The UK was outperformed by the United States, France, Germany and Japan in almost all sectors of the economy - from the service sector to manufacturing, the research found.
The only positive conclusion drawn by Mary O'Mahony of the National Institute of Economic and Social Research was that Britain's decline relative to its main European competitors appears to have halted.
The report, published by the state-funded Economic & Social Research Council, will be seized by unions as vindicating their resistance to Government calls for wage restraint.
The report asserts that unit labour costs in the mid-1990s were substantially below those of France, Germany and Japan, at 40 per cent, 30 per cent and 95 per cent respectively.
Ms O'Mahony said that movements in exchange rates relative to France and Germany have lowered but not eliminated the UK's competitive advantage. Nevertheless, the output per hour worked in the UK in 1996 was 20 to 30 per cent below the US, France and Germany - although slightly higher than Japan. This poor performance was common to both the public and private sectors.
In the 1950s labour productivity levels in the UK were above those in France and Germany, although substantially below those in the US. Since then France, Germany and the UK have caught up to the US, but the UK has done so at a slower pace.
The UK also has "serious shortcomings" in terms of the skills of its workers. Britain has proportionately fewer graduates than the US and falls "far behind" Germany in intermediate vocational qualifications.
When the higher capital investment of its competitors is taken into account, Britain fell behind in terms of productivity by only 10 to 15 per cent - although the gaps in some sectors, notably manufacturing and most service activities, remained large.
In sectors that have been deregulated - utilities, transport and communications - Britain's position has improved substantially since the mid-1980s, the report found.Reuse content