Statistical bulletin: Labour Productivity, Q2 2012

Correction

A production error was discovered in the Labour Productivity, Q2 2012 release, originally published at 9.30am on 28 September 2012. This affects the tables at the end of the PDF version of the Statistical Bulletin. Table 1 (Labour productivity key measures) contained incorrect data for Output per worker. And Table R1 (Revisions analysis) was missing. This error has now been corrected.

Other components of the release including Reference Tables and Time Series data are not affected.

ONS apologises for any inconvenience caused.

Key points

• UK labour productivity fell by 0.9 per cent in the second quarter of 2012 on an output per hour basis. Market sector productivity fell by 1.5 per cent on this basis, to its lowest level since 2005.
• Output per hour in the services sector fell by 0.8 per cent in the second quarter.
• Output per hour in manufacturing fell by 1.5 per cent in the second quarter. Output per hour in the broader production sector fell by 1.3 per cent over this period.
• Whole economy unit labour costs increased by 0.3 per cent in the second quarter and were 3.2 per cent higher than a year earlier. Manufacturing unit wage costs increased by 4.0 per cent in the second quarter and were 5.7 per cent higher than a year earlier.

About this release

This quarterly bulletin contains labour productivity statistics for the second quarter of 2012 for the whole economy and a range of industries, together with selected data on unit labour costs and regional productivity indicators. Labour productivity measures the amount of real (inflation adjusted) economic output that is produced by a unit of labour input (in terms of workers, jobs and hours worked) and is a key indicator of economic performance. 

Output statistics in this release are consistent with Quarterly National Accounts published on 27 September 2012. Labour input measures are consistent with Labour Market Statistics published on 12 September 2012. More information on sources used in this release is available in the Note on sources section below.

Interpreting these statistics

At the whole economy level output (gross value added – GVA) fell by 0.4 per cent in the second quarter of 2012, while the Labour Force Survey (LFS) shows that the number of workers and jobs (which are closely correlated) each rose by 0.7 per cent, and the number of hours worked rose by 0.5 per cent. 

Arithmetically, therefore, UK output per worker and output per job fell sharply over this period (by 1.1 per cent in each case), while UK output per hour fell by 0.9 per cent. It is likely that the additional bank holiday for the Queen's Diamond Jubilee had a greater impact on output than on recorded measures of labour input in the second quarter. For more information see this section of the Quarterly National Accounts release.

Differences between growth of output per worker and output per job reflect movements in the share of workers with second jobs, which are typically not large. Differences between these measures and output per hour reflect movements in average hours which, though typically not large from quarter to quarter, can be significant over a period of time.

For example, a shift towards part-time employment will tend to reduce average hours. For this reason, output per hour is a more comprehensive indicator of labour productivity.

One factor to bear in mind when interpreting these statistics is that separate Office for National Statistics (ONS) estimates of the number of jobs in the economy, based largely on business surveys, show a significantly weaker increase in jobs over the second quarter than the LFS. 

Productivity estimates in this release use data from business surveys on the distribution of jobs across different sectors of the economy, but benchmark the overall number of jobs in the economy to the LFS estimate. For more information on the differences between LFS and workforce jobs see the article on Reconciliation of Estimates of Jobs, September 2012.

Unit labour costs reflect the full labour costs, including social security and employers’ pension contributions, incurred in the production of a unit of economic output, while unit wage costs are a narrower measure, excluding non-wage labour costs. Growth rates of these series can be decomposed as growth of labour costs (or wages) per unit of labour input minus growth of labour productivity. 

An inverse relationship between unit costs and productivity tends to be observed, as wage growth is less cyclical than productivity. Unit labour and unit wage costs also provide an indication of inflationary pressures in the economy.

In interpreting movements in unit labour costs between the first and second quarters, it should be noted that there was an exceptionally high level of employers' pension contributions in the first quarter. See the Quarterly National Accounts release for more information.

Most of the series in this release are designated as National Statistics, meaning their production has been subject to rigorous quality assurance and methodological scrutiny. However, some service sector estimates use component series from the Index of Services (IOS) which are designated as experimental statistics (that is, not yet accredited as National Statistics, for example because the methodology is under development or reflecting concerns over data sources). 

