News & Events

Education, Skills and the Human Face of UK Productivity


Michael Mercieca writes:

“Productivity. It’s a word that strikes boredom into the heart of the majority of people. And I’ll grant you, it’s hard to get excited about a measure of input versus output value per worker, per hour. But it is a vital measure of how we’re doing as a country. And since the economic crash, productivity in the UK, and many Western economies, has been absolutely dire and shows little sign of sustainable growth in the future.

“Basically, the UK is just not very productive. Just this week in The Sunday Times, George Osborne referred to it as the ‘British Disease’, and he’s reportedly looking to address the problem with a plan masterminded by Lord O’Neill, the new Treasury Minister. At the same time, the paper’s Economics Editor, David Smith, highlighted new figures from the Office for National Statistics showing that productivity in the last decade (2005-2015) averaged a little under 0.5 per cent, compared to 22 per cent in the previous decade (1995-2005) and 26 per cent between 1985 and 1995. Even though this decade included the Great Recession, the figure is far too low. So there is a lot of work to be done.

“Usually this poor performance is put down to a lack of investment in new machinery or new technology; a lack of new infrastructure such as roads and railways. Yes, if you replace a machine that produces 100 widgets per hour with one that produces 200, with no extra staff costs, you have doubled your productivity (very roughly). This has been argued very persuasively by economist and entrepreneur John Mills. And yes, better roads and faster trains mean workers and goods can travel quicker, therefore less time lost on non-productive journeys. But there is one extra, often-ignored, element that’s affecting our productivity: education.

“In 2014, the Bank of England became so perplexed by the UK’s weak productivity that it published a Quarterly Bulletin called ‘The Productivity Puzzle’. It’s a careful analysis on structural and demand issues, procyclical factors, impaired capital allocation and the macroeconomic environment. It also has some very nice formulae. But only once does it come close to mentioning the possibility that education might be a factor: ‘Indeed, in the early stages of the recession, the Bank’s Agents reported that […] having fired workers early on in the course of those downturns, companies then found it difficult to find workers with the appropriate, firm-specific skills when the economy recovered, and were thus less able to take advantage of improved demand conditions.’ ”

Read the full article on the Huffington Post website.