Covid-19 and Productivity: Impact and Implications

The Covid-19 pandemic has exposed many of the structural factors of the UK’s poor productivity performance. While the exact timing of the productivity slowdown is contested, there is no doubt that UK productivity has been markedly lower in the years 2009-2019 compared with the period leading up to the global financial crash.

Pub. Date
17 February, 2022
Pub. Type
Covid-19 and Productivity

Key Findings

  • Large composition effects as lockdowns affected low productivity sectors more adversely within both manufacturing and services.
  • The furlough scheme kept the unemployment peak unusually low, potentially reducing unemployment path dependency and long-term scarring compared to previous crisis episodes. Without government intervention, a further 2.1 million jobs could have been lost and unemployment would have risen by about 6-7 per cent to about 10 per cent.
  • During the coronavirus crisis, productivity disparities between and within regions widened, while asset and income inequality increased.
  • Covid-19 and the associated lockdowns have been accompanied by a boom in firm creation in the UK, with the number of new business registrations 44 per cent higher in 2020 than in 2019.
  • New firms have initially below average productivity levels, but if new firms survive the early years and develop into high growth firms, they have a positive effect on overall productivity growth.
  • For the UK digital economy to succeed complementary investment in skills and intangible capital are required on the top of tangible investments in infrastructure and other forms of tangible capital.
  • Total learning losses in education could equate to lifetime earning losses of between £8,000 and £22,000 per pupil. The long-term effects of this missed learning will lead to an under-skilled workforce and reduce the country’s productivity.
  • The concentration of power, policy discontinuities, and implementation inconsistencies in policymaking impede an effective industrial policy to improve productivity.

The UK has one of the poorest productivity performances and highest spatial inequalities among the OECD’s 38 advanced economies and this has been made worse by Covid-19. If policymakers return to the same economic structures post-pandemic that failed to resolve the productivity problem pre- pandemic, then the UK is set for another decade of a low-growth, low-productivity and low-wage economy.

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