Britain’s productivity crisis has entered a new phase with the overall efficiency of the economy being held back by a surge in low-value work.
Analysis of official data by the Financial Times has found that in the past two years, increases in low-wage jobs in bars, social work and warehouses have served to hold back UK productivity growth.
This trend risks perpetuating the UK’s productivity slump over the past decade, when Britain has recorded the most acute slowdown in output per hour worked of any leading western economy. Between 1997 and 2008, Britain’s productivity grew about 2 per cent a year on average, but since then it has fallen to close to zero.
Weak productivity hits living standards. If output per hour worked is not rising, employers can only find extra money to increase wages faster than inflation by more people securing employment or individuals toiling longer hours. FT calculations show that in the seven quarters since June 2016, productivity growth ran at an annual rate of 0.8 per cent.
That annual rate would have been a much higher 1.3 per cent if there had been no changes in employment trends, but low-productivity industries have recorded large increases in their proportion of total hours worked in the economy.
For example, the transport and storage sectors rose from 5.26 per cent to 5.38 per cent between the second quarter of 2016 and the first quarter of 2018. There were also significant increases in share
recorded by the business services, recreation and culture industries.
Meanwhile, high-productivity industries led by financial services recorded falls in their proportion of total hours worked in the economy.
One of the key drivers of Britain’s productivity malaise over much of the past decade has been the failure of the most efficient industries before the financial crisis to maintain their momentum.
Financial services, energy, management consultancy and telecoms have all experienced a marked slowdown in productivity growth since 2008.
John van Reenen, a professor of economics at the Massachusets Institute of Technology, said if the UK could not boost productivity growth, wages would not increase, tax receipts would not rise and austerity would continue. “Not very nice,” he added.
Conor D’Arcy, analyst at the Resolution Foundation, a think-tank, said: “The UK’s dependence on lowpaid
work has been a problem for decades. As well as contributing to the UK’s low productivity, the pay and
prospects of workers in such roles are often limited.
“While providing a stable environment for higherproductivity sectors to grow is key, the government
should also recognise the importance of lower-paid sectors to our economy by including retail and hospitality in its industrial strategy and sector deals.”
The stated aim of the government’s 2017 industrial strategy white paper, and related sector deals such as those for aerospace and automobiles, is to improve the UK’s productivity performance.