Why is UK productivity so low?

The recent Budget Statement from the Chancellor of the Exchequer pointed to the low productivity in the UK compared with other countries. This is probably caused by all sorts of complicated factors which economists can deliberate over for hours, but I have a simple explanation.

Productivity at national levels is calculated by taking the GDP of the country and dividing it by the number of hours worked. So there are two ways of increasing the figure. You can increase GDP or reduce hours. I’d like to focus on hours.

We are constantly compared with Germany and France, so let’s look at them in a bit more detail. If UK productivity is 100, Germany is 134.5 and France 128.7. But some of that is because they are working shorter hours. So if you look at the GDP per worker, not per hour, the figures change a bit. Germany comes down to 109.3 and France to 113.0.

Average weekly working hours in Germany are 26.4 and in France 28.5. In the UK we work 32.2 hours per week. So if we kept the same output but just reduced our working week we would increase productivity significantly and catch up with the competition.

We are suffering from a long hours work culture. People who stay late in the office are praised. Workers who put in effort are rewarded based on their input, not on the output they produce. We pay people by the hour, so to get paid more you have to work longer. If there’s not enough work to fill in the extra hours you slow down to justify the overtime. This is a low productivity work model (assuming you are measuring output per hour).

Our ‘Industrial Age’ model of work is one where employers create jobs and pay people by the hour/week/month/year depending on the time they put in. If people are simply doing a mechanical, routine task then maybe there is a reasonable correlation between the hours input and the product they are making. But we are now in the ‘Information Age’ where the routine work is done by robots and computers and we employ humans to do the creative work which cannot easily be automated. So to get high productivity figures we need to stop rewarding long hours and start to recognise output.

The introduction of flexible working patterns has had an interesting effect. Take the example of a mother or father, returning from parental leave and asking to come back to work part time. Most employers welcome back trained, experienced employees and will see if they can fit back into their old role. So the returner takes back the old responsibilities for four days a week to see how it works out.

A year later the manager and employee sit down to work out how it’s going. It turns out that the job is getting done just as well as before, but now in four fifths of the time. The employee is more organised, because they have to integrate childcare into their life, they spend a bit less time chatting at the coffee machine and they might spend some time catching up with work from home. They may even stay at home to work when it’s convenient and find they save time and stress commuting and produce more per hour than in a noisy office. The difficult conversation then arises between manager and employee. “Why am I only being paid four fifths of the salary of my colleagues when I am not only producing the same result but clearly being more efficient in the process?” There is no easy answer.

One way of improving the nation’s productivity figures is by encouraging shorter hours. France has been somewhat successful in doing this through legislation. This has forced employers to think about getting the best out of people whist they are working and not just assuming they are happy to stay on and finish the job. It’s interesting to see that output per worker is still higher in France than in the UK and also higher than Germany. So despite shorter hours, they are still producing more.

So, what is the solution for the UK? How do we increase the output per hour? The simple answer is we stop rewarding people for hours and start rewarding them for output. Implementing this means breaking down the conventional employment model we have lived with for 200 years and replacing it with one more appropriate for the 21^st Century. Let’s give people freedom to do their jobs the way they would like, and see how clever they get at doing the work in a shorter time. Let’s encourage people to go home early and have a better work/life balance. Let’s treat people like adults and trust them to manage their own time. This is not rocket science. It’s what management gurus have been saying for years. Isn’t it about time we took notice and then watched the productivity figures soar? Can someone explain what’s stopping us?

Where are we more productive – Office or Home?

Almost every day we hear of yet another survey that ‘proves’ people are more productive when they are working from home, only to see other surveys that favour the office. It’s worth looking a bit closer at who is sponsoring or running the ‘research’ and how objective it really is.

Recently, a survey of 5,500 ‘respondents’ concluded that 66% of professionals think they would be more productive working remotely rather than in a traditional office. Just 7% chose ‘The office during regular hours’ as the place to go when they really wanted to get something done for work. But another recent survey showed that 59% of UK workers work most productively in the office. Which one is right?

It seems that you can get the answer you want by asking people who might agree with you. The first survey was carried out by Flexjobs, who service the flexible working marketplace. This is the sixth annual survey they have carried out, and it provides a thorough analysis of the reasons why people want to work flexibly. Since 2013, work-life balance (78%), family (49%), time savings (46%), and commute stress (45%) have been the top four reported reasons. But when it comes to productivity is this audience biased?

As well as 66% saying they are more productive in a home office, 52% cited home or home office as the place they go when they “really need to get something done for work.” They list the reasons for this, with fewer interruptions from colleagues (76%), fewer distractions (76%) and reduced stress from commuting (70%) as the top three.

Contrast this with another piece of research carried out by Peldon Rose, workplace designers.  Their survey showed 59% of employees working most productively in the office followed by 30% at home and 5% in a café. They point out that working outside of the office makes employees feel disconnected (50%) isolated or lonely (33%) and less productive (27%). So who is right?

