Solving the UK’s productivity problem
This spring, a three-year, £11 million bundle of research projects was launched in the latest of many bids to resolve what is probably the UK’s most enigmatic economic challenge: the stagnation of national productivity since the recession of 2008-9, writes David Sapsted.
30 June 2022
Labelled the “great productivity puzzle”, it continues to confound economists, academics and politicians alike, despite the current Government’s pledge to restructure the UK economy to create a “high wage, high skill, high productivity” society.Now, the Economic and Social Research Council (ESRC) is funding seven new research projects that will look at specific subjects – including diversity, the green economy, mental health, financial markets and salaries – to determine what effects they have on the nation’s flagging productivity.Launching the latest scheme, Professor Alison Park, Interim Executive Chair of the ESRC, said: “Funding research to understand the issues driving low productivity continues to be of paramount importance to the Economic and Social Research Council. Expanding our research portfolio in this way could ultimately improve the lives of millions of people in the UK, as it is addressing arguably the UK’s biggest economic challenge.”Hot on the heels of this initiative, Britain embarked this summer on the world’s largest trial of a four day working week, involving 3,300 workers at 70 companies. The six month trial, which involves firms ranging from financial services to a take-away restaurant, will focus on the impact of the four-day week on productivity levels, gender equality, the environment and worker wellbeing.But the challenge to solve the productivity puzzle is as vast as it is complex. Among the G7 nations, the productivity gap between the UK and the United States, France and Germany stands at 14% – the biggest difference since the Office for National Statistics began collecting data on the subject more than a quarter of a century ago.
LEVELLING UP ON PRODUCTIVITY
So, is it just a case of British workers not pulling their weight? If only it were that simple. “One of the most striking features of the puzzle is the variability by international standards of productivity between regions. The UK has regions that are amongst the most productive in the developed world and others that are now less prosperous than regions in the former East Germany,” says Owen Garling, Knowledge Transfer Facilitator at the Bennett Institute.“If the picture is different in different places, then a logical conclusion may be that differing conditions in different places require different types of policy response, rather than assuming that ‘one size fits all’.”Some of these regional differences are stark. London’s labour productivity is about 30% higher than the UK average and about 50% more than that in Yorkshire and the East Midlands. And, according to the Confederation of British Industry (CBI), last year Scotland lagged behind other parts of the UK and international competitors in nine of the 13 productivity indicators for which comparable figures were available.Ian Stewart, Deloitte’s Chief Economist in the UK, says that the current problems confronting the global economy – where inflation is eating into consumer spending power, with weakening demand, higher interest rates, corporate cost cutting and uncertainty inhibiting growth – is compounded in the UK “by a history of weak productivity relative to other rich nations”.He adds: “There’s no consensus on why UK productivity lags. The list of suspects is lengthy, though inadequate investment, vocational skills, infrastructure and growth capital, tend to get most of the blame.”A DIGITAL SOLUTION?
