In explaining the growing productivity gap between the US and European economies, your article (“US extends productivity lead over Europe”, Report, March 11) cites the view that US employers are more likely to automate faster when workers are scarce, while Europeans focus on hiring more workers to fill gaps.
A historical perspective could be helpful. In his classic study American and British Technology in the Nineteenth Century, the British economic historian HJ Habakkuk concluded that a key factor in the superior rate of innovation and investment in US industry was its response to labour scarcity, compared to its British counterparts.
Plus ça change. The knee-jerk exhortation of UK policymakers and opinion-formers for companies to increase their rate of investment is understandable but we need to consider that — until very recently — the UK economy has pursued a labour-intensive route in which the incentive to invest in labour-saving innovations has been muted. Covid-led factors seem to have produced shifts in the labour market that change the playing field in which businesses operate. History demonstrates that labour scarcity can become a serious driver of gains to productivity.
James Winpenny
Wychwood Economic Consulting
Chipping Norton, Oxfordshire, UK
