THE BLOG

UK Productivity Crisis - What Can Be Done?

19/08/2015 15:02 BST | Updated 19/08/2016 10:59 BST

The UK is in the midst of a productivity crisis. While employment has finally recovered to pre-recession levels, and those in work typically work long hours, productivity remains low. But how is this possible?

UK unemployment is relatively low. Despite the tiresome right-wing rhetoric about unemployed people 'scrounging' off the state, when we cast an eye toward other EU member states, our unemployment rates actually look very favourable indeed.

As per Eurostat data, unemployment is 5.4% of the working population in Britain and Northern Ireland. The EU average is 9.6%, and France and Italy's unemployment rates have both nudged above 10% in the last couple of years. Not only is our unemployment relatively low, but workers in Britain work some of the longest hours in Europe. An OECD study showed that the average annual hours of a British worker was 1,677, vastly exceeding Germany, the EU's economic powerhouse, where the average annual hours were 1,371 in the same year.

So why is our productivity so low? We have a large workforce relative to the size of our population, who are working longer than many of their contemporaries on the continent.

However, it is a fact that while British workers may work longer, and in greater number, we don't achieve as much per-hour as our continental friends. A pretty damning claim put forward by LSE Economist John Van Reenen states that many other countries have achieved by Thursday lunchtime what we achieve in the whole working week. If we were to match our productivity to these countries we could - in theory - clock off for the week on a Thursday and earn the same wage we do now, or continue to work five day weeks and enjoy the associated economic benefits, like increased wages for example. Instead, we're working longer hours, for less money, simply because not enough gets done. It's a worrying assertion.

Our productivity is so low, in fact, that we are falling well behind our G7 contemporaries - beaten to the unenviable accolade of least productive G7 country only by Japan. And sadly our post-recession recovery in unemployment rates seems less impressive when we consider that productivity is at a level 15% below what it would have been had the recession not occurred.

So, how can we solve this problem? Economists have identified three main factors that could be key to first understanding why the productivity gap exists, and then tackling it head on.

Firstly, investment - at both a business and government level - has been cited as an issue. This incorporates everything from investment in new machinery and R&D, to the quality of our roads, railways and airports. For example, the debate regarding building a third runway at Heathrow (one of the world's busiest airports) has been raging on for years, but take a moment to consider that Hartsfield-Jackson Atlanta International Airport has five runways, whilst Charles de Gaulle Airport in Paris, JFK Airport in New York, and Frankfurt Airport all have four. Heathrow's meagre two seems rather paltry in comparison.

Another issue is poor management. Of particular concern are family-run businesses, where children inherit their parent's roles. Across Europe family firms are said to account for up to 50 per cent of employment, a huge figure. And although it is widely accepted that nepotism is an ineffective selection process for any job, it is prevalent in many family-run businesses in the UK. However, if you look at family-run businesses in Germany, for example, they typically hire outside the family, selecting the best person for the job rather than towing the family line. This system obviously makes far more business sense.

Not only is bad management an issue, but the skill of workers has also been called into question. This may seem odd in an age where the number of university applicants is higher than ever, but what's important to remember is that the majority of university courses are academic rather than vocational; they provide employers with the knowledge that an employee is bright and hard-working, but many degrees (and other qualifications) provide basically nothing in the way of real-world experience and training. The so-called skills gap is sadly all too real.

Clearly, the productivity crisis is not an easy problem to solve, although we are at least aware of the steps we need to take to remedy the situation. Increased investment, improved management and a skills upgrade, will all contribute to boosting our national productivity levels. There is of course no quick fix solution, but our friends on the continent are clearly demonstrating that it can be done, and if the likes of Germany and France can do it, then why can't we?

Simon Thomas is the Managing Director of Asset International, a leading manufacturer of Weholite large diameter plastic pipes. Asset International Ltd supplies bespoke designs to the water and construction industries, from surface drainage to foul sewers and inter-process pipework: www.weholite.co.uk