Where did all the productivity go?

The ONS examines how employment is rising, even while GDP falls.

Joe Grice, chief economist of the ONS, released a report today that addresses the recent GDP-employment paradox.

As seen last week, employment has fallen by only 1 per cent since 2008, in spite of a 4 per cent drop in GDP over the same period. As the number of hours worked rises and output decreases, it can only be concluded that people are producing less per hour.

Output, Employment and Total Hours Worked

This stands in contrast with previous recessions, when productivity progressively increased. This has led economists, including the ONS, to probe into why this is happening.

Firstly, Grice suggests that this phenomenon could be linked to the growth of part-time and temporary jobs.

In particular, the author notes that the increase of part-time work to the detriment of full-time jobs has led to a smaller increase in hours worked than number of jobs would suggest.

Full-time and part-time employment (people aged 16 and over)

Permanent and temporary employees

The proposed hours-to-jobs ratio decline is seemingly confirmed by the rise of the proportion of people who are forced into part-time or temporary work for lack of full-time, permanent options.

Involuntary part-time and temporary workers as a proportion of total part-time and temporary workers

This, Grice notes, suggests that the UK market has adjusted to the recession by becoming more flexible.

There is also evidence to support the idea that companies have been reluctant to shed employees, in spite of the dip in output. The rise in real income has significantly slowed in the last ten years (in large part due to the wage adjustment resultant from a more flexible labour market), making it more affordable for companies to maintain staff levels.

Earnings growth, quarter on same quarter a year ago

Furthermore, as the cash flow for non-financial companies shows - unlike in previous recessions - firms have remained financially buoyant enough to retain employment.

Financial surplus/deficits of private non-financial companies

Finally, the report draws attention to the notable rise in self-employment, perhaps as a direct consequence of lay-offs. However, it is stressed that the exact effects of this rise on output and hours worked remain unclear. (I’ve been told by the ONS that a break-down of self-employment jobs by industry will be published from next month onwards – it’ll be interesting to see whether these "newly self-employed" are genuine entrepreneurs, people who are basically unemployed by another name, or just corporate attempts to dodge the statutory rights conferred to the elusive, and rather narrowly defined, "employee".)

Self Employment as a percentage of total employment

The report goes on to conclude that while the aforementioned reasons may play a significant part in explaining the mystery (further research is being done to confirm this), it is important to consider other issues.

For instance, some commentators have attributed the paradox to consistent under-reporting of GDP. However, the ONS admits that this is unlikely, as previous periodic assessments of GDP revisions haven’t shown any significant bias. Grice does concede that the survey data may be out of sync with GDP estimates, as the former can give information about future trends, while the latter are necessarily based on past tendencies. Nonetheless, some pundits believe that the GDP doesn’t reflect the strength of PAYE and/or tax receipts. But the report contends that the ratios do not seem abnormal:

Ratio of PAYE and VAT receipts to GDP

Moreover, when compared to productivity across Europe, the UK conundrum seems less puzzling. Registering the same trends as its continental counterparts, the drop in British productivity, argues the ONS, could very well be explained by common international factors.

International comparisons of productivity (Real labour productivity per hour)

Following reports by the OECD and IMF, the ONS speculates that the financial crisis may have altered the UK’s productive potential. While acknowledging that there were many forces at work during the crisis, Grice points to a few main factors that may have contributed to the current recession’s exceptionalism.

Firstly, the author argues that "over-exuberant financial intermediation" led to the investment of resources in activities with poor returns. It is argued that as a consequence, we are now left to deal with shoddy machinery and poorly trained individuals. Secondly, due to the drop in financial intermediation after the crisis, firms lost access to financing that would boost productivity. Finally, the report states that because the risk premium increased so significantly after the crisis, existing capital stock was rendered unviable because it was unable to generate the required return at the higher rate.

The ONS concludes that all the aforementioned explanations are likely to play a role in explaining the dip in productivity, and that each one warrants further, extensive research.

A journalist sleeps at his desk. But falling productivity doesn't mean lazy workers. Photograph: Getty Images
Getty
Show Hide image

To heal Britain’s cracks, it’s time for us northern graduates in London to return home

Isn’t it time for people like me, who’ve had privileges and experiences not open to everyone, to start heading back to our local communities, rather than reinforcing London’s suffocating dominance?

I’m from Warrington. The least cultured town in the UK. My town.

