't change OP's original point that overall tax in UK is not unusually high despite what the government wants you to believe.

This chart shows OECD economies overall tax as a percentage of GDP.
https://www.oecd.org/coronavirus/en/data-insights/tax-to-gdp-ratios

UK's tax-to-GDP at 33% is exactly at OECD average

Since discussing productivity here, a number of more productive economies, including, Denmark, France, Germany, Austria, Netherlands, Sweden, Belgium etc have higher tax revenue than UK.

Also, some more productive nations like US and Switzerland have lower overall tax revenue (as pct of GDP) than UK.

Whatever is ailing UK productivity, it's not tax rate. Lowering it will make some people happy but at macro level will not make any difference to UK's productivity problem.

@Fifi1010
At a guess various levels of technology development, different areas of manufacturing being built overseas, not sure really

... there are some huge cliff edges where the effective rate of tax is 70% and over 100% if you have children and hit 100k. The chancellor himself commissioned a study which told him this is a huge problem by actual economists.

Nobody would dispute that rates are high for certain high earners, but only 4% of the working population earns over £100,000. For 96% of workers, and particularly the 40% earning less than £30,000, this is not an issue. For the UK as a whole, it is certainly not a "huge problem".

@Havanananana is that 4% of PAYE earners?