Market sector GVA is also an experimental series.  Labour productivity estimates that use these series as their numerators are also labelled as experimental statistics. 

For more information on interpreting these statistics see the Background notes section of this bulletin, and the labour productivity Quality and Methodology Information paper.

Whole economy labour productivity

Figure 1 shows whole economy output per worker in terms of percentage changes on the previous quarter and on the previous year. Figure 2 shows whole economy output per hour, and Table A provides a breakdown of the components of labour productivity movements over recent quarters. More information is available in the  Reference Tables (155 Kb Excel sheet) section of this release, and in the tables at the end of the PDF version of this statistical bulletin.

Figure 1: Whole economy output per worker

United Kingdom

Source: Office for National Statistics

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Figure 2: Whole economy output per hour

United Kingdom

Source: Office for National Statistics

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Table A: Whole economy labour productivity components

Seasonally adjusted

Table source: Office for National Statistics

Unit labour costs

Figure 3 shows whole economy unit labour costs in terms of percentage changes on the previous quarter and on the previous year. The movement in unit labour costs in the second quarter (0.3 per cent) reflects a fall in labour costs per hour (0.7 per cent), partially offsetting the 0.9 per cent fall in output per hour.

Figure 3: Whole economy unit labour costs

United Kingdom

Source: Office for National Statistics

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Manufacturing unit wage costs (Figure 4) increased by 4.0 per cent in the second quarter, reflecting a combination of falling productivity and rising wage costs per hour. As well as being a more narrow measure than unit labour costs, the manufacturing unit wage cost series currently uses average weekly earnings (a measure of employee earnings) to proxy the earnings of self-employed workers in the manufacturing sector, which is inconsistent with other ONS data on incomes of the self employed. ONS is currently developing estimates of manufacturing unit labour costs to address these issues.

Figure 4: Manufacturing unit wage costs

United Kingdom

Source: Office for National Statistics

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More information on unit labour costs and unit wage costs is available in the  Reference Tables (155 Kb Excel sheet) section of this release, and in the tables at the end of the PDF version of this statistical bulletin.

Manufacturing labour productivity

Figures 5 and 6 show movements in labour productivity in manufacturing in terms of percentage changes on the previous quarter and on the previous year. Table B provides information on the component movements in manufacturing output and labour inputs.

Figure 5: Manufacturing output per job

United Kingdom

Source: Office for National Statistics

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Figure 6: Manufacturing output per hour

United Kingdom

Source: Office for National Statistics

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Table B: Manufacturing labour productivity components

Seasonally adjusted

Table source: Office for National Statistics

More information on labour productivity of sub-divisions of the manufacturing sector is available in the  Reference Tables (155 Kb Excel sheet)  section of this release, and in the tables at the end of the PDF version of this statistical bulletin. Care should be taken in interpreting quarter on quarter movements in productivity estimates for individual sub-divisions, as small sample sizes of the source data can cause volatility.

Nevertheless it is apparent that labour productivity of different manufacturing activities has varied widely through the recession and its aftermath. In particular, output per hour in Transport equipment (divisions 29-30) and Machinery & equipment (division 28) has increased strongly since 2009, whereas output per hour in Textiles, wearing apparel & leather (divisions 13-15), Wood & paper products, & printing (divisions 16-18) and Chemicals, Pharmaceuticals (divisions 20-21) was well below 2009 levels in the second quarter.

Services labour productivity

Figures 7 and 8 show movements in labour productivity in services in terms of percentage changes on the previous quarter and on the previous year. Table C provides information on the component movements in service sector output and labour inputs.

Figure 7: Services output per job

United Kingdom

Source: Office for National Statistics

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Figure 8: Services output per hour

United Kingdom

Source: Office for National Statistics

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Table C: Services labour productivity components

Seasonally adjusted

Table source: Office for National Statistics

More information on labour productivity of sections within the service sector is available in the  Reference Tables (155 Kb Excel sheet) section of this release, and in the tables at the end of the PDF version of this statistical bulletin. 

The dispersion of labour productivity performance across services is less striking than across manufacturing, and output per hour fell in eight out of 11 service categories in the second quarter. The exceptions were Real estate activities (section L, +2.6 per cent), Arts, entertainment & recreation (section R, +3.3 per cent) and Government services (sections O-Q), unchanged).

