Productivity gap narrows – but employers & HR professionals must continue to improve productivity

Steve Herbert, Head of Benefits Strategy at Howden Employee Benefits, discusses why ‘all is not what is seems’ with productivity comparisons with the UK and Europe

Last month the OECD published a very detailed and important paper on how national productivity is calculated and measured against the UK’s international competitors.  Productivity is of course widely seen as an indicator of the economic health of the country, and indeed its competitiveness with other nations.

So what does this tell us that we didn’t already know about the UK’s productivity figures?  Quite a lot as it happens.

For years the UK has believed itself to be lagging very far behind other national economies on this measure, and particularly our major European and US neighbours.  Yet it now appears that the gap may not have been as big as official figures suggested.

So what’s led to this?

The measure of national productivity is quantified by dividing how much an economy produces (known as Gross Domestic Product (GDP)) by the number of hours worked.  So a fairly easy calculation as long as the two key factors are correct and consistently calculated.

And that is the problem.  For whilst there is widespread agreement that GDP figures are calculated to agreed standards across the developed world, it turns out that the (arguably much easier) part of the equation – hours worked –  varies significantly from one nation to another.  In the UK we seem to record most paid hours, even if they include annual leave, bank holidays, and sick leave.  The same is not true of all other nations.  Once this anomaly is corrected, the calculated productivity gap between the UK and other major nations narrows significantly.

So what is the real productivity gap?

The figures below are based on an interview with Martine Durand of the OECD on the Today program* in December.  Whilst I might revisit these at a later date, they will hopefully provide the reader with a useful guide to the difference between the UK’s old and adjusted productivity gap figures when the new methodology is applied:

Productivity Figures

Nation compared to UK:               UK Old Figure:                  UK New Figure:

United States                                                     -24%                                      -16%

Germany                                                             -22%                                      -14%

France                                                                  -20%                                      -11%

And it is also suggested that a negative productivity gap with Italy has now moved into positive territory for the UK.

Victory from the jaws of defeat?

Now it’s undeniable – and clearly good news for the UK – that the new figures are a huge improvement on those previously published, yet I already sense that some commentators have seized on this good news with rather too much enthusiasm.  A reality check might well be needed, and I can’t help remembering this passage from Churchill’s famous Dunkirk speech which seems rather apt:

“We must be very careful not to assign to this deliverance the attributes of a victory.”

For the truth is that the UK’s productivity figures remain very poor, and the new calculation method only shows the country to be less uncompetitive against most of our major competitors rather than on the winning side.  That’s probably not good enough given the uncertainties of Brexit ahead, and both the nation and individual employers now need to be on the best possible productivity footing to secure new international business.

So I would strongly urge employers and HR professionals not to let up in the mission to improve productivity at this crucial time.

Finally, it would be remiss of me not to point out that employee engagement – which I usually describe as the desire of the employee to “go that extra mile” in his/her job – is of course a key component towards better productivity.  Engagement is of course made up of many elements, and all should be regularly reviewed and improved where possible. One relatively quick win here can be a review of the Compensation package (including the Employee Benefits offering) to ensure that what is offered is relevant, appreciated, and above all well communicated.

In conclusion I would say that it’s good news that the UK is not as far adrift in the area of productivity as previously thought, but employers must try and continue the improvements in this important measure.

Steve Herbert is Head of Benefits Strategy for Howden Employee Benefits

*Today, BBC Radio 4, Wednesday 12th December