The term “productivity puzzle” has been hanging around the UK economy for a few years. I couldn’t even manage a decent pretence of being an economist so I’m going to cop out ever so slightly by leaving it to the Bank of England to explain.:
Labour productivity is defined as the quantity of goods and services produced per unit of labour input. Since the onset of the 2007–08 financial crisis, labour productivity in the United Kingdom has been exceptionally weak. While labour productivity — measured by whole-economy output per hour worked — started to improve in 2013 alongside the recovery in output that was taking place at this time, it is still some 16% below the level implied by a simple continuation of its pre-crisis trend (Chart 1). This shortfall is sometimes referred to as the ‘UK productivity puzzle’, and has spurred a range of research both inside and outside the Bank of England in an effort to explain it.
Even a non-economist like me can see clearly that the line in Chart 1 has not followed anything like the trajectory it apparently should have.
“So what?” might be an understandable response to this from non-economists – most of us find it difficult to draw a solid line linking macroeconomic issues with our daily lives. Well, for starters, improvements in productivity are a vital source of economic growth and rising living standards for all of us. Bank of England staff estimate that, if productivity had continued to rise at the trend rate prior to 2008, the UK population might on average be 17 per cent better off than it is today. As The Economist notes, the UK’s productivity problem is uniquely serious: where ours has stagnated, American workers’ output per hour is 9% higher than in 2007. The chart below illustrates that nicely.
It’s not just in comparison with the US where we are lagging behind. There is an often-quoted “fact” that French workers could take Friday off and still produce more in a week than British workers. You might not be too surprised to learn that of the G7 countries, the US, Germany and, yes, France have a higher GDP per hour worked figure – but so too do Italy and Canada.
So things are bad, economically-speaking (that’s about my level of economic analysis, I’m afraid). What can we do to solve the productivity puzzle? The experts all have their own pet theories of course. Some argue that this is just the way it is right now – either the way we measure productivity is wrong and we are under-reporting it or that the “era of innovation” is over. Others say it requires an economic solution.
This week, ACAS pitched in with a potential solution – you can find their paper Building Productivity in the UK on their website here. To paraphrase Bill Clinton somewhat, their response is “it’s the workplace, stupid“. They say:
Workplaces are key to productivity. The long term success of high level solutions such as better physical infrastructure or capital investment and investment in skills depends on workplaces being efficient, responsive and innovative.
In the paper they identify what they believe are the seven key “levers” for workplace productivity, as shown in the attractively colourful diagram below.
By way of more detail, they are:
- Well designed work: jobs and work organised in ways that increase efficiency and make the most of people’s skills.
- Skilled managers: managers with the confidence and training to manage and lead effectively.
- Managing conflict effectively: systems in place to reduce the likelihood of problems arising and to deal with problems at every stage.
- Clarity about rights and responsibilities: a working environment where everyone understands their rights and responsibilities.
- Fairness: employees who feel valued and treated fairly.
- Strong employee voice: informed employees who can contribute and are listened to.
- High trust: relationships based on trust, with employers sharing information at the earliest opportunity.
Now by this point, hopefully, you’ve realised why an HR generalist is blogging about what seems (on the face of it at least) to be quite a dry economic issue! All of these things fall fairly and squarely in most organisations at the door of the HR team, or whatever we are called this month. They are all people issues. Which means we need a people-focused solution, arguably (and I know lots of people would argue with this!) over and above an economic one.
The prevailing wisdom, certainly in HR circles that I move in, is that happier people produce more – in fact, only recently academic research suggested happier people are 12% more productive. However while this argument is seemingly happily accepted amongst most HR practitioners, it may be less attractive to some of our harder-nosed business owners and managers (such as the erstwhile Mr Beecroft perhaps). It is also starkly incompatible with our hollowed-out “low skills, low security” jobs market here in the UK. It’s perhaps easier therefore to make an argument that what we need are high performing workplaces. What ACAS have produced in their report is effectively a checklist of the practices which create them.
It’s a great document: a really straightforward, practical and frankly easy read, packed with useful commentary and some highly relevant case studies – as you might expect from “experts in the dynamics of the workplace” (their words!). As someone who has worked in a number of very different workplaces with varying levels of productivity, I recognise (and wholeheartedly agree with) the value of each of the levers ACAS have identified. I also recognise that they are levers which we as HR people can help our organisations to pull. This report is a timely and practical reminder of the things on which we should focus to develop our workplaces. Reading between the lines it is something that ACAS are going to build on in future – it will be very interesting to see how this develops over time.
AS HR and business people, it’s sometimes difficult with so much going on internally to lift our heads and look outwards at the wider economy – but it’s vitally important. We have an opportunity to contribute to solving the UK productivity puzzle and therefore increasing not just our own standard of living but that of all the whole country. At the very worst, if we succeed in pulling ACAS’ seven levers, we will make our own workplaces more productive (and yes, hopefully a bit happier too). At best, we’ll be doing our bit to make those graphs at the top of this blog look a bit more cheerful in the coming years.