We're working more, but doing less: why GDP is so low

Productivity is down year-on-year for the fourth quarter in a row.

Why has GDP been stagnating even while employment and hours worked have been rising? One answer to the question is to point out that the rise in the employment rate has been somewhat overstated; There was a persistent rise for around a year, but that seems to have levelled off in recent months. Furthermore, at a period when the economy was growing, the employment rate was actually flat. It could just be catch-up growth in employment that we are seeing.

But even with those explanations, there's still something to explain. The employment rate has flatlined, but overall employment has continued to grow (although even that dropped off in the first quarter of 2013):


Overall employment is a bad measure to use to judge the success of a government, because it has a tendency to rise anyway, thanks to population growth. (Which is why, unsurprisingly, this government is fond of quoting it. "More people in work than ever before" is technically true, but only because there are more people in Britain than ever before.) But it is important for one reason: more people ought to mean more people making things, which ought to mean higher GDP. The fact that it doesn't is worrying.

That's why economists turn to measures of labour productivity, which tell us things like how much output the average worker produces, or how much output is produced per hour. If the country is getting richer, but only because we are working longer hours, for instance, the former measure will rise, but the latter won't. If the country is getting richer, but only because more people are working, then the latter will rise, but the former won't.

We are in the opposite situation. The country isn't getting richer, but more people are working, and they're working longer. And so, as you'd expect, that means both key measures of productivity, released today, are falling:

The ONS adds:

Whole economy output has risen slowly during 2012, while employment and hours rose at a much faster rate. Labour productivity has therefore fallen over the past year on all measures - although it rose in the first quarter of 2013 on an output per worker and output per job basis as employment stagnated while output increased. The weakness in productivity has not been translated into rising unit labour costs, which have fallen over the past year because of the weakness of earnings growth.

As I said yesterday, though, falling labour productivity doesn't solve the puzzle. It just raises a different question: why?

It could be that the slump is to do with the Government's attempt to rebalance the economy from the public to the private sector. If you lay off a lot of talented people in high-productivity jobs and force them to work in a sector which caters to a slightly different set of skills, they may well end up being less productive, especially for the time it takes them to learn how to do their new job.

Alternatively, it may be that employers didn't lay off every employee they could have, instead choosing to keep them on in the hope that, when the depression is over, they won't have to rehire. In that explanation, the drop in productivity is because there isn't enough work to keep all the workers busy. That's the preferred explanation of the Economist's Free Exchange blog, but it doesn't explain why the number of hours worked have risen at the same time.

We have a weak economy. Hopefully it won't stay that way for too much longer.

Working hard or hardly working? A participant in the Chap Olympics competes in a round of Not Playing Tennis, the aim of which is to make the least possible effort to play tennis. Photograph: Getty Images

Alex Hern is a technology reporter for the Guardian. He was formerly staff writer at the New Statesman. You should follow Alex on Twitter.

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The Conservatives have failed on home ownership. Here's how Labour can do better

Far from helping first-time buyers, the government is robbing Peter to pay Paul

Making it easier for people to own their own first home is something to be celebrated. Most families would love to have the financial stability and permanency of home ownership. But the plans announced today to build 200,000 ‘starter homes’ are too little, too late.

The dire housing situation of our Greater London constituency of Mitcham & Morden is an indicator of the crisis across the country. In our area, house prices have increased by a staggering 42 per cent over the last three years alone, while the cost of private rent has increased by 22 per cent. Meanwhile, over 8200 residents are on the housing register, families on low incomes bidding for the small number of affordable housing in the area. In sum, these issues are making our area increasingly unaffordable for buyers, private renters and those in need of social and council housing.

But under these new plans, which sweep away planning rules that require property developers to build affordable homes for rent in order to increase the building homes for first-time buyers, a game of political smoke and mirrors is being conducted. Both renters and first-time buyers are desperately in need of government help, and a policy that pits the two against one another is robbing Peter to pay Paul. We need homes both to rent and to buy.

The fact is, removing the compulsion to provide properties for affordable rent will be disastrous for the many who cannot afford to buy. Presently, over half of the UK’s affordable homes are now built as part of private sector housing developments. Now this is going to be rolled back, and local government funds are increasingly being cut while housing associations are losing incentives to build, we have to ask ourselves, who will build the affordable properties we need to rent?

On top of this, these new houses are anything but ‘affordable’. The starter homes would be sold at a discount of 20 per cent, which is not insignificant. However, the policy is a non-starter for families on typical wages across most of the country, not just in London where the situation is even worse. Analysis by Shelter has demonstrated that families working for average local earnings will be priced out of these ‘affordable’ properties in 58 per cent of local authorities by 2020. On top of this, families earning George Osborne’s new ‘National Living Wage’ will still be priced out of 98 per cent of the country.

So who is this scheme for? Clearly not typical earners. A couple in London will need to earn £76,957 in London and £50,266 in the rest of the country to benefit from this new policy, indicating that ‘starter homes’ are for the benefit of wealthy, young professionals only.

Meanwhile, the home-owning prospects of working families on middle and low incomes will be squeezed further as the ‘Starter Homes’ discounts are funded by eliminating the affordable housing obligations of private property developers, who are presently generating homes for social housing tenants and shared ownership. These more affordable rental properties will now be replaced in essence with properties that most people will never be able to afford. It is great to help high earners own their own first homes, but it is not acceptable to do so at the expense of the prospects of middle and low earners.

We desperately want to see more first-time home owners, so that working people can work towards something solid and as financially stable as possible, rather than being at the mercy of private landlords.

But this policy should be a welcome addition to the existing range of affordable housing, rather than seeking to replace them.

As the New Statesman has already noted, the announcement is bad policy, but great politics for the Conservatives. Cameron sounds as if he is radically redressing housing crisis, while actually only really making the crisis better for high earners and large property developers who will ultimately be making a larger profit.

The Conservatives are also redefining what the priorities of “affordable housing” are, for obviously political reasons, as they are convinced that homeowners are more likely to vote for them - and that renters are not. In total, we believe this is indicative of crude political manoeuvring, meaning ordinary, working people lose out, again and again.

Labour needs to be careful in its criticism of the plans. We must absolutely fight the flawed logic of a policy that strengthens the situation of those lucky enough to already have the upper hand, at the literal expense of everyone else. But we need to do so while demonstrating that we understand and intrinsically share the universal aspiration of home security and permanency.

We need to fight for our own alternative that will broaden housing aspirations, rather than limit them, and demonstrate in Labour councils nationwide how we will fight for them. We can do this by fighting for shared ownership, ‘flexi-rent’ products, and rent-to-buy models that will make home ownership a reality for people on average incomes, alongside those earning most.

For instance, Merton council have worked in partnership with the Y:Cube development, which has just completed thirty-six factory-built, pre-fabricated, affordable apartments. The development was relatively low cost, constructed off-site, and the apartments are rented out at 65 per cent of the area’s market rent, while also being compact and energy efficient, with low maintenance costs for the tenant. Excellent developments like this also offer a real social investment for investors, while providing a solid return too: in short, profitability with a strong social conscience, fulfilling the housing needs of young renters.

First-time ownership is rapidly becoming a luxury that fewer and fewer of us will ever afford. But all hard-working people deserve a shot at it, something that the new Conservative government struggle to understand.