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Productivity – back from the precipice

Posted by: , Posted on: - Categories: Growth, Research, Skills system

If you’ve ever lived through a crisis, you’ll know that they come in stages. There might be a sudden event precipitating a rapid fall, or a slow accretion of stresses that suddenly come to a head. And once they’re over or you see a way forward, you can feel relief, but still need to work to put things right. Looking at the UK economy, we still live in the shadow of crisis.

One of the key differences between the 2008-09 recession and the two before it was that productivity fell throughout. Previously, we’d seen overall output fall, but productivity continued to grow past its pre-recession levels. Not so now. Five years on, it remains below its peak.

Although it’s (relatively) simple to divide output by unit input and calculate a factor for productivity, what has economists pulling their hair is trying to get one level further down and work out why this is as it is. Typical accounting will look at capital inputs, IT, labour, and so on. However, describing “labour” as an anonymous input doesn’t seem right to me. I’d argue that the human capital - the quality of the people that do the work in the UK - is more important than ever.

As UKCES’s latest evidence report, Growth Through People: Evidence and Analysis, sets out, ‘skills played an important and sustainable role in productivity growth in the 1990s and 2000s.’ Over this period, the skills available in the workforce expanded as the proportion of those with higher level qualifications increased.

That productivity fell so far, so fast tells a worrying story. Although some highly-skilled people may have decided to pack their bags, there’s no reason why the human capital available would have changed so substantially as to account for the fall. So something else must.

The paper from UKCES puts forward a compelling argument about the role of skills in this equation. The full details are so cogently put I would do the research a disservice to summarise it here. But as UKCES makes clear in its five priorities for action, productivity isn’t just a statistic tucked away on the business pages. In their words, ‘improving workplace productivity should be recognised as the key route to increasing pay and prosperity’.

When the TUC and CBI sign up to such a clear message, you can be sure you’re on to something.

It’s maddening. As a country, we have skilled people, and we have companies with great management that make great use of them. But, to lift a phrase from UKCES’s slick video presentation on their research, we have too many companies “leaving money on the table”. To have high-skilled people and not use them to the full is to do just this.


Throughout today we will be taking a deeper look at UKCES' Growth Through People work. This afternoon we will feature the first in a series of guest posts from business, HR, and economics bloggers - offering their own perspectives on some of the key issues highlighted by UKCES.

Follow @UKCES on Twitter, and use the hashtag #GrowthThroughPeople for more.


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