UK Labour productivity is a principal factor in
determining the long-term economic growth rate, Government tax revenues,
inflation, and actual wage levels. Since the recession in 2008, UK labour
productivity growth has remained well below the historical average. The Office
for National Statistics (ONS) estimates 20% below its 2008 pre-crisis trend.
In post-war Britain, UK labour productivity growth averaged 2-3% annually. However, since 2008, UK labour productivity has increased by only 5% in 13 years. There are a multitude of factors affecting UK labour productivity:
There are many explanations for the fall in UK productivity growth. The rise in unemployment was a lot less during the 2008 - 2012 economic recession than in the previous recessions of 1981 and 1991. Current levels of unemployment have fallen to 3.8% within the UK.
The recent increased employment levels support the theory that organisations retain staff for longer and are far less likely to make redundancies despite lower economic demand, resulting in lower hourly productivity rates. Maintaining staff numbers prevents organisations from having to rehire and re-train staff after a recession ends, to the detriment of hourly labour rates, which invariably fall due to lower productivity levels.
During recent years, the UK has seen falling absolute wage levels and a slowing of wage growth. Organisations may be more willing to employ staff than invest capital in reducing the levels of labour required, as low wage growth means retaining staff is relatively more attractive than usual. Therefore, with lower labour costs, organisations are willing to employ more staff utilising labour-intensive production methods.
During the early 2010s, the credit crunch held back investments because of the general lack of funds available for new capital investments, to increase manufacturing capacity that was less labour intense, or to fund research and development projects, ultimately holding back employment opportunities and productivity growth.
Labour market flexibility in recent years, with increased part-time, temporary, and zero-hour employment contracts, has helped further reduce organisational production and service costs. Therefore, organisations are more willing to employ additional staff without increasing hourly productivity rates.
The growth of EU labour productivity, measured by real GDP per hour worked, increased at the onset of the COVID-19 pandemic before declining during the subsequent economic recovery, contradicting the general notion of productivity being procyclical and reflecting the unique nature of this crisis.
Between Q4 2019 and Q1 2021, EU labour productivity growth remained positive. It accelerated compared to before the pandemic as staff were furloughed, fewer hours were utilised, and production rates remained constant. The average annual GDP per hour worked increased by 1.7% during this period.
The increase in GDP was more than twice the average productivity growth for 2014 – 16 and 2018 – 19, during which real GDP and total hours worked declined by annual averages of 5.7% and 7.4%, respectively. The decline was principally down to organisations seeking to increase production levels through increased labour, rather than looking internally to increase production efficiency.
During the COVID-19 pandemic, unemployment was reduced due to the job retention schemes employed across the EU. Employment levels, on average, fell by an annual 1.6% during the pandemic. However, in Q2 2021, these trends reversed, with the number of hours worked and employment rates rebounding sharply, causing productivity growth to slow.
Increasing productive growth is crucial for the UK, as it navigates the economic headwinds in an increasingly uncertain world as factors such as an ageing population, an ongoing shift to low-productivity services, and the uncertain outlook for trade and investment post-Brexit take hold. However, there are measures that the UK could take to improve its productivity:
Customers do not have a right to incur poor performance. Organisations must be accountable for their performance and customer service offerings. It is important to remember that staff are paid for their services in exchange for a salary. There is an important balance to be struck between prioritising staff "rights" at the expense of customer service. Staff and customers have equal importance, and one should never be put at the disadvantage of the other.
Many organisations prefer to hire additional staff to resolve their service or productivity difficulties, which leads to reduced productivity levels and real wage growth, rather than looking at their operating procedures to negate the need for additional staff and increase productivity levels.
In post-war Britain, UK labour productivity growth averaged 2-3% annually. However, since 2008, UK labour productivity has increased by only 5% in 13 years. There are a multitude of factors affecting UK labour productivity:
- Skills and qualifications of staff.
- Nature of employment.
- Staff morale.
