Do these five charts explain the productivity puzzle?
What do the UK’s jobs boom, the rise of self-employment, the plethora of start-ups, short-term investors, meetings, access to finance, employee wellbeing, the skills shortages, too much government and not enough government have in common?
They’ve all been blamed for the UK’s productivity crisis.
“Productivity” – a slightly woolly measure which basically divides total economic output by every hour worked – has flat-lined since about 2006. It didn’t crash in the recession – probably because unemployment rose as output fell, keeping the calculations pretty stable – and hasn’t shot up since.
Two arguments that seem to have caught on with economists:
Poor productivity growth is the “price” of high employment
New jobs have been created in the “least productive” parts of the economy, dragging down the overall figures as more hours are worked but output doesn’t rise very fast
However, fresh analysis from the Office for National Statistics (ONS) produced as part of its monthly economic outlook, has raised questions about how valid those arguments are.
In fact, it finds that it is those less productive bits of the economy – services, basically – that have actually improved over the last few years, while it is weak performance on the manufacturing and production side of things that is holding the UK back.
First, let’s look at services on their own.
The services sector dipped slightly during the recession – though not by much – and has powered on ever since. It now contributes ten per cent more than it did in 2008. Employment has also grown, though by just seven per cent – meaning a slight bump in productivity.
Top of class
Not only has services output growth outstripped employment growth, it has comfortably outperformed the other bits of the economy.
Services accounts for 79 per cent of the UK economy – which means we basically live and die by the performance of these industries.
And it’s a good job that services have been doing the legwork. Since 2013 growth in the services industry has accounted for 84 per cent of the total expansion of GDP, according to the ONS. Even given its mammoth size – it is still pulling more than its fair share.
Every sector of the economy, except services, is still smaller than it was on the eve of the crisis.
Now let’s get into the nitty gritty.
The ONS has broken down output and productivity stats for some of the best and worst performing industries.
Looking at performance since 2012, researchers found that “services are prevalent among high-growth industries,” while “production industries made up three of the five slowest growing industries.”
The top performer was admin, while the electricity and gas industry was the worst. Despite the recent crash in the oil price, mining and quarrying still managed to expand over the period.
But that’s only – quite literally – half of the equation. The ONS also looked at how output per hour – productivity – has fared in some of the best and worst performing industries since 2012.
Here, the picture is a little more nuanced, though the non-service bits of the economy still come out looking not too pretty, or, as the ONS puts it: “Production industries again feature toward the lower end of the labour productivity distribution”.
Manufacturing as a whole squeezes out 1.9 per cent less per hour than it did in 2012, while firms in the electricity and gas sector get a whopping 14.4 per cent less out of their workers than they did four years ago.
In vindication for one of the main arguments for falling productivity, the rise of hotels, restaurants and cafes did also drag down the overall figures, as output per hour dropped.
However, administrators, drivers, warehousers, wholesalers, shopkeepers and mechanics all became significantly more productive over the period.
In short, beware anyone who claims to have found the missing piece of the productivity puzzle. There certainly isn’t just one.