Time to focus on productivity as Chancellor set to announce Productivity Plan in Budget
Does employee engagement have a role to play too?
For a long time economists have been worried about the UK’s productivity stagnation. Output per hour is now lower than it was at the end of 2007, whereas if it had risen at the same rate as it did in the previous 30 years it would be 16.9 per cent higher than it was then.
Elizabeth Gooch, CEO, eg solutions plc, the pioneer of Back Office Workforce Optimisation, comments: “Chancellor George Osborne says he is determined to overcome the “long-term economic weakness” that is holding the UK back and promises to make the economy more productive. At the Confederation of British Industry (CBI) he stated that the Government has a “a once in a generation opportunity” to find an extra gear for the British economy and ensure higher living standards for the next generation to come,”
“There’s a reason for this. Productivity growth largely determines growth in GDP. Of course, in the short-run we can have both stagnant productivity and rising GDP if employment increases, but this probably can’t happen for very long without generating inflation. Paul Krugman’s famous line, “Productivity isn’t everything, but in the long run it is almost everything,” has become a cliché but it is true.”
Productivity slowdowns in the early 1920s, 40s and 70s saw real interest rates fall, while accelerations in productivity in the intervening years were all accompanied by rising real rates. If the economy is growing slowly real interest rates cannot rise very much because to do so would choke what little growth there is.
Red Letter Days has released research highlighting the importance of employee engagement showing 36% of British workers are highly engaged at work, while 48% claim to be only moderately engaged and the remainder having no or low engagement. Red Letter Days concludes that higher engagement equates to greater contributions towards productivity.
Gooch added: “In my experience the only way to increase productivity is to engage employees in how to improve performance. Just telling people they are unproductive through historic data just alienates them and leads to further de-motivation. At the end of the day productivity is a resource management issue. How we forecast and plan the resources and skills required and how work is allocated to the available resources for performance to be monitored plays a major contribution in ensuring that businesses operate more efficiently. By engaging employees in those processes, businesses can make a real difference to their performance.”
Speaking at the CBI, the Chancellor said the Conservatives plan to make “our economy more productive”.
He said: “Now a lot has been written about the productivity puzzle. Why, for so many years, have British workers been less productive than their German or American counterparts? Why has productivity been so damaged by the great recession?”
Elizabeth Gooch concluded: “Productivity is a missing piece of the growth puzzle and the Chancellor is right to focus on this issue.”