Raising productivity in low-wage sectors and reducing poverty

Anne Green, Paul Sissons, Amir Qamar and Kevin Broughton

This report looks at the role of productivity in employers’ wage-setting decisions in low-wage sectors. It asks how employers think about, understand and measure productivity. It asks how productivity can be improved to justify increases in wages.

It finds that:

  • Firms interviewed had only a partial understanding of productivity. They often experienced difficulties in measuring it, and often lacked the capacity and capability to analyse their productivity performance data.
  • Few firms could describe how productivity mattered for setting wages. Local availability of staff, retaining labour and pay norms were the most important priorities when setting wages.
  • For many firms, the National Living Wage (NLW) has become the de-facto pay review. NLW upratings have driven firms to seek ways to increase productivity.