The productivity puzzle

Jo Faragher

As we approach this year’s General Election, there’s a lot of focus on helping ‘working people’, with both Labour and the Conservatives promising to be on the side of workers. But one aspect of the employment market they’ve not dwelled on is how we increase productivity.

The latest Business Trends Report by accountants BDO highlights that, while hiring intentions for UK companies are higher than during the mid-2000s, output per hour per British worker has remained static for the past two years. This is not the case in fellow advanced economies, meaning the UK runs the risk of falling behind.

Opposition parties argue that the coalition’s trend towards austerity has had an adverse effect on workers, and that strong employment growth has often been down to an increase in part-time roles or people turning self-employed. According to economists, the efficiency of UK workers tended to increase by around 2-2.5% a year before the economic downturn, so this stagnation is a worry.

TUC general secretary Frances O’ Grady went as far as to say: “The UK is fast becoming a low-wage, low-productivity economy. We won’t see the improvements needed in pay or productivity if the Conservatives get the chance to deliver their plans for more extreme austerity after the election.”

Economist John Philpott argued that “how to boost productivity is ultimately the most important economic question now facing UK policymakers, business leaders and workers”, and that it should be higher up the agenda of the campaigning political parties.

Some have claimed that the reason behind the slump is that companies are still cautious about investing in the kit that would help them boost output, and focus instead on finding the cheapest, most flexible workforce that will help them meet their targets.

What will help is to take a longer-term view, rather than focusing on the now. How will planning a workforce more strategically, for example, help an organisation grow (and be more productive), five or ten years down the line? How will paying slightly more and incentivising high-calibre candidates increase the output of a business?

These are questions that businesses must tackle individually, but which collectively could make a real difference to a pressing issue.