19 July 2018
By Alan Felstead, Research Professor in Social Sciences, Cardiff University
Whether we work or not, the nation’s productivity – that is, the total amount of output produced per unit of input – affects us all. It is the main determinant of living standards. Higher productivity makes employers more competitive, provides the foundation for wage increases, and increases government tax revenues, so everyone stands to benefit. The reverse is also true, however, with low productivity likened by Frances O’Grady, general secretary of the Trades Union Congress, to a “self-inflicted wound”.
To see how the UK’s productivity currently stands, we have recently completed a national skills and employment survey. This study (conducted every five years) collects data on what people do, how they work, and the skills they use. We spoke to 3,300 employees from across the UK, aged 20 to 65, who work in a range of sectors, to find out what they think of their working conditions.
The UK has a longstanding labour productivity gap with its international competitors, including those in the seven largest advanced economies (G7). Before 2008, the UK had caught up with Germany in terms of output per worker and had moved ahead of France. However, this was because UK employees were spending more time at work. When measured in terms of output per hour, UK productivity levels were lower than fellow G7 countries Germany, France, Italy and the US.
Since the 2008-2009 recession, the situation has worsened, with workers in France, Germany and the US producing on average as much in four days as UK workers do in five. The Confederation of British Industry now estimates that if the UK had the same productivity distribution as Germany, this would add over £100 billion to what the UK produces a year – this equates to an extra £1,500 per head.
To make matters worse, since the recession productivity has stagnated, and failed to bounce back to its pre-recession growth rate. This unprecedented and unexplained slump – known as the “productivity puzzle” – is particular to the UK.
Economists cannot fully explain what has happened. It is not because workers in Britain are lazy. On the contrary, Britain is towards the top of the European league table according to a number of work intensity measures. Indeed, if effort were all that mattered, one might expect productivity to be booming, not stagnating.
There are other more plausible culprits for the slowdown. The decision by policy makers to keep interest rates exceptionally low for so long has led to the suggestion that the recession’s cleansing effect may have been muted, keeping many otherwise unproductive employers in business.
Decisions in the workplace have also been offered as an explanation for the low productivity rates. Employers have been more reticent to shed workers, hoarding labour for longer, even though output fell sharply in the recession. The capital-labour ratio has fallen – a process known as capital shallowing – leaving workers with poorer tools and equipment, which pushes downward on productivity.
Yet even with these suggestions, no one is sure exactly why productivity has not bounced back, nor what might make things better. However, our research has now shown that tapping into employees’ knowledge of what works best may be one way of turning things around.
The top 25% of the UK’s most productive businesses are as much as five times more productive than businesses in the bottom 25%. One plausible explanation for this is that some businesses are quicker to adopt readily available technologies and better management practices, such as greater employee involvement.
Involving employees in decisions at work, including how to improve productivity, is well-established in continental Europe. Looking at our survey, we found that almost a fifth of UK employees were able to identify changes which, if implemented, would make them a great deal more productive. Meanwhile, one in eight have made suggestions at work which contributed a great deal to making the business more efficient.
Similar proportions of our survey respondents also reported that employees at their companies had a great deal of impact on improving work processes, products or services through problem solving groups (16%) and in consultation meetings with management (13%). Seven out of ten also claimed to have taken the initiative to make such improvements on more than one occasion. This suggests not a shortage of skills, but rather a reservoir of untapped potential.
Despite the benefits of greater employee involvement in enhancing productivity, it has become a less prevalent feature of British workplaces over the last decade. The government is currently committed to raising productivity through its Industrial Strategy, which was unveiled in November 2017. This plan includes investment for large infrastructure projects – such as HS2 and improvements to the road network – and closing the regional disparities in productivity performance. But our research shows that productivity boosts can come from closer to home, just by listening to and acting on workers’ ideas about working smarter.