But there is hope in what might seem a bleak picture. Not least is the belief that the nation’s pioneering technology sector will provide at least some of the answers to the enduring puzzle.When Chancellor of the Exchequer Rishi Sunak opened London Tech Week in June, he described high-performance computers and cloud capabilities as vital for powering technologies of the future and said this would be critical for the UK’s productivity, prosperity and innovation.Later the same day, the Government unveiled its UK Digital Strategy policy paper aimed at giving a further boost to an industry that, last year, saw a tech unicorn created in Britain every 11.5 days, according to the Dealroom business tracker – by far the most in Europe.“The UK’s economic future, jobs, wage levels, prosperity, national security, cost of living, productivity, ability to compete globally and our geopolitical standing in the world are all reliant on continued and growing success in digital technology,” Minister for Tech and the Digital Economy Chris Philp said at the policy launch.He added that the Government would work with schools, universities, further education providers and businesses to deliver the digital skills that the real economy needs “in a framework that is understandable and recognisable”.And he said: “It is also vital that the best and brightest from around the world can quickly and easily come to the UK. In addition to the comprehensive suite of visa routes already available to digital businesses, we are introducing the new High Potential Individual and Scale-up visas, so that UK digital businesses can easily recruit from anywhere in the world.”However, John Van Reenen, Professor of Economics at the London School of Economics (LSE), stressed in a recent discussion with the Institute for Fiscal Studies that the answer to the productivity puzzle did not lie solely with technology.“I think part of the diagnosis of the problem in the UK has been that we have failed to make long-run investments in the kind of key things that have been found to be major drivers of productivity,” he said.And those failures were not just in investments in the likes of R&D and infrastructure, but “inadequate investments in some types of human capital and people”.REMOTE WORKING AND PRODUCTIVITY
In fact, it is people and the changes in the way so many now work as a result of Covid-19 lockdowns that might hold out a significant hope of upping productivity in many sectors of the economy.A global survey commissioned by PwC among 3,937 business executives and HR leaders across 28 industry sectors in 26 countries, found that remote or hybrid working was deemed to have increased productivity last year compared to 2020.“Remote and hybrid working has provided a short-term productivity boost in most workplaces,” reported PwC, “with 57% of respondents saying their organisation performed better against workforce performance and productivity targets over the past 12 months, compared to a mere four per cent saying their company performed significantly worse in that time.”However, the survey also found that productivity and performance gains might have come at the expense of longer term employee trust, with only 30% of respondents saying they “strongly believe” their organisations had built high levels of trust between workers and their direct supervisors, partially as a result of employee burnout.Peter Brown, Joint Global People and Organisation Leader at PwC UK, said: “Now is the time for leaders to build an environment that supports sustainable productivity. People are integral to the tech equation – leaders need to engage with and listen to their people and be responsive to addressing employee burnout and the desire of people to work for organisations that live up to their purpose, values and culture. This is critical to retaining and motivating employees.”Similar research conducted solely in the UK by the Chartered Institute of Personnel and Development (CIPD) also found that the number of employers reporting the increase in homeworking had improved their organisation’s productivity or efficiency, had “jumped significantly” over the past year.Claire McCartney, Senior Policy Adviser for Resourcing and Inclusion at the CIPD, the professional body for HR and people development, said: “It’s great that many employers are embracing the benefits of more hybrid and flexible ways of working. “Consulting with employees is a big part of developing inclusive hybrid and flexible working practices. Employers who listen and are open to testing, learning and adapting will benefit from a more diverse workforce and the ability to retain and attract a wide range of talent. This is particularly crucial at a time where the labour market is so tight.“Everyone should have the chance to benefit from more choice about when, where and how they work. This can lead to increased wellbeing and engagement, and enhanced performance, all of which can lead to the productivity gains many employers are reporting.”It seems that, while there are many technological tentacles grappling with the UK’s productivity puzzle, solving it might remain very much in human hands.Subscribe to Relocate Extra, our monthly newsletter, to get all the latest international assignments and global mobility news.Relocate’s new Global Mobility Toolkit provides free information, practical advice and support for HR, global mobility managers and global teams operating overseas.
Access hundreds of global services and suppliers in our Online Directory ©2022 Re:locate magazine, published by Profile Locations, Spray Hill, Hastings Road, Lamberhurst, Kent TN3 8JB. All rights reserved. This publication (or any part thereof) may not be reproduced in any form without the prior written permission of Profile Locations. Profile Locations accepts no liability for the accuracy of the contents or any opinions expressed herein.
©2024 Re:locate magazine, published by Profile Locations, Spray Hill, Hastings Road, Lamberhurst, Kent TN3 8JB. All rights reserved. This publication (or any part thereof) may not be reproduced in any form without the prior written permission of Profile Locations. Profile Locations accepts no liability for the accuracy of the contents or any opinions expressed herein.
