OECD sets out blueprint for closing UK's productivity gap

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The Independent Online

The UK's workforce suffers from a "large" productivity deficit with its main economic rivals, the Organisation for Economic Co-operation and Development (OECD) said yesterday.

The warning came a month after figures showed productivity had collapsed to a 15-year low.

In its annual assessment of the steps taken by its 30 member countries, the OECD acknowledged that the UK's macroeconomic performance had been "resilient". But it added: "The productivity gap with the leading OECD economies is large and there is scope for raising labour force participation."

Productivity has been a constant thorn in the side of Gordon Brown, who once described it as "the fundamental yardstick of our economic performance".

The OECD set out a wish-list of measures the Government should take to improve its economic performance. It called for the Rolling out the Pathways to Work programme to be extended nationally and to include all claimants rather than just new ones. It also called for boosts in public investment, especially in transport, on top of current plans for "modest" levels.

The OECD also advocated incentive payment for doctors, such as paying them through a combination of salaries and fees. It also urged adequate funding be directed towards maintenance and upgrading of research infrastructure.

Figures published in December showed that productivity improved by only 0.4 per cent in the third quarter, the slowest rate since 1990.

In a recent analysis, David Miles, the chief UK economist at Morgan Stanley, said part of the problem could be attributed to the growth in employment in the public sector since mid-2004.

But he said there was a more worrying structural trend from the declining contribution of technology to productivity improvements. "Over long-enough horizons technical progress is believed to be the crucial driver of economic growth," he said.

A Treasury spokesman said productivity had grown in every year since 1997.