By Ken Maggs, Moore Thompson
According to a leading think tank, the UK’s productivity could be boosted if the government focused on low-wage sectors, such as hospitality and parts of retailing, which currently receive little support.
The Institute for Public Policy Research (IPPR) argues that help tends to be targeted towards highly skilled workers in advanced manufacturing and yet the low-paid employees in bars and at checkouts could be the key to sustaining the UK’s recovery.
As a spokesman for the Institute said, while manufacturers often have a strong incentive to improve their performance in a bid to compete with more efficient foreign firms, the same pressure does not exist across large parts of the domestic service sector economy. The IPPR is therefore calling on the Government to think more carefully about how its spending can help to boost productivity in these sectors.
The UK’s productivity expanded at an average annual rate of 2.3 per cent in terms of worker output-per-hour in the years between 1979 and 2007, which helped to drive rising living standards. However, since 2007 this has fallen by an average of 0.1 per cent.
This unexpected failure of output-per-hour to rebound after the financial crisis has been called the “productivity puzzle”. This is partly blamed on collapsing productivity in the North Sea oil sector and in the financial sector. Meanwhile, several other sectors including retail and transport also saw productivity fall sharply when the crash happened.
However, since the recovery got underway in 2011, another important explanation for the productivity puzzle has been the rapid rise in employment in relatively low-productivity sectors. Therefore, raising the minimum wage to £9 by 2020 could help by giving firms an incentive to invest in technology and training to get more out of their lower-paid staff.