The Blog

Solving the 'Productivity Puzzle' - Why Improving the UK's Productivity Is the Economic Challenge of This Parliament

Productivity improvements are crucial to the UK's economic competitiveness and to improving workers' living standards. As Paul Krugman, the Nobel prize-winning economist, says: "Productivity isn't everything, but in the long run it is almost everything."

Productivity improvements are crucial to the UK's economic competitiveness and to improving workers' living standards. As Paul Krugman, the Nobel prize-winning economist, says: "Productivity isn't everything, but in the long run it is almost everything."

Record employment levels and superior recent growth to our European competitors suggest a UK economy in reasonable health. While the threats to the survival of industries such as UK steel are all too real, we also have an economy-wide challenge to boost our productivity.

Our international competitors will be grappling with their own ways to boost their countries' productivity, and ensure improved living standards, but for the UK the productivity problem is significantly more serious. Post 2008-09 recession, average labour productivity (ALP) levels were estimated to be about a third lower in the UK than in all three of the US, France and Germany. Put simply, Britain is lagging behind its peers on productivity. In the long-run, that means that the living standards of Britons will fall behind our major competitors.

Far too often, different Government departments don't talk to each other, meaning a lack of co-ordination and effectiveness - or even consistency - in policies. As Chairs of the Education and Business, Innovation and Skills (BIS) Select Committees, we want to give the Government an example to follow. We are determined to work together to help the Government tackle the productivity problem. Over this Parliament, our Committees will be working jointly to propose constructive solutions to ensure our education and skills systems deliver for business and boost the nation's productivity. Today, we publish initial researchcomparing skills and productivity in the UK, US, France, and Germany. In the weeks ahead, our Committees will map out further joint working on productivity and identify specific subjects for detailed scrutiny.

To state that productivity in the UK is sluggish isn't the whole picture though. While some sectors, such as finance, perform poorly, in others, such as car manufacturing, productivity - output per worker - has increased by 30% since the onset of the financial crisis. Productivity gains are achievable in the UK if we learn from successful sectors. As Committees, we will be taking a close look at what our education and skills system can do to boost the nation's productivity, exploring what works, ensuring there is consistency across the schools and college system and the requirements of business and taking inspiration from successes overseas where appropriate.

Productivity levels are determined by a range of factors but the quality and range of skills available to employers and the capacity of new and existing entrepreneurs all have decisive roles. The existence of skill shortages in certain sectors underlines the need to develop the UK's labour market to ensure we have workers with the range and variety of skills necessary for our businesses to compete in a global market. Otherwise businesses will have to look abroad for the skills they need.

Our education system has a major part to play in preparing young people with the skills and knowledge to enter into the world of work. At a recent session of the BIS Committee, young entrepreneurs said their perfect job candidates would be 'self-starters'. Our education system needs to work to this end, to ensure pupils have the right skills so that when they join the workforce they contribute immediately.

We also need to bring business and professionals much closer to the education system. Businesses, particularly those in manufacturing and engineering, must be encouraged to ramp up their efforts to engage with schools and colleges so that young people can get a real insight into the innovation, ideas, and excitement that careers in these sectors can provide.

Apprenticeships are an important way of improving the UK's skills base. But many companies don't offer these opportunities to give young people a chance while safeguarding the long-term future of their business. Can we learn something from Germany? As a country they appear to benefit greatly from a well-established apprentice training system, which places a premium on skills development and which values those workers taking the vocational path.

The UK Government has set a target of three million apprenticeships. Is this achievable? Will these apprenticeships be of the necessary quality to produce young people with the skills to drive our economy forward? What will these apprenticeships look like? German apprentices receive a combination of class-room and on the job training to develop the technical, job-specific, and generic skills which help to boost their productivity. Might we seek to emulate that model?

The prizes are there. If productivity in the UK economy as a whole had grown in the same way as in the car industry, the economy would now be 30% or £½ trillion larger than it is today. Annual GDP per person would be about £8k higher than it is.

Whether it is the interface between schools and business, the future of FE, or the state of careers advice, policy makers need to be prepared to look at all areas to tackle our productivity problem. Our Committees are determined to play our part in ensuring our education and skills systems really deliver for business and we shall press Government on what they are going to do to foster the productivity gains we need to improve living standards.

Neil Carmichael is chair of the Education Committee and the Conservative MP for Stroud

Iain Wright is chair of the Business, Innovation and Skills Committee and the Labour MP for Hartlepool