Reversing austerity and raising the minimum wage are two ways to fix the producivity crisis, the report said.
A report has called on government to increase its spending and that of consumers in order to restore business confidence and improve worker productivity.
The New Economics Foundation (NEF) said that when businesses are not confident, they don’t commit to hiring people on a permanent basis – instead preferring short-term or zero-hour contracts and outsourcing.
Workers who are outsourced or on zero-hour contracts are not very productive. So to fix the UK’s low productivity crisis, the government should restore business confidence by stimulating the economy, the report said.
Government should stimulate the economy in two ways, the NEF said. Firstly, by increasing government spending itself. Secondly, by making changes so that workers have more money to spend and more free time to spend it.
The report said government should increase its spending on social security, reversing austerity and on creating a zero-carbon economy. These are areas where increasing government spending has a particularly large impact on demand in the economy.
The report also said that the minimum wage should be increased, as should the number of statutory holiday days. This would give people more money to spend and more free time to spend it, thus increasing demand in the economy.
The NEF said that productivity was important because high productivity enables higher wages within a sustainable economy.
In the UK, productivity has stagnated since about 2008 after decades of steady growth. Since their 2008 peak, real hourly earnings have also stagnated.
In May, a different report argued that the UK should follow the example of Portugal which boosted its economy by increasing spending, raising the minimum wage and increasing holidays.
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