One of the great quandaries of this last recession, and current economic upswing, is keeping people in employment while recording low levels of productivity?
Why does this matter as we are currently getting out of the hole anyway? This is because it gives us an insight into the type of recovery we are experiencing. Are we earning more for our efforts, becoming more efficient or are we borrowing more to spend on essentials, which is exactly how we got into this mess in the first place?
Productivity is measured by the level of income being generated as against labour expensed per hour. What did you make and how long did it take to accomplish. The office of National Statistics compares hours worked across around 64 different industries to get an average output per hour. This is then compared with income generated to get a national profit and loss statement. Has our efforts brought in the money we expected and how hard did we work to get it?
For the public service, such as the NHS, outputs may not be measured in monetary terms but could be numbers of patients treated, or some other qualitive standard. This is the same management exercise conducted for any business. If your payroll expenditure, or hours worked, increased you would expect to see greater sales therefore more profit. If not, then are you getting the best results out of each hour worked to remain competitive? Say you put in timesheet system that tracks activity by employee tied to a project. Even if the employee was on PAYE, you could proportion that across the wages bill and be able analyse which task was profitable, against which customers? That way you can concentrate your efforts toward the most profitable exercises and target specific customers. This is a difficult enough task for one organisation (believe me I’ve tried) let alone an entire country, but even with average data, across a variety of sectors, it does give us a measuring stick, some sort of standard on how we are performing.
For an economy the desired result is to see a correlation between productivity and wages. This provides the balance between an employee’s efforts and shared reward. This means that industry is becoming more competitive and employees should be equally remunerated. In turn this increases their capacity to consume products and services which benefits the whole country. When this correlation is broken there are consequences for the whole. This has been the American experience with rapid productivity increases from the 1990’s while the wages growth has been stagnant or falling behind. For 90% of the American population they have less earning power than they had in the 1970’s. Without effective trade unions or government intervention there is no incentive for wealth to be diverted from Company profits and shareholder earnings to wage packets.
The UK experience has fared better. In the 1990’s wages kept paced with productivity levels but in the so called “boom years” between 2003 and 2008 when the UK had a GDP of 11% the average pay packet for males grew by .02 percent. On the other side of the coin countries such as France and Norway have had the reverse where wages have outstripped productivity levels? This maybe through cultural values or dependence on other income streams. (Norway’s oil reserves). Either way this is unsustainable and any country needs to rebalance its economy.
With the recovery well on the way in the UK with all indicators pointing to being the fastest growing in the G7, yet we still have one of the lowest levels of productivity? If we are not able to generate more income from exports beyond our own borders more efficiently, then this euphoria will be short lived.
Next in the series we shall look at the “Training Gap”.
