Download UK productivity focus

UK productivity focus
Vicky Pryce
Chief Economic Adviser, Centre for Economic and
Business Research, Visiting Professor, Birmingham City
University, Aston Business School
Mark Beatson
Chief Economist, CIPD, Honorary Visiting Professor,
London Metropolitan University
The UK’s productivity
problems
What is productivity and why does it
matter?
• Productivity = output per unit of input
• Output per hour worked = GDP/total hours
worked
‘Productivity isn’t everything, but in the long run it
is almost everything. A country’s ability to
improve its standard of living over time depends
almost entirely on its ability to raise its output per
worker.’ Paul Krugman
1948
1950
1952
1954
1956
1958
1960
1962
1964
1966
1968
1970
1972
1974
1976
1978
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
2012
2014
Long term productivity trends
(2008 = 100)
Output per worker
Output per hour
120
100
80
60
40
20
0
Source: Office for National Statistics
The UK’s productivity standstill
(Output per hour worked, 2008 Q1 = 100)
105
104
103
102
101
100
99
98
97
96
2008 Q1
Q2
Q3
Q4
2009 Q1
Q2
Q3
Q4
2010 Q1
Q2
Q3
Q4
2011 Q1
Q2
Q3
Q4
2012 Q1
Q2
Q3
Q4
2013 Q1
Q2
Q3
Q4
2014 Q1
Q2
Q3
Q4
2015 Q1
Q2
95
GDP is chained volume measure, seasonally adjusted
Source: Office for National Statistics
International comparisons of labour
productivity 1990–2013
(Current price GDP per hour worked, UK = 100)
135
130
125
120
115
110
105
100
USA
France
Germany
G7 exc UK
The black columns are the 2008 data. Time series for Germany and G7 exc UK begin in 1991.
Source: Office for National Statistics
A slowdown in business investment?
(£ billion, 2010 prices)
Tangibles
140
120
100
80
60
40
20
0
Source: NESTA (2014)
Intangibles
A lack of dynamism?
(Company liquidation rate, % of companies, England and Wales, 12 month moving average)
1
0.9
0.8
0.7
0.6
0.5
0.4
0.3
0.2
0.1
0
2005
2006
2007
2008
Source: BIS Insolvency Service
2009
2010
2011
2012
2013
2014
2015
A lack of dynamism?
(Job-to-job flow rate, UK, % of age 16-64 employment)
1.4
0.4
0.3
1.2
0.2
1.0
0.1
0.8
0
0.6
-0.1
-0.2
0.4
-0.3
0.2
-0.4
0.0
-0.5
Moving average of change in employment rate (RHS) (%)
Job-to-job flow rate (LHS) (%)
Source: Bank of England (2015) plus author’s calculations
Future productivity growth
(% growth p.a. in output per hour worked)
3
2
1
0
-1
-2
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
Source: Office for Budget Responsibility
How to get UK productivity
moving ahead
Maintain growth in business investment
(£ million, current prices, seasonally adjusted)
50000
45000
40000
35000
30000
25000
20000
15000
10000
5000
0
Adjusted to exclude the 2005 reclassification of British Nuclear Fuels Ltd (BNFL) in 2005.
Source: Office for National Statistics
Support public sector investment in Spending
Review
(£ million, current prices, seasonally adjusted)
14 000
12 000
10 000
8 000
6 000
4 000
2 000
Adjusted to exclude the reclassification of British Nuclear Fuels Ltd (BNFL) in 2005.
Source: Office for National Statistics
2014 Q3
2013Q4
2013Q1
2012Q2
2011Q3
2010Q4
2010Q1
2009Q2
2008Q3
2007Q4
2007Q1
2006Q2
2005Q3
2004Q4
2004Q1
2003Q2
2002Q3
2001Q4
2001Q1
2000Q2
1999Q3
1998Q4
1998Q1
0
Recognise productivity is a question of mindset and
motivation
(% of private sector organisations)
Survivors - "We were in survival mode for a long
1%
time and have not able to invest in major
14%
improvements to the business”
Cost-cutters - “We are a leaner business now
because we took cost out during the recession
3%
and the productivity of our workers has improved
as a result”
Balanced investors - “We have continued to invest
in equipment, technology and people and have
increased our productivity significantly”
57%
54%
16%
All private sector organisations 7%
19%
40%
54%
45%
26%
37%
2%
3%
6%
0% 10% 20% 30% 40% 50% 60% 70% 80% 90%100%
Productivity well above average
Productivity above average
Productvity average
Productivity below/well below average
Totals do not add up to 100% because “don’t know” responses are not reported.
Source: CIPD Labour Market Outlook survey, summer 2015.
Support innovation
R&D expenditure by performing sector, constant prices
(£million, 2013)
35,000
30,000
25,000
20,000
15,000
10,000
5,000
0
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
Government
Higher Education
Research Councils
Private Non-Profit
Source: Office for National Statistics
Business Enterprise
Take account of regional and local dimension
GVA per head by LEP, 2013
Coventry and
Warwickshire,
22,443
The Marches,
18,582
Greater
Birmingham and
Solihull, 20,969
Worcestershire,
18,454
Black Country,
16,958
0
5,000
10,000
Stoke-on-Trent
and Staffordshire,
16,914
15,000 20,000 25,000
Source: Office for National Statistics
30,000
35,000
40,000
45,000
Concluding thoughts
• The UK’s productivity problem is deep-rooted and
long-term – solutions need to be equally holistic
and far-reaching
• This requires patience and perseverance from
policy makers as well as from business
• Investment is important but so is making best use
of the assets we already have – capital, knowledge,
ideas and skills
• This depends on what happens within the business
– not easy for policy makers or business support
agencies to reach