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Education, Skills and the Human Face of UK Productivity

10/07/2015 12:00 BST | Updated 08/07/2016 10:59 BST

Productivity. It's a word that strikes boredom into the heart of the majority of people. And I'll grant you, it's hard to get excited about a measure of input versus output value per worker, per hour. But it is a vital measure of how we're doing as a country. And since the economic crash, productivity in the UK, and many Western economies, has been absolutely dire and shows little sign of sustainable growth in the future.

Basically, the UK is just not very productive. Just this week in The Sunday Times, George Osborne referred to it as the 'British Disease', and he's reportedly looking to address the problem with a plan masterminded by Lord O'Neill, the new Treasury Minister. At the same time, the paper's Economics Editor, David Smith, highlighted new figures from the Office for National Statistics showing that productivity in the last decade (2005-2015) averaged a little under 0.5 per cent, compared to 22 per cent in the previous decade (1995-2005) and 26 per cent between 1985 and 1995. Even though this decade included the Great Recession, the figure is far too low. So there is a lot of work to be done.

Usually this poor performance is put down to a lack of investment in new machinery or new technology; a lack of new infrastructure such as roads and railways. Yes, if you replace a machine that produces 100 widgets per hour with one that produces 200, with no extra staff costs, you have doubled your productivity (very roughly). This has been argued very persuasively by economist and entrepreneur John Mills. And yes, better roads and faster trains mean workers and goods can travel quicker, therefore less time lost on non-productive journeys. But there is one extra, often-ignored, element that's affecting our productivity: education.

In 2014, the Bank of England became so perplexed by the UK's weak productivity that it published a Quarterly Bulletin called 'The Productivity Puzzle'. It's a careful analysis on structural and demand issues, procyclical factors, impaired capital allocation and the macroeconomic environment. It also has some very nice formulae. But only once does it come close to mentioning the possibility that education might be a factor: "Indeed, in the early stages of the recession, the Bank's Agents reported that [...] having fired workers early on in the course of those downturns, companies then found it difficult to find workers with the appropriate, firm-specific skills when the economy recovered, and were thus less able to take advantage of improved demand conditions."

In my layman's view, not enough weight is given to how human beings affect productivity. Indeed, I've heard it said that if human beings could be removed from the study of economics altogether (and that includes over-inquisitive journalists), many economists would be much happier! But in the case of labour productivity, the behaviour, attitude and education of humans is a pretty important factor. Economists agree that part of the reason for the continued slump was employers' very human reticence to make their staff redundant when they knew they'd never get another job, even though these staff were underemployed. This being the case, why don't we listen harder when employers say they find it hard to scale-up production because they can't find people with the right job skills? Surely the current 734,000 unfilled job vacancies in the UK must have a negative effect on growth and productivity? David Smith, in The Sunday Times article mentioned above, seems to agree: "A productivity plan means boosting education and skills, and giving incentives for training and apprenticeships."

Unleashing the untapped and overlooked enterprise and financial skills of young people must surely be part of the solution to the long-term productivity puzzle. What productivity increases could we expect if we delivered a five per cent increase in employment skills? What could a 10 per cent increase in financial and mathematical skills lead to? In March 2015, according to the Office of National Statistics, there were 943,000 young people (aged 16 to 24) in the UK who were Not in Education, Employment or Training (NEET). If we gave them the skills they need to get a job, it could add billions to the GDP of the UK; it would also help the country fill these 734,000 job vacancies, many of which are unfilled due to the skills gap - i.e. the education system is not providing young people with the skills employers need.

At the Young Enterprise UK Company of the Year on 2 July in London, the finalists demonstrated their honed employability skills by presenting their businesses to us and selling their products. The winning company, Orenda from St Helen's School, will go on to compete against student companies from 37 other European countries in Berlin on 30 July. More than 21,000 students took part this year designing, making and selling real products and services, to real people for real money. Over the nine month programme, the teams together generated more than £2m in income - that's pretty impressive (and productive) for 14- to 16-year-olds.

That is why, at Young Enterprise we believe there is an urgent need for a sustainable skills strategy that will contribute to our labour productivity in the long-term; an educational strategy with a strong emphasis on enterprise and financial education. In our 2015 Manifesto, we called on both the government and business to work together with us towards the ultimate goal of young people leaving education competent in five key skills: communication, teamwork, resilience, problem-solving, and creativity. This is not an unrealistic aim. It is practical and achievable. And the rewards on both a human and national scale are incalculable. I am hopeful that the new DfE, Careers and Enterprise Company will start making inroads on this important issue.

According to recent reports by both the Bank of England and economists at Oxford Economics, UK productivity is set to increase modestly over the next five years. It needs to. But unless we focus on creating an education policy which delivers high productivity, we don't have a hope of sustaining any meaningful increase in the long term. Let's work together and invest in young people to solve the productivity puzzle for good.