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).