Why Does the UK Still Have a Productivity Problem?

For the second time in as many years, the government has cited low productivity as a problem in the UK. And, the statistics suggest this could be true, with productivity growth showing a downturn since the 2008 crisis. While the UK is far from alone in this decline, the shortfall is twice as bad here as in other economies. But what is the cause of this downward spiral of productivity and what can be done to combat it? 

The causes of the issue

The UK’s ability to improve its standard of living and build up the economy comes from its ability to boost productivity of its workers. But the growth of productivity has stalled for several reasons, and the events of the past few years have created further problems in this regard, from Brexit and the pandemic to the shift in the skills young people are leaving education with. 

Skills shortages

One issue that has posed a problem for businesses is the skills shortage which has impacted a number of industries in the UK, making it hard for companies to expand and develop. In fact, on a broad scale, over 16% of adults of working age in the UK are estimated to have very poor literacy skills, something that could cost workers 20 months worth of lost earnings over the course of their lifetime. And in specific industries such as construction, there’s the issue that young people aren’t gaining the skills to fill roles left behind by an ageing workforce. 

Studies have found that businesses, recruitment agencies and public sector organisations stated barriers to filling vacancies include applicants lacking the technical skills and knowledge for the role, work experience and industry knowledge. This is particularly prominent when it comes to AI and digital skills. But the likes of commercial awareness and communication skills are also lacking in many applicants. Industry-specific skills are also in short supply, as the recent shortage of HGV drivers and tradespeople has proven. 

Staff morale and health

Something that’s often overlooked when it comes to productivity is morale and worker health. The link between health and economic growth can’t be overlooked. Employee stress plays into this, and it’s an issue that connects closely with long working hours and demanding roles. With the UK guilty of some of the longest work hours per worker in Europe, it’s a problem that has a big impact. Improving work conditions and providing resources for staff to combat workplace stress and anxiety are essential to boosting productivity and happiness in the workplace. 

Brexit and immigration

Politically-speaking, there’s also been the challenge of Brexit, with many industries losing workers due to the change in immigration ruling, and the fact that wages have remained low in the post-crisis period. Businesses have been keen to invest in recruitment rather than their business processes, resulting in more cheap labour being taken on to fulfil workloads rather than companies spending money on the tools to enhance productivity in the long run. So, what can be done to tackle the problem?

Invest in training

Training staff for available jobs to ensure that the workforce has the necessary skills is essential to productivity, not only for individual businesses but the UK as a whole. The government has been pressing ahead with investments in skills and infrastructure to make it easier for people to gain the skills required for different jobs. But it’s also something that businesses can adopt for themselves by providing an incentive for applicants through bespoke training programmes to build up skill sets across the team. Focusing on boosting skills and retraining applicants can help to alleviate some of the burden placed on businesses who have lost workers due to Brexit, as well as aid career progression for existing employees. 

Re-optimise processes

The shock of the pandemic could well provide a much-needed boost to businesses. Not only has the past year given businesses time to reflect and either pivot in a new direction entirely, or it’s provided a chance to reconsider how to operate in a more effective and productive way. The time spent closed for business, for many business owners, was a positive in the sense that upon reopening, companies have had the opportunity to re-optimise and improve in areas where they may have been lacking before. The burst of innovation and adaptability, whether out of necessity or a change of heart, could support productivity in the future. 

R&D to drive innovation

One area where the UK is letting itself down is on research and development, which is a big driver for innovation and productivity in businesses. In fact, the UK spends considerably less on R&D than many of the world’s largest economies. Economists are in firm agreement that the root of growth is innovation, so there’s every chance that a partial cause of the UK’s struggling productivity rates is the lack of research and development investment in both public and private sectors. 

In summary

The productivity dip isn’t exclusive to the UK – it’s a global problem that’s been exacerbated by the pandemic and other challenges. But skills, processes and technology are at the core of resolving this problem, and are connected to one another. The skills are necessary to meet the demands of evolving technology, which in turn will improve processes and drive productivity. There’s no simple answer to this problem, but lifting the UK out of this issue can be achieved with the right investments.