This reminds us that the productivity slump is not confined to the UK, but is in fact a worldwide phenomenon. Nor is it due to statistical quirks or mismeasurement; as the University of Chicago's Chad Syverson shows, it is a real thing.
And a worrying one for equity investors. Slower growth in productivity means slower growth in GDP and therefore corporate earnings. Also, a climate of low productivity growth is one in which investors feel pessimistic. On both counts, equities suffer. It's no accident, therefore, that there has been a rough correlation between equity returns and productivity. Equities did well as productivity soared in the 1950s and 1960s; slumped in the 1970s as productivity slowed; recovered in the 1980s as productivity bounced back; and boomed in the late 1990s when productivity accelerated.
All this poses the question: why has productivity growth slumped? There are many theories. Here are five of my favourites:
• Slower technical progress. There are fewer new high-value added industries now than there were in the early 2000s: the sixth version of a smartphone is less significant than the first.
• Capital shallowing. Low wage growth and a quiescent labour force means some companies choose low productivity labour intensive techniques rather than more capital intensive ones. It might not be an accident that productivity rose strongly in the 1950s and 1960s - a time of tight labour markets and strong trades unions.
• Slower world trade growth. In the last five years, world trade volumes have grown by 2.2 per cent per year, which is only one-third the rate they did in the 15 years to 2007. This means we're not seeing stimulative effects upon productivity of trade growth such as fierce competition forcing companies to improve efficiency or increase specialisation.
• Misallocation due to credit booms. Economists at the Bank for International Settlements show that, in booms, workers move into industries with low productivity growth such as construction. Simple maths therefore means that aggregate productivity growth falls.
• Time lags. In their book, The Second Machine Age, Erik Brynjolfsson and Andrew McAfee point out that it can take a long time for technical change to raise productivity. For example, the replacement of steam power with electricity did not, initially, raise companies' efficiency. It was only when factories were reorganised to improve workflow (because electricity freed machines from having to be near the central power source) that productivity soared. But it took decades for this to happen. Maybe a similar thing is true for IT: it is only when this leads to a decline in presenteeism and hierarchy will productivity rise.
It's not just this last possibility that gives us reason for hope. As labour markets tighten, capital shallowing might go into reverse. And history tells us that phases of renewed innovation are possible. Nevertheless, there's little reason here to expect a quick reversal of the productivity slump - a prospect that should worry equity investors.
