The UK has now grappled with a productivity puzzle for over a decade. In the 10 years to Q4 2007, output per hour in the UK grew by 21 per cent. Meanwhile, the latest data show that productivity by the same measure grew by 6.3 per cent in the decade to Q2 2022.
Not only have we become less productive by pre-crisis comparison, we also produce less per worker than our peers. The most recent internationally comparative data show that the average output per worker across all other G7 countries was 13 per cent above that of the UK in 2019, with workers in the US and France being particularly more productive.
With Liz Truss recently having to defend herself after comments she made about UK productivity and workers needing “more graft” were leaked, the issue has once again come to the forefront. Yet aside from politics, productivity growth is key for economies to flourish, unlocking the potential for real wage increases and sustainable economic expansion. Understanding where the UK is going wrong has the capacity to add billions to the economy and raise living standards: a particularly attractive concept in today’s economic environment.
One explanation for the UK’s poor performance, put forward by Cebr founder Douglas McWilliams in his book, The Lifestyle Economy, is that the country has seen a change in work preferences towards “lifestyle activities”. The hypothesis is that employees in the UK have shifted towards a desire for enjoyment rather than remuneration, leading them to lower paid, less productive, but more creative sectors.
On a related theme, there is a growing trend of employees doing the bare minimum at work, known as “quiet quitting”. This describes when employees complete just enough of their work to keep up, leaving work on time every day. The cause of this development may be increasing levels of disengagement in industries that lack creativity and interest and general demotivation in light of a gloomier economic environment following the financial crisis. More recently, this is likely to have been exacerbated by the intensifying cost-of-living crisis.
Yet the economic travails of the last few years are a problem faced by most of the UK’s peers, so this likely doesn’t go very far in explaining why we lag behind France and the US in the productivity data so much.
Looking for a solution to the problem, technology has in the past, and will continue to be, one of the biggest drivers of productivity. Cebr’s research for Virgin Media Business, looking at the benefits of Covid-driven digital transformation, shows that 36 per cent of employees feel more productive while working remotely, whilst only 7 per cent feel less so.
Cebr research for Snaplogic also finds that the UK could have limited its 2020 GDP contraction by around £10-14 billion if it had matched the pre-pandemic automation levels of the US. This not only highlights that the UK lags behind the US in terms of automation usage, but also how automation can boost output, with an associated productivity improvement.
Whatever the cause of the UK’s slow productivity growth over the past 10 years, there is certainly no easy fix. However, there is good evidence to suggest that the acceleration of digital transformation that started to take place during the pandemic can lead to significant improvements in productivity in the future.
Josie Dent is Managing Economist at the CEBR.