Productivity: not as bad as we thought?

4 January 2019

As we are all aware, the UK lags behind its competitors in productivity, but now the OECD has reassessed the statistics and found that there may be less cause for despondency.

What is productivity?

The OECD uses a range of measures to compare the relative productivity of the world’s advanced economies. In basic terms productivity is measured as output per hour, which is a country’s annual Gross Domestic Product divided by the number of hours worked. In my blog of 10 April 2017 I outlined the productivity challenge facing British business but also mentioned the difficulties in achieving an accurate measurement. There can be no doubt that the UK has a productivity problem. The Office for National Statistics gathers data on a monthly basis and there has been no change to the way it organises and analyses the data, so it is entirely legitimate to compare current productivity statistics with historical data and derive a trend. That trend – the growth of productivity in the UK – is poor by any standards. Since 2008/09 it has averaged much less than 1% p.a.

A new report by the OECD[i] does not cast any doubt on these historical comparatives but, on the other hand, it does question comparisons between countries. An oft-quoted statistic goes something like this, “By Friday lunchtime the average French worker has already achieved what takes a British worker until Friday evening.” But it now appears that we may have been comparing apples with pears.

How to measure hours worked

The problem appears to derive from the way labour input is measured. Labour force surveys of numbers of persons employed and numbers of hours worked are in most countries the primary source of information. However, it appears that the areas of activity covered by these surveys do not always coincide with those areas of activity used to measure GDP. There is a mismatch. So some countries use estimation or various statistical tools to adjust for the perceived discrepancies, and methods vary by country. Some countries use methods based on self-declared hours but make no adjustment at all. In these cases labour input is invariably overstated, leading to an understatement of the productivity rate.

The OECD has adopted a method that makes a series of explicit adjustments on working time using information available from labour force surveys and complementary sources. The results indicate a reduction in relative productivity gaps of around 10 percentage points in many countries compared to current estimates.

Moving up the league table

The revised results show the UK in a slightly better light. Using an index in which the USA’s productivity is allocated the value of 100, the UK’s is now 84 where under the previous method it was 78. This moves this country up one place to 14th, so that whereas it was previously below Italy it is now above. Given Italy’s famously sluggish economy and political woes this seems to make sense. France is now at 97, so the statement quoted above about working fewer hours for the same results appears to hold true. By both measures, the OECD’s productivity stars are Ireland and Luxembourg with scores of about 135.

However it is measured, productivity is a key component of success and prosperity, not only at the macro level of the national economy but also at the level of individual businesses. If you would like to discuss improving the productivity of your business, please don’t hesitate to contact me or your local UHY adviser. Alternatively fill out our contact form here.

[i] Ward, A., M. Zinni and P. Marianna (2018), “International productivity gaps: Are labour input measures comparable?”, OECD Statistics Working Papers, No. 2018/12, OECD Publishing, Paris, https://doi.org/10.1787/5b43c728-en