The answer is of course both are right. If you ask people who predominantly work in the office where they are most productive you will find the majority will say it’s there. This could be because the kind of work they do cannot easily be done remotely, or it may be that their lifestyle doesn’t suit home working. Similarly, ask the question to remote workers and they will point out the benefits of home working over being office based, including higher productivity.

Where both surveys agree, is that people want the choice. A third of the people surveyed by Peldon Rose wish they were more trusted to manage how and when they work and 79% of the Flexjobs respondents say they are more loyal to their employers if they have flexible working options. This is born out by a recent survey by Manpower, polling 14,000 people in 19 countries, that showed 63% of workers believe they can work outside the office and 40% mentioned flexible working as one of the top three career considerations. Their report concludes that employers should neutralise flexibility stigma by changing company culture to make working outside the office acceptable. It starts from the top – leaders need to be transparent and lead by example.

What is Good Work?

I've just posted this on a CIPD discussion forum on Good Work, so thought I'd repeat it here...

It's great to hear that the CIPD is championing Good Work and encouraging the HR profession to think more broadly about Work as a topic.

Work is not just jobs and employment. Good work is not just engaging with employees and providing them with rewarding conditions of employment. Work is an activity carried out by people in order to produce a result.

To provide a product or service to a customer in exchange for payment is work. Many people do 'work' for charities and don't get paid but they get other rewards. We have to include all these activities in the definition of good work.

The Taylor Review recognises that we are seeing a major change in the way work is performed. Platforms, such as Uber or Ebay provide individuals with an opportunity to do paid work for a customer. Hence we have seen a growth in self-employment where individuals take responsibility for their own benefits but have control over when, where and how they get work done.

What Taylor tries to do is to apply 'good jobs' criteria to 'platform' work by creating the 'dependent contractor' category. This misses the point that many of these workers enjoy the independence of not being an employee and are prepared to miss out on benefits in exchange for being their own boss. Are we in danger of applying 'good jobs' criteria in a world where 'jobs' are giving way to 'work'.

One example of this is the assumption that work is measured by the hour. This conflicts with the idea of paying for a service or product based on what it is worth not how long it takes. Why should I pay an incompetent plumber for two hours work when the leak could have been fixed in an hour? This leads to confusion for platforms like Uber, where I'm happy to pay a fee for someone to drive me from A to B and there is no 'rate per hour' involved. Trying to apply National Minimum Wage in these circumstances becomes meaningless. (Maybe Universal Basic Income is the answer but that's a whole separate topic!)

Yes, we should stop unscrupulous employers from exploiting people by classifying them as self-employed to save NI contributions and avoid employment legislation. But we need to move away from the assumption that a secure lifetime career with a responsible employer is good work and the 'gig economy' is bad work. At least Taylor didn't fall into the trap of condemning all zero hours contracts, but recognised that they bring valuable flexibility and are popular among the majority of people involved.

Modern Working Practices need further reviews

The Taylor Review of Modern Working Practices has taken a fresh look at the way work is evolving and has come up with some sensible suggstions. It looked at non-standard working patterns and the introduction of ‘gig working’ using platforms such as Uber which has resulted in confusion about the status of workers.  When are they ‘self employed’ versus being employees of some sort?

The review goes part way to a solution by recommending a ‘dependent contractor’ category fitting between employees and the self-employed. These people would get some of the employment rights currently enjoyed by employees such as holiday pay, sickness benefits and the minimum wage. There would still be genuine self-employed workers but it would reduce the number of people currently treated this way by employers attempting to save money or avoid other commitments.

Importantly the review recognises that a high percentage of people with flexible work patterns are very happy with the arrangements. Many of the ‘gig workers’ are fitting in tasks around their other priorities and do not want conventional employment. This is also true of zero hours contracts, where the report concludes “To ban zero hours contracts in their totality would negatively impact many more people than it helped”.

But it still makes the assumption that good work has to be expressed in time units and not output. If people are getting the national minimum wage then they are being treated ‘fairly’. If they are working flexibly without guaranteed hours then they should get the minimum plus 20%. This cuts across the whole idea of the ‘gig economy’.

If a customer wants a service and a supplier is prepared to provide it, then work is done to make this happen. If I want to go from A to B and someone is happy to take me for a fixed price, then we have a deal. This is not expressed in an hourly rate and there is no statutory minimum I am obliged to pay for the service. Applications like Uber connect a service provider with a customer at a defined price. This is ‘work’ in the Digital Age but it’s not employment in a ‘job’ with an hourly wage or annual salary.

As these new ways of working continue to grow we have to have laws and business practices that reflect the gig economy. Trying to apply outdated ideas of employment in the new world of work is not keeping up with the times. The Taylor Review is a start, but the journey needs to continue.

What happened to the life of leisure?

Today we see yet another report threatening that AI will replace our jobs. PWC estimate that around 30% of existing UK jobs could face automation over the next 15 years. The estimates may vary slightly by percentage and timescale, but they are all pointing in the same direction.

