It’s a story that we hear over and over again from businesses in the UK: the average worker is not producing enough output for every hour that they work.
The ONS has revealed that output per hour fell by 0.2% in the fourth quarter of 2014, and labour productivity remained at the same level as it was in 2013 – below the level seen in 2007, before the recession.
However, one argument from an article in the Daily Telegraph suggests that the UK’s productivity growth has been weak for good reason: a large number of low productivity workers found work in the UK, lowering the average.
The above article posits a thought experiment: “imagine two countries with identical economic characteristics and where the bottom 10% of workers contribute 5% of output. In the first country, a new law is passed banning them from working. They all lose their jobs, GDP drops by 5%– but productivity shoots up by 5.5%. Now imagine that all these workers move to the second country and immediately find work. That economy’s GDP goes up by 5%, but because the number of workers rises even faster, average productivity falls by 4.5%.”
It then asks which country you’d prefer to live in – the one that economists see as successful due to high productivity and high wages, or the one in which employment rises, and allows ‘migrants, the young and labour market outsiders’ to find work. The suggestion is that the UK has been the latter, whilst economies such as France and Italy, which have been hailed as successful, have been the former.
If this is the case, the focus should be on a different set of solutions. The article argues that anything aimed at reducing the flexibility of the current labour market should be avoided, whilst the role of in-work benefits should be investigated – are they pushing down wages to subsidise firms, or do they subsidise those who wouldn’t otherwise work? In-work benefits such as improved vocational training and better education would be one way of tackling lack of productivity.
Other solutions include boosting the UK’s infrastructure, challenging ‘excessive regulations’, and embracing technology to improve efficiency.
If you are looking for ways to boost productivity, or perhaps to examine how productive different departments are in your organisation, Bentley Management & Consulting can help you. We offer a range of management consulting, strategy development, business improvement operations development and programme and project delivery services to a range of business sectors.