Work­ers sit­ting idle at home drag pro­duc­tiv­ity fur­ther into the mire

Pay­ing staff to do noth­ing has wreaked havoc on fig­ures for out­put per worker, finds Rus­sell Lynch

The Daily Telegraph - Business - - Business -

The Covid-19 out­break de­liv­ered a fur­ther blow to the UK’s lack­lus­tre pro­duc­tiv­ity as the Gov­ern­ment’s job re­ten­tion scheme paid mil­lions of em­ploy­ees to sit at home, of­fi­cial fig­ures re­vealed.

Rais­ing the UK’s pro­duc­tiv­ity – ef­fec­tively the econ­omy’s abil­ity to pro­duce more with less – is seen as the holy grail for pol­i­cy­mak­ers, as it al­lows com­pa­nies to im­prove their com­pet­i­tive­ness and fund pay rises for work­ers.

But af­ter the worst decade for pro­duc­tiv­ity growth since the

19th cen­tury, it now stands more than 20pc be­low pre-fi­nan­cial cri­sis trends due to a com­bi­na­tion of fac­tors such as low in­vest­ment, stag­nant real wages mak­ing work­ers more at­trac­tive than ma­chines, and record low in­ter­est rates help­ing keep weaker com­pa­nies afloat.

The lat­est Of­fice for Na­tional Statis­tics fig­ures for the first quar­ter of the year un­der­lined the dam­age done as pro­duc­tiv­ity mea­sured by out­put per worker plum­meted 3.1pc com­pared to a year ear­lier – the big­gest fall over a sin­gle quar­ter since 2009.

This was due to the num­ber of work­ers ac­tu­ally ris­ing 1.4pc com­pared to 2019. The UK’s gross value added (GVA) – a mea­sure of goods and ser­vices pro­duced less the costs of pro­duc­tion – fell 1.7pc due to the lock­down of the econ­omy in the fi­nal week of the quar­ter from March 23.

The fur­lough scheme was back­dated to the be­gin­ning of March by Rishi Su­nak, the Chan­cel­lor, when it was in­tro­duced, with tax­pay­ers pay­ing 80pc of the wages of mil­lions of work­ers, cre­at­ing a ma­jor dent to pro­duc­tiv­ity. Mea­sured by out­put per hour, the blow was less se­vere – down 0.6pc – as the num­ber of hours worked fell 1.2pc, al­beit still less steeply than the de­cline in GVA. Pay­ing work­ers to do noth­ing also pushed unit labour costs – the cost of pro­duc­ing a unit of out­put – up 6.2pc, the big­gest an­nual rise since 2006.

The desperate hunt for a Covid-19 vac­cine is also re­flected in the fig­ures. While over­all out­put per hour among man­u­fac­tur­ing firms sank 0.6pc com­pared to the end of 2019, the chem­i­cals and phar­ma­ceu­ti­cals sec­tor stands out with a stag­ger­ing 11.9pc rise over the first quar­ter of the year.

Pablo Shah, UK econ­o­mist at the Centre for Eco­nomics and Busi­ness Re­search, said: “A pri­mary driver of this re­sult will have been the coro­n­avirus pan­demic, and the global scram­ble for med­i­cal equip­ment, drugs and treat­ments.”

Among ser­vices sec­tor work­ers the pain was much more pro­nounced as out­put per worker in food and ac­com­mo­da­tion busi­nesses plunged 12.3pc com­pared to the pre­vi­ous quar­ter.

Out­put in “real es­tate ac­tiv­i­ties” mean­while sank 6.3pc, as the prop­erty mar­ket ef­fec­tively shut down in mid-March.

De­spite a surge in health spend­ing, pro­duc­tiv­ity in public ser­vices sank 4.8pc year on year as well, be­cause schools were closed and the ex­tra out­lays on health were also met by the cut­ting back of GP ap­point­ments, the rapid scal­ing back of non-emer­gency surgery, as well as can­celled or post­poned out­pa­tient ac­tiv­ity.

The pro­duc­tiv­ity fig­ures un­der­line the dis­pro­por­tion­ate im­pact of the shut­down on lower paid work­ers, a per­sis­tent theme of the eco­nomic im­pact of Covid-19. While an un­em­ploy­ment cri­sis looms for mil­lions of those lower paid work­ers in a world of lin­ger­ing so­cial dis­tanc­ing, the corol­lary is that it ac­tu­ally im­proves the pro­duc­tiv­ity num­bers due to a com­po­si­tion ef­fect.

Com­pared to a year ear­lier, the smaller fall in out­put per hour can also be ex­plained by an in­crease in the share of hours worked by older, gen­er­ally better paid work­ers com­pared to their more un­for­tu­nate younger coun­ter­parts. Hours for those with no qual­i­fi­ca­tions fell by 5.8pc, while hours for the most qual­i­fied grew by more than 2.3pc. Younger work­ers saw a de­crease of 5pc in hours worked, whereas those aged over 50 years in­creased their hours by 1pc.

Busi­nesses such as restau­rants are gen­er­ally less pro­duc­tive, so a dis­pro­por­tion­ate fall in that sec­tor is ac­tu­ally good news for out­put per hour too, and raises the ironic prospect of much stronger pro­duc­tiv­ity – at least on an out­put per hour basis – in the sec­ond quar­ter even as over­all GDP col­lapses by around 20pc.

But econ­o­mists warn that a gen­uine longer-term so­lu­tion to the UK’s pro­duc­tiv­ity cri­sis will only come with ex­tra in­vest­ment from busi­nesses that were al­ready de­terred from spend­ing by the on-off saga of Brexit be­fore the coro­n­avirus struck.

Tej Parikh, chief econ­o­mist at the In­sti­tute of Di­rec­tors, said: “The UK’s pro­duc­tiv­ity woes didn’t be­gin with the pan­demic” and put the onus on the Chan­cel­lor to help en­cour­age busi­nesses to in­vest.

He warned: “How­ever, cash will be tight in the months ahead. On­go­ing un­cer­tainty and un­healthy balance sheets will make it hard for many SME di­rec­tors to in­vest in their or­gan­i­sa­tions at this crit­i­cal time. The Chan­cel­lor must shift the dial with tax in­cen­tives for busi­ness in­vest­ment.”

Newspapers in English

Newspapers from UK

© PressReader. All rights reserved.