Focus on pay and good jobs to unlock the UK's productivity challenge

Productivity innovations need to have workers at the centre: they hold the key to unlocking productivity.

Last week the Government announced £43 million to create an institute for productivity, to help build a deeper understanding of how to address the UK’s productivity challenge.

While the institute will be established to address the productivity gap between the UK and other major world economies, a critical measure of success should be whether it successfully improves earnings, and with that living standards. Productivity innovations need to have workers at the centre, as they hold the key to unlocking productivity.

Stagnating productivity has been the main driver of stagnating earnings since the financial crisis (NIESR, 2018) and this has been one of the drivers of increasing in-work poverty in the UK. We all believe and expect that working should provide a route out of poverty, yet over 4 million workers are caught in poverty.

Driving up productivity in a firm or sector does not always lead to higher wages for workers in those businesses and sectors (Ciarli et al, 2018). Previous research from JRF demonstrates that we need to pursue the productivity enhancing interventions that will benefit workers; increasing the proportion of workers in on-the-job training, improving management practices; increasing the percentage of workers using Information and Communications Technology (ICT); and reducing the share of temporary workers.

Improving productivity needs to not only focus on high-tech industries within growth cities and areas, but also requires action across low-pay sectors such as retail and hospitality, and the long-tail of low-productivity firms based outside of London and the South-East.

Research from Strathclyde Business School, sponsored by JRF, helps to build understanding of how supporting employees in low-wage sectors can improve productivity. Through its case studies the report finds that employers who pay their staff the real Living Wage and invest in training and development report clear business benefits - discretionary effort, ideas generation and enhanced productivity:

It enables people to have a bit more financial freedom and so if they are more satisfied in their life, they are going to be more committed to work and more productive.
Employer

Within the productivity debate, it is widely argued that productivity gains are needed to increase wages, but our work suggests the reverse is also true. Providing fair, secure incomes for employees, and investing in training for employees are the key to unlocking the UK’s productivity challenge.

Improving people’s pay and conditions in work is the right thing to do to turn the tide on in work poverty. It might also be the missing link in tackling the country’s productivity problem.