UK / A never seen recession: Employment has stayed remarkably, high productivity – output per worker – has dived

We have all grown used to the fact that the past few years have been different from any previous period in the last century. Output has stayed lower for longer than in any previous recession: in 2013, real national income is still lower than it was in 2007. This of course has driven public borrowing up to unprecedented levels and kept it much higher than anyone hoped or forecast.

But it is not just in terms of output and borrowing that we are living through unusual times. As a special issue of Fiscal Studies, published on Wednesday, makes clear much that is going on in our economy is almost without precedent. This makes both policy making and preparation for the future remarkably difficult. The long-term consequences are unknown and policy is being made in a context of which we have no experience.

The first unusual aspect of the present is the good news story. Employment has stayed remarkably high – very much higher than one would expect given what has happened to output. Some groups, such as lone parents and older workers, often seen in the past as marginal to the labour market, have done particularly well.

The flipside of this good news story is that productivity – output per worker – has dived. This has not been driven by changes in either the composition of companies or the composition of labour (quite the reverse, in fact) but by lower productivity within businesses. The fall is much more substantial in smaller companies, among those that invested in higher levels of training pre-recession and among those that have experienced a fall in demand for their output. This appears to imply at least some form of “labour hoarding”.

Whether this means that it will take a long time after the end of the recession for unemployment to fall as output recovers – or whether we have suffered a permanent loss in productivity – remains to be seen. Either way, the recovery may be less comforting than we would hope.

Chosen excerpts by Job Market Monitor

via Britain has never been through a recession like this before – FT.com.