Expansion in low-paid work is cause of puzzling UK productivity

A shift in the UK economy towards sectors such as food and accommodation could be behind the current 'productivity puzzle', according to the Institute for Public Policy Research (IPPR).

An expansion in the number of lower paying jobs in unskilled and low skilled market areas could explain why UK productivity has fallen while the overall economy has been growing.

Puzzle

The Institute described the fact that the UK economy grew between 2012 and 2014 while productivity fell by 1.15% as “unprecedented” since the end of the Second World War.

However, the answer to the puzzle that has been baffling many economic experts could simply be employment shifting towards a new mix of jobs.

The IPPR's new research found that a larger percentage of people are now workng in relatively low-productivity sectors and this change has coincided with a decline in the numbers employed in areas such as manufacturing and finance, which generally have higher productivity rates.

Shift

Tony Dolphin, IPPR chief economist, said: “Our analysis of the UK’s productivity performance shows that an unfavourable shift in the structure of the workforce towards relatively low-productivity sectors has been a significant factor holding back aggregate productivity in the last three years."

“Another five years of stalled productivity is not something the chancellor can allow to happen. Using public spending to support productivity by introducing industrial policies for the domestic sectors of the economy are steps the chancellor could take in the Spending Review,” he added.

New jobs

Opportunities in areas such as hotels, retail, catering and social care continue to grow but these are not recognised as having high levels of productivity, no matter how much workers actually do.

However, a shortage of skills may also be playing a part, meaning that continued efforts to extend access to education are vital.