For wage growth in 2016 we need to raise productivity. How do we do that?

Today the Resolution Foundation has published figures from their Earnings Outlook saying that unless workforce productivity rises in the UK next year, Britain’s pay recovery will barely last.

Today the Resolution Foundation has published figures from their Earnings Outlook saying that unless workforce productivity rises in the UK next year, Britain’s pay recovery will barely last.

The Outlook, which the think tank publishes every quarter, initially raises optimism about reducing income inequality by saying this year marks a return of the rise in real wages, following a six-year squeeze during the recession years.

However the wages recovery has largely been down to ultra-low inflation which is unlikely to occur next year, meaning that any wage growth next year will have to be strongly pegged to high productivity levels.

The problem is, higher productivity levels are not forthcoming. Another recent report by the respected think tank Enterprise Research Centre found that right up to 2008 UK productivity was on a strongly upward trend. But since then, it has flatlined and the UK has fallen behind many of its international counterparts.

They estimate in their report Unlocking UK Productivity, that the UK’s productivity is around 16% lower than it would have been if it had stayed on its pre-2008 trajectory.

Scenarios of 2016

The Resolution Foundation have considered five different scenarios for productivity and wage growth for 2016, finding that in the best case scenario – 2% productivity growth and prolonged low inflation that rises to 1% by 2017 – could result in very fast wage growth of 3%, more than for a decade.

However on the worst case scenario – productivity stays pretty flat and inflation grows faster than forecast – real wages could drop by 0.9%, which may result in a situation where a typical worker’s pay does not return to pre-crisis levels for a decade or more.

As the hope for wage growth rests heavily on productivity, we should now start to be concerned about the jobs created during the recovery period. As David Blanchflower, a former member of the Bank of England’s Monetary Policy Committee, put it in a recent debate:

• The proportion of workers who say they have a temporary job and want a permanent job is up by 210,000;

• Fifty-five percent of the jobs created since 2008 are part-time;

• 15% of part-time workers now say they are part-time is because they could not find a full-time job, compared with 10% pre-recession;

• The incomes of the self-employed are down 22% since the start of the recession.

Optimism about productivity growth and the future of the labour market will not be helped by recent revelations that big employers like Sports Direct in the UK have been effectively paying below the minimum wage, according to an investigation by the Guardian.

Regular searches on warehouse staff and wage deductions if they are just one minute late means many staff being paid an effective rate of about £6.50 an hour, not the statutory rate of £6.70, which is potentially saving the firm millions of pounds a year.

How do we raise productivity in 2016

In the Unlocking UK Productivity report, the Enterprise Research Centre found that Britain’s productivity is falling behind other economies because it is slower to turn ambitious smaller firms into exporters of innovative new products and services.

They say that with more support, around 110,000 SMEs could add exports to their regular operations, adding £1.15bn in Gross Value Added (GVA) to the economy in the first year alone in the form of new and higher value jobs.

Support in the form education for entrepreneurs, business-to-business mentoring and targeted government support could all contribute to smaller firms increasing UK their line of products and services, putting them on the export market, which in turn could boost productivity levels and steady the UK recovery.

Until then, the productivity puzzle will still bewilder policy makers, causing great detriment to UK household wages.

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9 Responses to “For wage growth in 2016 we need to raise productivity. How do we do that?”

  1. Jacko

    Let’s remember that the editor of Left Foot Forward is paid just £24k a year, and that includes working unsocial hours. Presumably staff writers are paid £18-£20k. In London.

    This just shows the hypocrisy of the Left. They pay their own people the absolute minimum they can, and yet love to lecture us about ‘greedy’ bosses and ‘immoral’ or ‘exploitative’ capitalism.

    No wonder James Bloodworth left, he probably couldn’t make ends meet.

  2. deadtrax

    This article ignores the fact many businesses are now making bumper profits and paying both directors and shareholders huge rewards – with pay remaining low for the rest of us. Productivity, my arse. Do you think you are talking to the institute of directors or something? Drivel like this is the exact reason why the centre right in Labour has made itself irrelevant.

