Although the growth rate of gross domestic product (GDP) is the statistic that most frequently grabs the headlines, it is the growth rate of productivity that is more important for living standards. A high growth rate of output can be achieved by increasing inputs such as labour and capital. However, for this to be reflected in higher living standards the output produced must rise faster than inputs. This requires producers to find new and innovative ways of using factors of production as well as incorporating new technologies into the production process.
It has been argued that the UK economy suffers from a productivity problem. Consider the data in Table 1 which gives an index of GDP per hour worked for the group of seven (G7) major industrial economies. The value for the UK in this table has been set at 100 and the values for other countries are therefore expressed relative to those of the UK. An index greater than 100 indicates that the country in question has higher productivity than the UK while a value less than 100 indicates a lower level of productivity.
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