The US economic system has emerged from the pandemic rising at a quicker tempo than the UK and different high-income nations. Simon Pittaway tackles the query of why in “Yanked away: Accounting for the post-pandemic productivity divergence between Britain and America” (Decision Basis, April 2025).
The typical way of life in any economic system, over time, will likely be decided by the productiveness of staff in that economic system. This determine calculates productiveness as GDP/employee, adjusted in order that productiveness in all of the G7 nations simply earlier than the pandemic was equal to 100. (The G7 nations are the US, UK, France, Germany, Italy, Japan, and Canada.) You possibly can see the crimson US line pulling forward of the remainder. The official British knowledge is the dashed line, however Pittaway argues that the official knowledge is simply too optimistic, and the precise labor productiveness within the UK is definitely decrease than it was in 2019.
Whenever you hint the productiveness patterns deeper into the information, what do you discover? For the UK, Pittaway factors to a number of industries the place the decline in productiveness since 2019 has been particularly excessive.
For instance, it seems that the UK well being care sector is experiencing an outright decline in productiveness. Within the UK oil and pure fuel sector, employment is up barely, though manufacturing of oil is down by two-fifths and manufacturing of pure fuel is down by three-fifths. There appears to have been a decline British productiveness in wholesale and retail commerce, as effectively–that’s, output within the business is down way more than employment. Right here, I need to concentrate on a couple of bigger-picture points.
One is the extent of funding. Pittaway writes:
The funding hole between Britain and America has widened in recent times. Funding by British companies hit a brick wall across the time of the Brexit referendum.42 Because of this, development in Britain’s capital inventory has slowed by two-thirds, from 2.8 per cent in 2016 to 0.9 per cent in 2023. Notably, this slowdown has been significantly stark within the service sectors the place the US has considerably outperformed the UK. In actual phrases, American companies in these sectors invested 24 per cent extra in 2023 than in 2016, whereas their British counterparts invested solely 7 per cent extra.
Again when Brexit was taking place, I wrote that, as an American, I perceive the urge to interrupt commerce ties and declare independence. However regardless of the deserves of Brexit as a cry for self-determination and nationwide autonomy, it wasn’t good for funding incentives. The present US push to fracture commerce ties with the remainder of the world, particularly as it’s taking place in unclear and ever-evolving methods, received’t be good for US funding incentives, both.
A second huge distinction value noting is the US productiveness development benefit in technology-using jobs. US corporations are investing extra in know-how, particularly. Because of this, productiveness development in service-related has been greater within the US economic system. Pittaway writes:
Skilled providers emerge as a very essential supply of productiveness development within the US. Partly, this displays the speedy development of America’s massive, excessive profile tech corporations, who largely function within the data and communications sector. However productiveness development in skilled providers sectors that use relatively than produce tech has been extra consequential. Between 2019 and 2023, skilled, scientific and technical providers accounted for one-sixth (17 per cent) of the post-pandemic hole in productiveness development between the US and the UK – twice as a lot because the tech (ICT) sector (8 per cent). The extra tailwind from quicker productiveness development in much less glamorous service sectors – like administrative and help providers, wholesale and retail, and hospitality – shouldn’t be missed. For instance, totally different charges of productiveness development within the wholesale and retail sector account for nearly as a lot of the US-UK combination productiveness development hole (0.51 proportion factors) as data and communications.
A 3rd distinction is that vitality prices are a lot decrease in america than within the UK, or in different nations throughout Europe. The left-hand panel compares the value of pure fuel; the right-hand panel compares the value of electrical energy.
Lastly, the US economic system appears to have emerged from the pandemic with an increase of dynamism: extra new corporations being began, extra financial shifts towards areas of better financial alternative. Right here’s a determine illustrating one side of that sample. As you may see, firm births and deaths within the US spiked throughout the pandemic, however firm births have remained excessive since then. There’s no such motion within the UK knowledge.
Throughout the pandemic, many European nations centered on preserving the connection between staff and their jobs, whereas the US centered extra on revenue safety for staff, however with out linking that help to remaining with their earlier employer. One consequence of these totally different coverage selections is that the US economic system has been extra fluid in adjusting for the reason that pandemic.
