UK productivity gap stuck at record widest point, driven by lower paid jobs and lack of work hours

06 October 2016

The productivity gap between the UK and the rest of the G7 remains at its widest on record, according to the latest Office for National Statistics report.

Labour productivity refers to the amount of goods or services created per hour of labour worked, and the UK’s poor performance in this area is of growing concern to economists as low productivity leaves the economy more vulnerable to recession.

The new figures, released today, show that the UK continues to lag significantly behind its major competitors, around 18 percentage points lower than the rest of the G7, 27 percentage points below France, 30 below the USA and a shocking 35 percentage points behind Germany. This gap has not been improved upon from last year.

Furthermore, productivity has been “unusually weak” since the recession, slowing to just 0.1% per quarter since the end of 2008 compared with 0.5% in the decade prior. This has made the UK’s recovery from the downturn more fragile than in any other economic depression over the past 50 years.

ONS Chief Economist Joe Grice explained that “productivity, and its sluggish growth over the last decade or so, are central issues for the UK economy”, driving the ONS to prioritise its measurement and generate new reports to track the issue.

Today’s report found that, although productivity increased to 0.6% between Quarter 1 and Quarter 2 of 2016, it still falls far below its pre-recession projection and is faring far more poorly than in comparative economies.

Poor productivity was attributed to a low quantity of work, with a higher proportion of British workers in part-time jobs or working fewer hours than their peers in America, for example, and a lower ‘quality’ of work, as measured by workers’ renumeration.

The ONS found that growth in ‘quality’ was just 1.4% in 2015, its slowest rate since 2011, which points towards an increase the proportion of jobs that are low-skilled and low-paid.

The Institute of Employment Rights has been particularly concerned with the low productivity of the workforce, warning that increasing ’employment’ rates does not necessarily mean that workers have high ‘quality’ jobs. Indeed, a rising proportion of workers are employed via zero-hours contracts, are misclassified as ‘self employed’, or find less secure roles through agencies.

We lay out our proposals for increasing productivity in the workforce by creating higher quality jobs in our Manifesto for Labour Law, 25 recommendations that have now been adopted by the Labour Party.