DP315 The Thatcher Miracle?

Author(s): Richard Grenville Layard, Stephen Nickell
Publication Date: April 1989
Keyword(s): Inflation, Productivity, Trade Unions, Unemployment, United Kingdom
JEL(s): 133, 825, 831, 851
Programme Areas: International Macroeconomics, Applied Macroeconomics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=315

Since 1979 productivity growth in Britain has improved markedly compared with Europe. The turnaround in productivity growth has two main causes. The British economy was subjected to a far more severe contraction of demand in 1980-81 than any other country. This led to a new realism, which was sustained by the legal changes in trade union power. Since 1979 there has been a worsening in the trade-off between unemployment and inflation. The poor unemployment/inflation trade-off is due to the neglect of skill training and education (causing skill shortages) and to the build-up of long-term unemployment (which does little to restrain inflation).