I moved to London almost exactly five years ago. Not because I particularly wanted to. Not because I wanted to depart the raucous northern town that I still call home. Because it was my only choice, really. I’d done my stint in the call centres and had some fun. But that couldn’t, surely, be my lot?

After university, I’d already started feeling a little weird and out of place back in Wazza. There were fewer and fewer people who didn’t look at me like I’d just fallen off a futuristic space flight that’d given me a different accent and lofty ideals.

Of course, that’s because most people like me had already skipped town without looking back and were all in the capital trying to strike beyond the ordinary.

The young, the cities, the metropolitan elite are still reeling after last week’s vote and wondering how people, half of our people, have got it so horribly wrong. We’re different, divided, done for.  

One thing I’ve clung onto while I’ve been in London is the fact that I’m from Warrington and proud. It might not be a cultured town, but it’s my town.

But I wasn’t proud of the outcome of the EU referendum that saw my town vote 54.3 per cent to 45.7 per cent to leave.

To be fair, even in my new “home” borough of Hackney, east London, the place with the third-largest Remain vote, one in five people voted for Brexit.

Yes, in one of London’s hottest and most international neighbourhoods, there are quite a lot of people who don’t feel like they’re being taken along to the discotheque.

Perversely, it was the poorest places in the UK that voted in largest numbers to leave the EU – that’s the same EU that provides big chunks of funding to try to save those local economies from ruin.

In many ways, of course, I understand the feelings of those people back in the place I still sometimes think of as home.

Compared to many suffering places in the UK, Warrington is a “boom town” and was one of the only places that grew during the last recession.

It’s a hub for telecoms and logistics companies, because, ironically, its good transport links make it an easy place to leave.

But there are many people who aren’t “living the dream” and, like anywhere else, they aren’t immune from the newspaper headlines that penetrate our brains with stories of strivers and scroungers.

Warrington is one of the whitest places in the UK, and I’m sure, to many locals, that means those immigrants are only a few towns away. There’s already a Polski sklep or two. And a few foreign taxi drivers. Those enterprising bastards.

We have never seriously addressed the economic imbalance in our economy. The gaping north-south divide. The post-industrial problem that politicians in Westminster have handily ignored, allowing the gap to be filled by those who find it quick and easy to blame immigrants.

When schemes like HS2, which is plotted to smash right through the place I grew up, are pushed against all of the evidence, instead of a much-needed, intercity Leeds to Liverpool investment to replace the two-carriage hourly service, it’s like positively sticking two fingers up to the north.

But I am also a big problem. People like me, who get educated and quickly head off to London when things aren’t going our way. We invested in ourselves, sometimes at state expense, and never really thought about putting that back into the places where we grew up.

There weren’t the right opportunities back home and that still stands. But, rather than doing something about that, people like me lazily joined the gravy train for London and now we’re surprised we feel more kinship with a 20-something from Norway than we do with someone who we used to knock on for when we should have been at school.

That’s not to suggest that our experiences in the capital – or mine at least – haven’t made us a thousand, million times better. 

I’ve met people who’ve lived lives I would never have known and I’m a profoundly better person for having the chance to meet people who aren’t just like me. But to take that view back home is increasingly like translating a message to someone from an entirely different world.

“You know, it’s only because you live in a country like this that a woman like you is allowed to even say things like that,” assured one of my dad’s friends down at the British Legion after we’d had a beer, and an argument or two.

Too right, pal. We live in what we all like to think is an open and tolerant and progressive society. And you’re now saying I shouldn’t use that right to call you out for your ignorance?

We’re both Warringtonians, English, British and European but I can increasingly find more agreement with a woman from Senegal who’s working in tech than I can with you.

It’s absolutely no secret that London has drained brains from the rest of the country, and even the rest of the world, to power its knowledge economy.

It’s a special place, but we have to see that there are many people clamouring for jobs they are far too qualified for, with no hope of saving for a home of their own, at the expense of the places they call home.

It’s been suggested in the past that London becomes its own city-state, now Londoners are petitioning to leave the UK.

But isn’t it time for people like me, who’ve had privileges and experiences not open to everyone, to start heading back to our local communities, rather than reinforcing London’s suffocating dominance?

We can expect local governments to do more with less, but when will we accept we need people power back in places like Warrington if we want to change the story to one of hope?

If this sounds like a patronising plan to parachute the north London intelligentsia into northern communities to ensure they don’t make the same mistake twice... Get fucked, as they say in Warrington.

It was Warrington that raised me. It’s time I gave something back.

Kirsty Styles is editor of the New Statesman's B2B tech site, NS Tech.