Academic journal article National Institute Economic Review

Productivity Levels in British and German Manufacturing Industry

Academic journal article National Institute Economic Review

Productivity Levels in British and German Manufacturing Industry

Article excerpt

Relative levels of labour productivity are estimated to have been about 22 per cent higher in German than in British manufacturing in 1987. The German productivity advantage was most pronounced in non-electrical engineering, vehicles and metals. The British performance was relatively better in food, drink and tobacco and textiles and productivity levels appear to be about equal in the two countries in chemicals and electrical engineering. About 80 per cent of the productivity gap in aggregate manufacturing can be accounted for by differences in the levels of both physical and human capital. The aggregate productivity ratio of 22 per cent is lower than that found for 1968. The time Pattern of relative productivity in the intervening two decades shows a considerable increase in the 1970s followed by a rapid narrowing of the productivity gap in the 1980s.

1. Introduction

Following a decade of slow growth, labour productivity in British manufacturing industry increased considerably in the 1980s. There is little doubt that the British productivity performance in that decade was better than in most OECD countries (Matthews and Feinstein (1990)) but measuring the extent to which Britain has succeeded in narrowing the productivity gap with other industrialised countries requires information on the levels of labour productivity in British manufacturing relative to those in her major competitors. Previous issues of the Review (van Ark (1990a 1990b)) looked at productivity levels in British manufacturing relative to those in France and the Netherlands. This study considers the position relative to Western Germany.(1)

Output per worker-hour in German manufacturing is estimated in this article to have been about 22 per cent above that in the UK in 1987. This result is smaller than previous estimates, based on indirect secondary statistical sources, which put manufacturing labour productivity at over 40 per cent higher in Germany for the late-1980s.(2) Section two sets out the method used to arrive at the estimate for total manufacturing and examines the sensitivity of the result to variations in the underlying assumptions. Section three presents estimates of the productivity ratio for a number of industry branches within manufacturing.

Differences in the amount of fixed capital available to manufacturing in the two countries may account for some of the gap in labour productivity. Research at NIESR suggests differences in the skill levels of the work-force is an important factor determining relative productivity. Section four therefore attempts a measurement of the impact of differences in both physical and human capital on relative productivity in the two countries.

Time series data show that the productivity ratio widened considerably in the seventies, reaching a peak relative German advantage of about 50 per cent in 1980. The following decade witnessed a considerable narrowing of the gap so that by 1987 the relative productivity gap between the two countries was slightly lower than in the late-1960s. This was achieved at the expense of a huge reduction in UK manufacturing employment, most of which occurred after 1979. Section five considers the time series pattern of relative productivity.

2. The productivity ratio in aggregate manufacturing Levels of manufacturing labour productivity in Germany relative to those in Britain are measured as relative real gross value added divided by labour input. Published sources give data on nominal value added which need to be converted to a common currency. This implies that the measurement of relative productivity requires information on the relative prices of manufactured products.

The calculation of relative prices in this article employs information on quantities and sales of a range of manufactured products to estimate their unit values in each country. The ratio of German to UK unit values were calculated for as many manufactured products as was possible given data limitations (the fact that the sales value and/or quantity sold were not disclosed for all products) and the desire to ensure that the products were closely matched in the two countries. …

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