This report is more positive than others, claiming that new AI-related technologies will boost productivity and generate additional jobs elsewhere in the economy. Along with this they warn that income inequality may rise. They paint a scenario of 'haves' and 'have nots' with male workers being at greater potential risk of job automation than women, with education as the key differentiating factor for individual workers.

We have a world based on full time employment with people needing to work 5 days a week to maintain an acceptable standard of living. Despite the automation of jobs that we have seen so far, we are suffering from long hours working and high levels of stress. We have organisational cultures where the people who put in the long hours are seen as being 'loyal' and 'dedicated'. People who are 'flexible workers' or 'part timers' are still seen as less committed.

What happened to the life of leisure that was coming with all this automation? Robots and computers were going to do the boring work so humans were left to do the interesting stuff. We were all going to work for three days a week and have four day 'weekends' because productivity improved so much with using technology. We would all be sitting on a sunny beach even when we were working, because technology had freed us up from traditional work constraints.

The technology has done the reverse of what we expected. Instead of producing the relaxed environment where we can have enjoyable, healthy working lives, we are overloaded with hundreds of emails in our inbox and are stressed out trying to keep up. We are working 24/7, constantly looking  at our smartphones wherever we are. Our personal lives have been invaded, but don't blame the technology.

The problem lies with the way work is organised and the organisation cultures that encourage bad working practices. If we want people to have healthy balanced lives then we need jobs that deliver the 'life of leisure' promised by technology. As AI takes over more human work and there is less to go round, let's not have half the population stressed out working long hours and the other half unemployed.  Let's all have a sensible, satisfying amount of paid work in our lives and also have time for family, friends, hobbies, sports and a healthier lifestyle.

We need the older workers

The UK is running out of workers. According to the CIPD current employer plans suggest that we’ll need to fill 13.5 million job vacancies in the next ten years, but only 7 million young people will leave school and college. With fewer people entering the labour pool, it's critical for employers to be able to embrace talent and fill roles.

Andy Briggs, CEO of Aviva Life and the UK Government’s business champion for older workers has called for a million more older people to be in work by 2022. To address the widening skills gap, tackle age bias in work and enable people to stay in work longer, Mr Briggs is urging every UK employer to increase the number of workers aged 50-69 in the UK over the next five years.

Employers in the UK are no longer able to retire someone just because of their age but many are sticking with a traditional approach to the older workforce. Half of the people in a recent CIPD survey over the age of 55 said they would be working beyond 65. But only one in four employees think that their employer is meeting the employment needs of the over 65s. 

The CIPD is recommending five essential components that should form an organisation’s strategy to address the ageing workforce challenges:

1 Ensuring they have inclusive recruitment practices

2 Improving the capability of line managers to manage an age-diverse workforce

3 Investing in training and development that is based on potential, not age

4 Supporting employee health and well-being across demographics

5 Embracing the talent attraction and retention benefits of flexible working.

It seems that flexible/smart working is an ideal arrangement for this group of people who have talent and experience to give to their employers but no longer wish to be in fixed, full-time working arrangements.

The 'fatherhood penalty'

Following straight after the news about men working part time comes a report showing fathers are seeking more flexible employment.

The "Modern Families Index 2017" report has just been published by Working Families. In this they point to a 'flexibility gap'. Almost half of parents are not comfortable raising the issue of workload and hours with their employer. They identified  flexible working as a key way of getting a better balance, but many felt that they could not make use of it because of the nature of their job, manager’s attitude or workplace culture.

Twice the number of fathers compared to mothers believe  flexible workers are viewed as less committed and over double the number of fathers believe working flexibly will have a negative impact on their career. The report points out a 'fatherhood penalty' whereby men move into lower paid and lower quality work because they have become fathers.

47% of fathers agree they would like to downshift  into a less stressful job, reflecting the diffculty they face in reconciling work and home. Just under half of millennial fathers (46%) said they would be willing to take a pay cut to achieve a better work-life balance, vs. just over a third of fathers overall (38%).

So, maybe this survey helps to explain why more men are working part time. As the report concludes "Fathers want to be more involved with their children’s lives. Seven out of ten fathers would consider childcare before taking a new job or promotion. To tackle the motherhood penalty and prevent a
fatherhood penalty taking root, we need to end the zero sum game between career progression and family life."

Part Time Men - Good News?

Today we have had the news that the number of men working part time has grown rapidly. The Institute for Fiscal Studies has published a report saying that 20 years ago 1 in 20 men aged 20-55 worked part-time with low wages. Now it's 1 in 5.

So the Guardian puts this under the headline "Bleak trend ....is revealed". It seems that the growth of anything other than conventional full-time jobs is a bad thing. But, wait a minute. I thought we were moving into an era of equal opportunities where men were taking their fair share of child care responsibilities. Maybe this is a sign that dads are going part-time whilst mums are keeping up their full-time careers. That sounds like a good thing to me.