UK’s Productivity Crisis and What Other Nations should Learn from It

Steff Holloway

14 March, 2018

Productivity or as it’s easily understood output per hour by workers is one of the key drivers in an economy. “Productivity isn’t everything, but in the long run it is almost everything,” said Paul Krugman in 1994, the Nobel Prize-winning economist. This statement is still valid. As UK’s lack of productivity is the reason for there economic woes. They were 9% below the OECD (Organisation for Economic Co-operation and Development) average in 2007, and the gap had widened to 18% in 2015. Strikingly, their productivity per hour is fully 35% below the German level, and 30% below that of the US. Even the French could take Fridays off and produce the average British worker’s output in a week. What is going wrong in the UK? Let’s discuss further.

Reasons for UK’s Productivity Crisis

Numerous factors affect the productivity of a nation, but we will focus on the reasons that were responsible in the UK, in particular. So without further ado, let’s take a close look at the factors:

Low investment in Research & Development: the fact is UK is at the bottom of the List of G8 ( reformatted as G7 due to Russia’s suspension) nations in this key index indicates in itself that there is the least focus on research & development. The culprit is spending less than 0.5% of GDP on publicly funded research.

Not enough employee engagement: As per ORC International research the UK stands at 18th position out of 20 countries were surveyed for employee engagement. In the same survey, only 37% felt that they were encouraged to be innovative and fewer than half thought that they are valued at work.

Lack of good management: It is the fault of managers if their employees feel undervalued, unengaged. Proper training of managers and hiring more competent managers will go far in this regard.

Worker health: It is highly understated how important it is for workers to be healthy for working at their optimum capacity. Stress is also a significant factor in employees health. Long working hours means more stress and eventually unhealthy employee. Apparently, UK has the longest working hours in Europe at an average of 1674 hours worked per worker per year in 2015.

Also, acceptance of 24*7 work environment workers is sleeping less and eating much unhealthy food leading to more diseases.

Availability of cheap labor: Cost of labor has a significant impact on the result. Availability of cheap labor may encourage to hire multiple people for a task rather than training existing employees and improving their productivity.

Low-interest rates have helped: Low-interest rates have reduced the borrowing cost burden on the companies which has helped in the survival of even those companies which are unproductive/‘sick units.’ That meant high debt ratio, as well as high NPA (Non-performing Assets) in banks as these companies have nonexistent profits. Also, the monetary policy was way different in current economic crisis as compared to last as Bank of England reduced interest rates by 0.5% making it much easier for companies to take debt. In contrast, interest rates were above 10% during the recession of 1990’s.

What other Countries Can Learn from it

There is a lot to learn from this fiasco. Let’s look at some of the essential things other countries can learn so that there is not a similar situation again:

Promoting Employee training: Training existing employees can help in a lot of aspects as he will become more productive in regard with his work and can also help in managerial decision making if he has the right skills, which will help the company grow in future.Another benefit of this will be that the employee will feel more valued and employee turnover will go down. Also, governments can introduce low-cost options for companies which can help them to train their employees providing a more competent workforce for the industry which will drive the overall growth rate.

Invest in Research & Development: As it’s a universal fact that machines are in itself more efficient than humans and they also help in making humans more efficient for ex. With the help of the internet, everything can be done with ease and speed as compared to the traditional ways of doing things. Even governments should encourage new technology adoption by providing for ex. Rebates or helping companies innovate.

Better Monetary policies: Governments should analyze their monetary policies and make changes keeping in mind overall growth of the country and not for a particular industry or community.

Motivate employee engagement: Every company should focus on employee satisfaction and should do every step possible for the betterment of their employees. It will help in better retention of employees as well as productivity as satisfied employee tends to be more productive.