Population Trends and Productivity

One of the key factors that affects the wealth of the population of the UK is labour productivity. It also has a big influence on the value of UK companies in which many of my readers have a strong interest.  Only by improving productivity can we become richer in essence. But even the Government recognises that this country has a big problem at present because productivity is not improving, unlike in some of our competitors.

Some relevant information on this issue recently came to light in the pages of the FT. First the Office of National Statistics (ONS) reported that population growth is slowing due to worsening life expectancy. But it’s still expected to grow by 3 million to 69.4 million by mid-2028. It also concludes that it is migration that is driving UK population growth and as the post-war baby boomers die that impact will strengthen.

Of the UK countries, England is expected to grow population more rapidly, rising by 10.3% to 2043, and I can guess where most of that will settle – London and the South-East no doubt based on recent past trends.

Now you may have concerns about that in terms of the “liveability” of the area. It will worsen the pressure on the public transport network and congestion on the road network. It will also increase air pollution substantially as air pollution directly relates to the business and travel activity of the population and the number of homes. But a letter from Professor Nicholas Oulton in the same FT pointed out that the growth of hours worked in the UK, largely fueled by migration, has reduced our productivity growth to near zero. He says the flip side of the UK’s job miracle is the productivity disaster [unemployment is at record lows].

This is not just a debate for economists though, because Brexit will enable the UK to restrict immigration from Europe which is currently unrestrained and has led to 18% of the workforce now being foreign born. That ready supply of both skilled and unskilled labour provides a disincentive for UK companies to invest in more machinery or IT systems and explains both the poor productivity growth and lack of capital investment. We have just been creating a lot of low-paid jobs.

The recent uncertainty over Brexit has also created difficulties for many businesses who are generally horrified by yet more delays in Parliament over concluding the matter. This is becoming an even more important issue than whether it is a hard or soft Brexit. So what should the Prime Minister do now that his Bill debate timetable was voted down thus making it very difficult to achieve his desired exit on October the 31st? I suggest he needs to either agree a very short delay with the EU together with some agreement from the Labour Party and others that wrecking amendments will not proliferate – I do not consider it totally unreasonable that more time was required to debate the Brexit Biill. Or he needs to get a General Election agreed. It seems that may just be possible.

But it is important to get Brexit completed if the UK is to tackle the problem of low productivity and hence low wages driven by excessive immigration.

It is the low and poor growth in wages for most of the population that is also driving the social unrest in the country which is an issue that cannot be ignored.

Roger Lawson (Twitter: https://twitter.com/RogerWLawson )

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