Home—Blog—Britain's declining productivity
Aug 16, 2012, 05:21
Posted byMerryn Somerset Webb
Comments (22)
There’s clearly something odd going on with the statistics on the UK economy. We are in recession – or so we are told (GDP fell 0.7% in the last quarter). Yet the private sector appears to be in great shape – it has created over a million new jobs since 2010 and unemployment has now fallen for four months in a row. Total employment is now a mere 0.3% below its pre-crisis peak despite the fact that on official numbers output is 4.5% below the previous numbers. So what’s going on?
Here’s Tom Miers on the subject in the Scotsman today. He thinks – like many others – that the UK economy might actually be doing rather better than most think. “Exports, services and manufacturing have all recorded decent figures in recent months”, he says. At the same time most business surveys are pointing to “modest (if patchy) improvements in order books and confidence”, while the fall in the rate of the rise in the CPI means that real wages are no longer falling quite as fast as they were. That’s good for confidence and consumer spending. Add all that to the good employment numbers and the obvious conclusion is this: the dismal GDP figures are “simply wrong”. Our economy is not contracting. It is growing.
This makes some sense. But there might be another way of explaining the rise in employment and fall in GDP – falling productivity. Miers considers this to be highly unlikely “given the shift (in the employment mix) from the public to the private sector”.
But my oft quoted friend Nick Reid offers a possible way through this confusion – and one that also explains why the UK tax-take has been falling as fast as it has (City bonuses are predicted to be down 80% this year). It’s the decline in the number of people employed in the financial sector.
Whether you approve of its particular brand of productivity or not, says Nick, “City activity is highly productive”, and in plain GDP terms one investment banker operating in a good environment is many times as productive as, say, a car plant worker.
So, with some types of City activity knocking around a ten-year low, it might be no wonder that, in statistical terms at least, our productivity has fallen. You might think this doesn’t matter, and perhaps it doesn’t – the City might generate one kind of production we can do without – but the idea could at least explain why we are employing more people but they are producing less.
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(16 August 2012, 06:02PM) Complain about this comment
All jobs are not equal. If someone loses a job earning e.g. £30k p.a. in the manufacturing industry due to cutbacks and then they find a job in the service sector earning £15k, they are still employed so the employment figures hold up, but they are earing less and so have less to spend so the GDP reduces.They have also moved from an industry with a large supply chain to one with less economic activity, so a further reduction in GDP.The Government needs to more for engineering, construction and manufacturing companies to encourage higher value economic activities with more valuable supply chains.
(16 August 2012, 06:45PM) Complain about this comment
Statistics!Are employment figures 'blind' to hours worked? It wouldn't surprise me if the rate of decrease of full time employment has been superceded by the rate of increase of part time employment.
(16 August 2012, 06:53PM) Complain about this comment
Well if we have had loads of pretend growth in financial services, then we must have had some pretend increases in GDP. I would have thought all the great economic minds who are so confused would have thought of this though.Have you got GDP figures with financial services taken out for the last decade?
(16 August 2012, 08:30PM) Complain about this comment
First and foremost, GDP is a load of garbage.The assumption that money is a measuring stick is fundamentally incorrect. Price and value are relative. If you happen to have a couple of million in your bank account, you may well think that €10 for a bottle of coca cola is quite reasonable. A few alleys away, the same bottle of cola could be €1.50. A sale of €10 cola contributes more to GDP than the sale of an identical €1.50 cola. The good is the same, the price and value of money are different. The price is inflated in the expensive case. Or rather, the value of the money is lower in the expensive case.At best, is is a vague measure of inflation and growth of debt. It does not measure productivity in any meaningful sense.
(17 August 2012, 09:04AM) Complain about this comment
"The good is the same"No it isn't. The value of a can of coca cola is higher if it is sold on a 40C day in the centre of Florence in the middle of the summer season than sold at Tesco in Rotherham in February. You're using the same fallacious argument that people make when complaining a cup of coffee in Caffe Nero costs £2 when you can make it at home for 10p. Forgetting that Caffe Nero provide you with a coffee on an expensive and popular High St (not at home), a table, a chair, a view out the window and wi-fi.If you can sell a can of coke for £10 then you have obviously added value to the basic product. The Co-op in Rotherham would never be able to sell a can of coke for £10, however many people with a couple of million in their bank account came shopping.
