This might be bad news for investors. So far, profits have been largely unaffected by this stagnation: the share of them in GDP has been remarkably stable since the mid 2000s. However, with unemployment now falling - so much so that the Prime Minister has claimed that we are on the cusp of full employment - this could change. Workers' stronger bargaining position means they could get higher real wages. If productivity continues to stagnate, then, unless oil prices fall again, this would mean lower profits.
History warns us of this. When productivity growth slowed in the mid-1970s, the profit share slumped - and so did share prices.
So, what might prevent a combination of stagnant productivity and low unemployment from squeezing profits again?
One possibility is that while low unemployment is bad for companies in the labour market, it is good for them in product markets. Rising demand might allow them to raise profit margins; for this reason, falling unemployment in the late 1980s and mid 1990s saw the profit share rise.
This, though, is far from certain. If inflation overseas stays low and the pound stays strong, UK companies will face intense foreign competition - which could actually exacerbate the profit squeeze.
A second possible escape route is that low employment might not greatly raise wages. Instead, it would raise the supply of labour. This wouldn't happen only because of increased immigration. It would also occur through older workers postponing retirement or returning to the labour market: of the 557,000 increase in employment in the past 12 months, half has been among the over-50s.
This poses the question: is low unemployment pushing up wages already? It depends on which numbers you look at. The ONS estimates that regular pay in the private sector rose by 2.6 per cent in the 12 months to February, compared with an increase of just 1.4 per cent in the previous 12 months. But growth in total pay (including bonuses) slowed during this time, from 2.1 per cent to 1.5 per cent.
However, both of these figures reflect pay agreements made months ago when CPI inflation was over 2 per cent. It's possible that the drop in inflation since then will reduce these agreements. A recent survey by Markit found that employees expect nominal wage rises of just 1.1 per cent this year. If they're right then real wages might barely grow at all over the next 12 months. And if real wages grow as little as productivity then the profit share shouldn't change - which means that profits will rise about as much as GDP.
Perhaps stagnant productivity won't greatly hurt profits. However, it's hard to see them rising very much unless productivity recovers. And the financial crisis of 2008 has taught us that stability can come to a sudden and nasty end. Investors, then, should be concerned by the productivity slowdown.
