The IFS produced a new report today examining why British workers are getting less productive.
Low wages, low business investment and a misallocation of capital have led to a ‘dramatic fall’ in labour productivity, according to a new report.
The Institute for Fiscal Studies (IFS) believes Britain is producing 12.8% less than had labour productivity growth continued at pre-recession rates. [Source: The productivity puzzles (pdf)]
Falling productivity helps to explain why employment has been rising in the UK despite sluggish growth in output.
British workers now produce 2.6% less output per hour worked than they did at the start of 2008. The IFS believes the key reasons for this are low real wages, low business investment and a misallocation of capital.
Its research suggests lower wages allow firms to employ more people, and this in turn has a negative effect on productivity. According to the report, a more flexible labour market and more demanding benefit system are combining to cause employment to remain stable.
These two changes mean labour supply in this recession have remained higher than in the recessions of the 1980s and 1990s.
The second main reason given by the IFS for falling productivity is a fall in business investment. Investment is now around 16% lower than its pre-recession high. This is a sharper fall than in previous recessions, and a fall that has demonstrated significant persistence.
“If workers have less, and less good, capital to work with they will produce less,” says the report. The report also blames the misallocation of capital, suggesting an impaired financial sector is failing to effectively deliver capital towards more productive and away from less productive firms.
The report rejected some of the other explanations given for what it terms the ‘productivity puzzle’. One was the ‘labour hoarding’ argument, the suggestion firms are employing more workers than necessary. It also dismissed the idea the demise of financial services has led directly to a fall in productivity.
Another interesting finding by the report was the public sector has bucked this trend. There has been a 6% fall in public sector employment since 2009, a period during which public sector output rose slightly.
The report notes:
“The long run effects of lower employment on service quality remains to be seen.”
Wenchao Jin, a research economist at IFS, commented:
“The fall in labour productivity seems to have been driven by low real wages and low firm investment. Productivity slowdown has happened right across the economy. They have not been driven by a change in the composition of the economy nor by a change in the composition of the workforce.”
See also:
• This depression is the longest in modern history, so why is the economy still creating jobs? – January 25th, 2013
• GDP growth masks fall in wages and impact on union rights – October 29th, 2012
• The economic puzzle: The stats may be good but the grim jobs news keeps coming – October 26th, 2012
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29 Responses to “Why are British workers getting less productive?”
Newsbot9
Because they don’t take 3k. 12k? Let’s see, per ListenToTaxMan…£1,300.00
And it’s not their biggest item. Rent, food, utilities, transport – all bigger items for their tax, in reality!
(It’s also completely ignoring what they get back from the state, which
you are desperately trying to slash, leaving them worse off.)
Newsbot9
Companies can offset foreign losses against UK taxation, after moving profits here without paying any additional tax if the rate in their tax havens is lower.
You are indeed a fraudster, unable to tell the difference between your frauds a the state, You no doubt are heavily invested in Starbucks..
The issue is your lies about the debt, and your claims that you have to stuff the poor so your profits won’t go down, and how you want to make people destitute, rather than pay tax!
Newsbot9
I don’t think he’s a British citizen per previous statements.
LB
8.55 an hour living wage, 37.5 hours a week.
Income tax.1,713.50
NI – employee 1,089.66
NI – employer 1,267.46
Total 4070.62
Ho hum. That ignore all the other taxes, such as VAT, IPT, ….
Newsbot9
You said £12,000 Not £16,672, 39% higher!
And the worker does not pay employers NI, so the total is £2,800.00.
You’re lying as usual.
And you’re ignoring all the benefits, as usual.