(17 August 2012, 09:22AM) Complain about this comment
The UK's economic future is bleak. Let us consider the facts: (1) the percentage of the population that is a net beneficiary of state spending is now over 50 percent. If you're trying to shrink the bloated state, forget it. It is now politically impossible. (2) deficit spending is out of control. "Austerity"? You must be joking. (3) total debt as a percentage of GDP (this includes bank, corporate, sovereign and household debt) is more than 900 percent of GDP. No country comes even close. (4) no one is talking about the state's unfunded liabilities - once you take those into account, 900 percent of GDP looks like a picnic. This does not even encapsulate the country's ongoing slow "social collapse". Google "Charles Murray" and "British Underclass". I predict a collapse in the value of Sterling within a decade.
(17 August 2012, 09:27AM) Complain about this comment
Below is the link to the Charles Murray article: http://www.aei.org/article/society-and-culture/poverty/the-british-underclass/
(17 August 2012, 05:59PM) Complain about this comment
To add to JREwing's observation that < 50% are net productive:Of the remainder, office workers (the majority of that <50%) spend 36% of their time on email; and another 17% on other forms of corporate communication unrelated to their core responsibility. So, the productive spend <50% of their time doing the job that they are employed to do. Maybe that has something to do with falling productivity?Still, at least we have social media now. I expect that will help.
(17 August 2012, 06:52PM) Complain about this comment
Shinsei1967You just made my point better than i did. The value of money varies from transaction to transaction and so statistics like GDP are completely meaningless and certainly don't measure anything like productivity.You may notice that every year, the summer blockbuster breaks all records. Is the blockbuster more productive every year? Ridiculous. Everything is simply a little more expensive.
(18 August 2012, 10:19AM) Complain about this comment
Productivity is clearly important for every economy. My assertion is that we need to spend more time considering what drives 'good' and 'bad' productivity: if we get it right in one organisational environment and then replicate that many 1000s of times, we will be on to a winner. Job insecurity, overbearing leadership styles and organisational politics (a polite term for 'game playing') can be deployed to great effect if we wish to drive poductivity down. However, true customer-led cultures with a clear sense of purpose where every worker makes a valuable contribution will drive productivity up. We need to focus on leadership - we need more leaders who can create this culture and lead by example within it.
(18 August 2012, 11:16AM) Complain about this comment
If an investment banker takes home a very large salary and a bonus, they add to the GDP but are actually parasitising the real economy unless the work is for an enterprise outside the UK. If it is within the UK, the money is being removed from real value creation. (Incidentally Moneyweek can you please stop talking about earnings and use pay, salary, or something else instead). I acknowledge bankers are highly paid, I DO NOT accept they earn a lot. If a car worker makes a car that sells abroad, they really contribute. We should concentrate far more on the balance of payments and les on GDP.
(18 August 2012, 11:17AM) Complain about this comment
If an investment banker takes home a very large salary and a bonus, they add to the GDP but are actually parasitising the real economy unless the work is for an enterprise outside the UK. If it is within the UK, the money is being removed from real value creation. (Incidentally Moneyweek can you please stop talking about earnings and use pay, salary, or something else instead). I acknowledge bankers are highly paid, I DO NOT accept they earn a lot. If a car worker makes a car that sells abroad, they really contribute. We should concentrate far more on the balance of payments and les on GDP
(18 August 2012, 01:53PM) Complain about this comment
Engineer - spot on regarding:a) rich Parasites (setting bad example from the 'top')b) Balance of Payments and GDP (Profit is sanity, Turnover is vanity)
(18 August 2012, 03:34PM) Complain about this comment
Return on Capital Employed (ROCE) please. A £1 profit on a £1 million investment may be sane, but it ain't healthy.
(18 August 2012, 04:08PM) Complain about this comment
It's a lot healthier than a Balance of Payments Deficit which has been accruing for three decades! Get it?
