“Human capital”, to use the economists’ terminology, has been growing at a slower rate, particularly compared with the first half of the 1990s. Note the word “partly”. I don’t think this can really be seen as the main, or even a major, part of the productivity puzzle. Even if you’re prepared to view these compositional shifts as some independent phenomenon, unrelated to other things that have depressed productivity growth – and that is questionable – their scale isn’t really big enough to make that much of a dent. That 3% figure, which is probably a ceiling on the true contribution2, compares with a productivity shortfall of over 10% since the recession. The results offer clearer help with a second puzzle, namely the apparent ease with which real average earnings have adapted to lower productivity growth. The two must match each other in the end3. But, in the past, it’s been hard for the labour market to absorb negative  1  The Employment Cost Index (ECI) measures the change in the cost of labour by excluding the influence of employment shifts among occupations and industries. More information about the ECI can be found here In the UK, the ONS has an experimental series – the “Quality-Adjusted Labour Input” – which makes a similar adjustment: the latest release can be found here.
“Education and Lifetime Patterns of Unemployment,” Journal of Political Economy, University of Chicago Press, vol. 87(5), pages S117–31, October. Phillips A. W.,1958, “The Relation Between Unemployment and the Rate of Change of Money Wage Rates in the United Kingdom, 1861–1957”, Economica. Pissarides, C., 2000, “Equilibrium Unemployment Theory”, Massachusetts Institute of Technology, 2nd edition Slacalek, J., 2005, “Productivity and the Natural Rate of Unemployment”, Department of Macro Analysis and Forecasting, DIW Berlin Solon, G, R. Barsky, and J.Parker, 1995, “Measuring the Cyclicality of Real Wages: How Important is Composition Bias?” Q. J. E. 109 (1994), pp. 3–25. Staiger, D., J. H. Stock and M. W. Watson, 2001, “Prices, Wages and the U.S. NAIRU in the 1990s”, NBER Working Paper no. 8320. 8  BIS central bankers’ speeches  Chart 1: Large flows into and out of  Chart 2: Growth of average wages weak in  employment  2013, 2014 despite low unemployment  Source: Labour Force Survey and own calculations Source: ONS, Bank of England, NIESR and Hills, Thomas, Dimsdale (2010) Note: AEI until 2010 and AWE since; inflation expectations as implied by indexed gilt market; 2014 diamond is for H1.