The UK’s “productivity crisis” – the flatlining of economy-wide productivity since the global financial crisis – is the single most pressing issue facing the UK economy. The cost of this crisis are already multiples of even the worst case Brexit scenario. Understanding the roots of this productivity problem, and replanting them in more fertile soil, is the signature challenge facing UK economic policymakers today.
The link between pay and productivity
When it comes to the link between productivity and one key aspect of work – pay – this relationship has been extensively studied. The two are strongly positively correlated. In part, that reflects a causative chain running from low productivity through to low pay: at a level of a company, it is productivity gains that, over time, “pay” for real pay rises. It should come as no surprise, then, that the “lost decade” for UK productivity has coincided with a lost decade for real pay too.
But the link between pay and productivity also runs in the reverse direction: a higher rate of pay can spur worker satisfaction and motivation, thus leading to higher levels of productivity.
The efficiency wage theory
This is called “efficiency wage” theory. It suggests higher pay can itself hold the key to higher levels of productivity. The recent experience of the UK, and a number of other countries who have introduced minimum wage legislation, suggests this theory has support in real world experience.
Far-less explored, until relatively recently, has been the link between productivity and the other (than pay) aspects of work, in particular measures of work quality. Structural changes in the world of work, including the rise of the “gig” economy, have given greater recent prominence to this issue. This culminated in Matthew Taylor’s excellent review of Good Work published in 2017 and earlier foundational research by the Carnegie Trust and the RSA developing metrics of work quality.
This volume brings together a collection of insightful essays exploring, in greater depth than perhaps ever previously, the relationship between productivity and work quality. As with pay, this relationship is a two-way street. More productive, higher-performing firms are more likely to invest in enhanced worker security, opportunity, training and engagement. In that sense, productivity “pays” for rises in work quality.
But it also seems plausible that causality runs in the reverse direction: higher quality work, like higher pay, can serve as a spur to greater work satisfaction and motivation, thus leading to higher levels of workplace productivity. You might call this the “efficiency work” hypothesis. The public policy implications of this hypothesis are potentially very significant. For example, it suggests there are natural limits to the benefits of a “flexible” labour market in boosting an economy’s efficiency.
This volume provides a comprehensive assessment of the efficiency work hypothesis, drawing on a rich and diverse array of evidence and experience and an impressive list of contributors. Let me draw out a few of the key themes. Interestingly, these chime – and help make sense – of some longstanding structural features of the UK economy, including the “long tail” of low productivity companies and their slow rates of technological diffusion and weak management skills.
Work quality distribution
First, while the correlation between most metrics of job quality and productivity is strong and positive, it appears to be strongest at the lower end of the work quality distribution. In other words, the greatest benefits to productivity may come from increasing the quality of work among the “long tail” of companies currently with the poorest offering. Indeed, this evidence suggests some of the lengthening of the UK’s long productivity tail over the past decade could be explained by the lengthening tail of low quality work. This is a concrete example of a cost of the wrong type of job market flexibility.
Workers and productivity
Second, the key to using and diffusing technology is known not to lie in technology itself, but in the people using it. One of the reasons technological advances may not have shown up in higher levels of productivity is because UK workers have lacked the training and encouragement to make best use of this technology. That might explain the causative link from work quality to productivity. And it might also explain why rates of technological diffusion have been falling across the UK
Management and productivity
Third, one of the roles of management is to provide the security, opportunity, training and engagement to enable workers to progress in pay and productivity terms. Perhaps it should come as no surprise, then, that the UK’s long tail of poorly-performing companies and poorly-paid workers has as its counterpart a long tail of poorlyskilled managers. Managers’ batteries, like those of workers, need to be fully charged if the full fruits of technology for productivity are to be harvested.
The evidence here is not the last word on good work and productivity. Indeed, I hope this volume can serve as the springboard for further research on this important topic and for policy action.
Working better on
Good work is already reshaping the contours of the public policy debate on productivity. For example, the Industrial Strategy Council (ISC) is using measures of work quality as one of its “success metrics” when judging the progress of the Government’s efforts to tackle the productivity crisis.
More needs to be done. Words like “productivity crisis” and “industrial strategy” leave most people dazed and confused. When I am asked what these words mean for the average person I say “good work at a good wage, everywhere”. This works much better as a description of what is at stake and the prize on offer. As the essays here make only too clear, “working better” should be our watchword, for therein lies the key to understanding and solving the UK’s productivity crisis.