The US economy has emerged from the pandemic growing at a faster pace than the UK and other high-income countries. Simon Pittaway tackles the question of why in “Yanked away: Accounting for the post-pandemic productivity divergence between Britain and America” (Resolution Foundation, April 2025).

The average standard of living in any economy, over time, will be determined by the productivity of workers in that economy. This figure calculates productivity as GDP/worker, adjusted so that productivity in all the G7 countries just before the pandemic was equal to 100. (The G7 countries are the US, UK, France, Germany, Italy, Japan, and Canada.) You can see the red US line pulling ahead of the rest. The official British data is the dashed line, but Pittaway argues that the official data is too optimistic, and the actual labor productivity in the UK is actually lower than it was in 2019.

When you trace the productivity patterns deeper into the data, what do you find? For the UK, Pittaway points to several industries where the decline in productivity since 2019 has been especially high.

For example, it appears that the UK health care sector is experiencing an outright decline in productivity. In the UK oil and natural gas sector, employment is up slightly, although production of oil is down by two-fifths and production of natural gas is down by three-fifths. There seems to have been a decline British productivity in wholesale and retail trade, as well–that is, output in the industry is down much more than employment. Here, I want to focus on a few bigger-picture issues.

One is the level of investment. Pittaway writes:

The investment gap between Britain and America has widened in recent years. Investment by British businesses hit a brick wall around the time of the Brexit referendum.42 As a result, growth in Britain’s capital stock has slowed by two-thirds, from 2.8 per cent in 2016 to 0.9 per cent in 2023. Notably, this slowdown has been particularly stark in the service sectors where the US has significantly outperformed the UK. In real terms, American businesses in those sectors invested 24 per cent more in 2023 than in 2016, while their British counterparts invested only 7 per cent more.

Back when Brexit was happening, I wrote that, as an American, I understand the urge to break trade ties and declare independence. But whatever the merits of Brexit as a cry for self-determination and national autonomy, it wasn’t good for investment incentives. The current US push to fracture trade ties with the rest of the world, especially as it is happening in unclear and ever-evolving ways, won’t be good for US investment incentives, either.

A second big difference worth noting is the US productivity growth advantage in technology-using jobs. US firms are investing more in technology, in particular. As a result, productivity growth in service-related has been higher in the US economy. Pittaway writes:

Professional services emerge as a particularly important source of productivity growth in the US. In part, this reflects the rapid growth of America’s large, high profile tech companies, who mostly operate in the information and communications sector. But productivity growth in professional services sectors that use rather than produce tech has been more consequential. Between 2019 and 2023, professional, scientific and technical services accounted for one-sixth (17 per cent) of the post-pandemic gap in productivity growth between the US and the UK – twice as much as the tech (ICT) sector (8 per cent). The additional tailwind from faster productivity growth in less glamorous service sectors – like administrative and support services, wholesale and retail, and hospitality – shouldn’t be overlooked. For example, different rates of productivity growth in the wholesale and retail sector account for almost as much of the US-UK aggregate productivity growth gap (0.51 percentage points) as information and communications.

A third difference is that energy costs are much lower in the United States than in the UK, or in other countries across Europe. The left-hand panel compares the price of natural gas; the right-hand panel compares the price of electricity.

Finally, the US economy seems to have emerged from the pandemic with a rise of dynamism: more new companies being started, more economic shifts toward areas of greater economic opportunity. Here’s a figure illustrating one aspect of that pattern. As you can see, company births and deaths in the US spiked during the pandemic, but company births have remained high since then. There’s no such movement in the UK data.

During the pandemic, many European countries focused on preserving the connection between workers and their jobs, while the US focused more on income protection for workers, but without linking that aid to remaining with their previous employer. One consequence of those different policy choices is that the US economy has been more fluid in adjusting since the pandemic.

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