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: Applied Macroeconomics , International Macroeconomics

Link to this Page: www.cepr.org/pubs/dps/DP315.asp

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).