(18 August 2012, 04:27PM) Complain about this comment
True, there are job downgrades for the re-employed and yes, there is more part-time working, but a significant part of the explanation is that when more people become self employed more people will understate their earnings to evade tax.Evasion and avoidance increase when governments take too much and spend it achieving so little.
(19 August 2012, 12:02AM) Complain about this comment
To understand the apparent reduction in GDP, you need to know the definition of GDP (See Wikipedia, or John Mauldin if you prefer):GDP = private consumption + gross investment + government spending + (exports - imports), i.e. GDP = C + I + G +(X-M).Note that government spending counts positively, but no account is taken of taxation. Therefore if the government makes someone redundant who was earning £50,000, that counts as a reduction of £50,000 in GDP (neglecting knock-on effects).Now, we are told that for every public sector redundancy two new private sector jobs have been created. Generally their productivity (production per head) will be less that £50,000, or even £25,000.
(19 August 2012, 08:16PM) Complain about this comment
Looking at HMRC figures, it's hard to see how the tax take is significantly falling, given that the total paid over in 2011-12 has never been higher.http://www.hmrc.gov.uk/stats/tax_receipts/tax-receipts-and-taxpayers.pdfIt does show a drop in SA tax which superficially supports Algernons assertion that self employed people routinely understate their earnings although a more reasoned explanation for the drop in SA tax is provided in a 2012 work audit by the CIPD which identifies a 27k drop in self employed construction workers (highly paid loadsamoney types a la Harry Enfield??) offset by a 79k increase in self employed agricultural workers.How many £80k a year strawberry pickers do you know?
(19 August 2012, 10:20PM) Complain about this comment
Frederic Bastiat explained the difference between GDP and wealth creation 160 years ago and still people fail to understand that GDP is not a measure of wealth creation. He told the story of a village where the glaziers employed youths to go around smashing windows which the glaziers were then paid to repair. This would have been recorded as economic activity and made money for the glaziers and employed some youths. The glaziers would have paid more tax on their increased income. So everyone is happy?
(19 August 2012, 10:27PM) Complain about this comment
No. The people who had to pay to repair their windows are not happy as they are out of pocket and the money they spent on repairs can't be spent on other things so other merchants lose income too. The (temporary) increase in GDP and increased employment has been achieved with wealth destruction. The glaziers and window smashers are much like the bankers and financial sector and the people picking up the tab are the working classes and savers. If the government really doesn't understand this it is bad news because one of the best ways to increase employment and GDP and destroy wealth is to have a jolly big war.
(20 August 2012, 09:28AM) Complain about this comment
The reason we are still in recession - (ignore GDP - concentrate on falling incomes and deteriorating finances) is very simple, and I'm surprised that the supposed students of free-market economics at Moneyweek cannot pin it down..The ongoing monetary policies employed by the BoE are preserving the massive capital misallocations from correcting. There is no viability for much of the "economic activity" that is happening now, in a fee market, so actually all these misallocations of capital do is impoverish us and destroy wealth. So, I ask, how can the economy generate any real growth when everything is geared to keeping houses high and the banking sector afloat? There is a crowding out process happening at a macro level.So it doesn't matter how much "stimulus" is employed, because all that happens is that it filter through and reinforce the sectors of the economy that end up destroying wealth. Head I win, tails you lose.
(28 August 2012, 10:52AM) Complain about this comment
I totally agree that the welfare state and increased government spending on pet projects can lead to decreases in productivity, but I think the title of this story is plain wrong : "Britain's declining productivity".If one person in financial services on £250k a year is replaced by 3 software engineers on £50k a year, that's an apparent increase in jobs and longer term, I know which one my money is on to improve the productivity and exports of the nation.The article also assumes the financial person must have earnt his money from some foreign source, but a lot of the highest paid financial monkeys in this country the past 15 years or so actually earnt it from parasitically bloodsucking off the rest of the population. (endowments, unit trust fees, payment protection...etc...etc...etc...)So come on Moneyweek, you know better than this. You want the financial sector to shrink to a more respectable size, right?
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