Labour Productivity and Current Account Deficit

current account deficit: Are we still in the early stages of a long recovery or will we start to hit barriers to growth quite soon? Is the UK s relatively low labour productivity principally a function of a plentiful supply of labour, including foreign labour and people beyond normal retirement age, or is it more the result of poor education and training? Does the widening current account deficit matter? Does the still wide fiscal deficit matter? And so on. As always, the difficulty is to sort out which things really matter and which ones are just noise. That is made even more tricky by the fact that a lot of the numbers are misleading, according to The Independent. But while we should be careful in making overly strong conclusions, I think it is possible to make some plausible comments about the ability of the UK economy to sustain several more years of decent growth and For those of us who have argued that the economy has for the past three years been stronger than the data initially suggested, it is comforting to have our judgement proved right. I suspect that growth last year will be revised upwards in the next couple of years, probably to rather more than 3 per cent. But all experience tells us that now is the time to ask the awkward questions about the sustainability of what is happening. We need to look forward, and that leads to awkward questions. Take the earnings and inflation figures in the top graph. These show that at last, after five years when prices ran ahead of pay, people are now getting real wage increases. But during this time there has been solid overall growth in consumption. So how do people manage to spend more if they are not earning more? We don t know the full answer, but part of it lies in the fact that earnings are only one source of income: pensions are another as indeed are benefits. In addition, these earnings figures exclude self-employment, now 15 per cent of the total. They also, inevitably, exclude cash payments that are undeclared to the taxman. And, hugely important, they do not take into account the big increase in the numbers of people working, with the participation rate now at a record, as the bottom graph shows. (news.financializer.com). As reported in the news.