- Technological progress.
- Substitution of capital for labour.
- Manufacturing capacity utilisation.
- Levels of investment.
- Politicism of the management process.
There are many explanations for the fall in UK productivity growth. The rise in unemployment was a lot less during the 2008 - 2012 economic recession than in the previous recessions of 1981 and 1991. Current levels of unemployment have fallen to 3.8% within the UK.
The recent increased employment levels support the theory that organisations retain staff for longer and are far less likely to make redundancies despite lower economic demand, resulting in lower hourly productivity rates. Maintaining staff numbers prevents organisations from having to rehire and re-train staff after a recession ends, to the detriment of hourly labour rates, which invariably fall due to lower productivity levels.
During recent years, the UK has seen falling absolute wage levels and a slowing of wage growth. Organisations may be more willing to employ staff than invest capital in reducing the levels of labour required, as low wage growth means retaining staff is relatively more attractive than usual. Therefore, with lower labour costs, organisations are willing to employ more staff utilising labour-intensive production methods.
During the early 2010s, the credit crunch held back investments because of the general lack of funds available for new capital investments, to increase manufacturing capacity that was less labour intense, or to fund research and development projects, ultimately holding back employment opportunities and productivity growth.
Labour market flexibility in recent years, with increased part-time, temporary, and zero-hour employment contracts, has helped further reduce organisational production and service costs. Therefore, organisations are more willing to employ additional staff without increasing hourly productivity rates.
The growth of EU labour productivity, measured by real GDP per hour worked, increased at the onset of the COVID-19 pandemic before declining during the subsequent economic recovery, contradicting the general notion of productivity being procyclical and reflecting the unique nature of this crisis.
Between Q4 2019 and Q1 2021, EU labour productivity growth remained positive. It accelerated compared to before the pandemic as staff were furloughed, fewer hours were utilised, and production rates remained constant. The average annual GDP per hour worked increased by 1.7% during this period.
The increase in GDP was more than twice the average productivity growth for 2014 – 16 and 2018 – 19, during which real GDP and total hours worked declined by annual averages of 5.7% and 7.4%, respectively. The decline was principally down to organisations seeking to increase production levels through increased labour, rather than looking internally to increase production efficiency.
During the COVID-19 pandemic, unemployment was reduced due to the job retention schemes employed across the EU. Employment levels, on average, fell by an annual 1.6% during the pandemic. However, in Q2 2021, these trends reversed, with the number of hours worked and employment rates rebounding sharply, causing productivity growth to slow.
Increasing productive growth is crucial for the UK, as it navigates the economic headwinds in an increasingly uncertain world as factors such as an ageing population, an ongoing shift to low-productivity services, and the uncertain outlook for trade and investment post-Brexit take hold. However, there are measures that the UK could take to improve its productivity:
- Provide funding grants and tax incentives to organisations to increase the use of technology and engagement in effective R&D.
- Deregulate market sectors and decrease unnecessary bureaucracy to remove barriers to entry and encourage new and dynamic market entrants.
- Reduce the politicism of the management process and adopt performance-related pay measures to increase hourly productivity levels.
- Promote greater competition and mobility in labour markets by removing restrictive work practices and protecting employment rights.
- Improve the education system to develop general numeracy and literacy skills to promote educational flexibility and human capital development.
- Use the tax system to incentivise training to upskill the UK labour force, invest in R&D, and develop markets outside the EU.
Customers do not have a right to incur poor performance. Organisations must be accountable for their performance and customer service offerings. It is important to remember that staff are paid for their services in exchange for a salary. There is an important balance to be struck between prioritising staff "rights" at the expense of customer service. Staff and customers have equal importance, and one should never be put at the disadvantage of the other.
Many organisations prefer to hire additional staff to resolve their service or productivity difficulties, which leads to reduced productivity levels and real wage growth, rather than looking at their operating procedures to negate the need for additional staff and increase productivity levels.
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