  3. Intolerant_Liberal

    Exactly!!! The problem is not productivity, as ordinary people are working just as hard, the problem is insecure, low paid and often zero hours jobs, and the constant erosion of wages at the bottom, and the consequent almost exponential rise of wages in the middle and particularly at the top. The centre right in the Labour party are snivelling like brats because no one is interested in them anymore. The ordinary people who normally voted Labour were never interested in them. In some cases the income of the middle class careers are four or five times the normal wage of those at the bottom end, and the wages of those at the very top of companies and organisations can literally be hundreds of times more than those at the bottom. Is it any wonder those of us struggling in low paid jobs are p****d off??? The economy is working for some, but not most of us. How can anyone really be worth millions? Very few people do enough to truly be worth that.
    This Left Foot Forward site is good, but it’s a little naïve, to be honest. Let’s not question why wages are constantly low at the bottom, let’s be honest and say they are low at the bottom because they are certainly too high at the top!!!!!!

  4. Intolerant_Liberal

    You’re probably right. The bosses and leaders of the vast majority of institutions tend to be vastly overpaid, and the minions at the bottom tend be underpaid. Take about 40% of the highest paid and bump up the wages of those at the bottom with that. Simple. The rich won’t really miss it…
    As regards £24k a year, in some places in the North of England you would be quite lucky to get anywhere near that!!! Which begs the simple question: why don’t they employ people OUTSIDE London??? Surely in this day and age you don’t really need to be in London to write stuff on a website??? Too much is centred on London anyway. This is one of the major problems with our country. There is a whole world outside Planet London y’know…

  5. Alison Richards

    The lowest paid are working extremely hard, as always, to make up for lack of staff. In the retail sector we have seen a freeze on overtime, everyone cut to their basic contract hours. Staff that have left or been dismissed are not replaced, yet the same volume of work has to be done, and the lowest paid staff are under the most pressure from management to get the work done.
    How can a company be productive, when its stock is in the warehouse, and unable to reach the empty shelves because the staff are constantly required on the check outs. It is a false economy, it’s senseless to tie up money in stock when employers are tightfisted over staff numbers and the stock can’t get put out for sale.
    One of the major chain of chemists recently had problems locally, with just 3 staff members to maintain the entire store, yet it’s C E O is very wealthy and dodges corporation tax.
    How are people meant to work any harder? On a six hour shift they have 15 minutes break, in some establishments ie YMCA they get none. They miss meals, are exhausted and stressed, and are the lowest paid.
    Unsociable hours are also worked by the same underpaid staff – those well paid ‘managerial staff’ are off the hook, they go home at tea time, have Christmas and New Years off and a fat bonus to top it off.
    If we’re looking at productivity I suggest it begins at the top – shorter, fewer breaks, shorter lunch, roll up sleeves and pitch in, instead of delegating to overstretched staff to get the job done.
    I have to say that some managers are very hard working, constantly filling up shelves, but they’re few and far between.

  6. Intolerant_Liberal

    This is the result of the belief that an Americanised and globalised economy works the best – works the best for those at the top, most definitely and for some in the middle – but guess, what?? It creates slaves of those of us on the bottom of the economic food chain. How is this ultimately going to create a truly stable society and a truly stable economy? It won’t. Take a little glance at our cousins in America. It is the most dysfunctional society in all of the advanced economies. Some people have billions, and millions of people struggle in very low paid and dead end jobs with little or no real security. Those who want a Tory government to continue their savage and unremitting attacks on the poor, working class (of whatever ethnicity), disabled people and the low paid may one day find out themselves what such persecution and viciousness feels like it when they lose their jobs.
    And that includes the aspiring like myself who have good educations and are professional, too. I have a good degree and can only get crummy temp jobs at best, and all usually on minimum wage.

  7. CharlesJ

    The primary driver of productivity is low unemployment. This makes wages higher. Combined these effects cause firms to find ways to expand output without taking on more workers – thus raising productivity.
    Also we have a shortage of workers with specific skills – especially in the trades and health.

  8. Thanks Tank

    With 300-350k net migrants a year coming in, there is a large reserve army of Labour. Add in natural population growth and there will always be a surplus of labour for most ordinary jobs.

    When the Labour force is growing that fast productivity will have to surge to to lead to continued wage growth, surge at levels not seen for years, even in better global economic times.

    The labour pool for the bottom 75% is growing while the jobs are paying less or stagnant and are under threat from tech.

    The left have lost their way and deserved to be replaced by a new manifestation to defend the interests of workers.

  9. Thanks Tank

    I presumed that they were all doing it for free.
    I never expected a small site like this to actually be paying people, they must be getting lots of donations.

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