The UK’s productivity statistics, released this week, show output per hour essentially flat for the third consecutive quarter. Economists call this the “productivity puzzle.” It is not puzzling at all.
When governments pile regulatory burden onto businesses as the current lot has done, rational firms respond by hiring fewer people and investing less in the marginal worker.
Why train someone extensively, or invest in their long-term development, when the cost and legal complexity of managing them is so high? You hire cautiously, you automate where you can, and you outsource what remains.
More damagingly, you don’t invest. Businesses that are uncertain about the regulatory landscape they’ll be operating in in the medium to long term are less likely to deploy capital.
The result is an economy of cautious, sub-scale businesses that don’t grow, don’t invest, and don’t improve productivity. The Employment Rights Bill, currently passing through Parliament, will deepen every one of these dynamics. Good intentions don’t survive contact with incentives.
Macro Aggressions 