Market sector labour productivity - experimental

Figure 9 shows movements in labour productivity in the market sector compared with the equivalent series for the whole economy. In the second quarter, market sector output per hour fell more steeply than output per hour for the whole economy.

This is consistent with the stronger than average movement in productivity in the predominantly non-market sections O-Q (Government services) in the second quarter noted above. Since the trough of the recession in 2009 Q2, hours worked in the market sector have increased by 4.7 per cent, while hours worked in the non-market sector have fallen by 8.6 per cent.

Figure 9: Market sector output per hour

United Kingdom

Source: Office for National Statistics

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Longer time series on market sector labour productivity are available in the  Reference Tables (155 Kb Excel sheet) section of this release, and in the tables at the end of the PDF version of this statistical bulletin.

Revisions

Table R1 in the  Reference Tables (155 Kb Excel sheet) section of this release (and in the tables at the end of the PDF version of this statistical bulletin) shows revisions to growth rates of the main productivity variables for the whole economy, manufacturing and services between this release and the previous release on 29 June 2012.

In this release, revisions to previously published labour productivity estimates principally reflect revisions to LFS estimates arising from annual benchmarking to revised population estimates back to 2009; further information is available in the Labour Market Statistics Revisions Policy (36.7 Kb Pdf) . 

In addition, there are revisions to the distribution of jobs and hours across sectors in 2012 Q1. On the output side, there are small revisions to the whole economy and component series from 2011. A research note on sources of revisions (145.4 Kb Pdf)  to labour productivity estimates is available (145.4 Kb Pdf) on the ONS website.

Table D summarises differences between first published estimates for each of the statistics in the first column with the estimates for the same statistics published three years later. This summary is based on five years of data, that is, for first estimates of quarters between 2004Q3 and 2009Q2, which is the last quarter for which a three-year revision history is available. 

The averages of these differences with and without regard to sign are shown in the right hand columns of the table, and these can be compared with the value of the estimates in the latest quarter, shown in the second column. Additional information on revisions to these and other statistics published in this release is available in the  Revisions triangles (824.1 Kb ZIP) component of this release.

This revisions analysis shows that whole economy labour productivity growth estimates have tended to be revised down over time, by around 0.3 percentage points (on a year-on-year basis), while unit labour cost growth estimates have tended to be revised up by a similar magnitude. 

Absolute revisions have been larger for unit labour costs than for productivity. Were this pattern of revisions to continue into the future, growth of output per hour in the year to the second quarter would be revised down from -2.6 per cent to -2.9 per cent three years from now, and growth of unit labour costs would be revised up from 3.2 per cent to 3.6 per cent over the same period.

Table D: Revisions analysis

Whole economy

Table source: Office for National Statistics

Notes on sources

The measure of output used in these statistics is the chain volume measure of Gross Value Added (GVA) at basic prices, with the exception of the regional analysis in Table 9 (in the Reference Tables (155 Kb Excel sheet) and the PDF version of this statistical bulletin), where the output measure is nominal GVA (NGVA). These measures differ because NGVA is not adjusted to account for price changes; this means that if prices were to rise more quickly in one region than the others, then it would be reflected in improved measured productivity performance in that region relative to the others.

Labour input measures used in this bulletin are known as 'productivity jobs' and 'productivity hours'. Productivity jobs differ from the workforce jobs (WFJ) estimates published in Table 6 of the Labour Market Statistics Bulletin, in three ways:

• To achieve consistency with the measurement of GVA, the employee component of productivity jobs is derived on a reporting unit (RU) basis, whereas the employee component of the WFJ estimates is on a local unit (LU) basis. This is explained further below.

• Productivity jobs are scaled so industries sum to total LFS jobs. Note that this constraint is applied in non-seasonally adjusted terms. The nature of the seasonal adjustment process means that the sum of seasonally adjusted productivity jobs by industry (and productivity hours – see below) can differ slightly from the seasonally adjusted LFS totals.

• Productivity jobs are calendar quarter average estimates whereas WFJ estimates are provided for the last month of each quarter.

Productivity hours are derived by multiplying productivity jobs at an industry level (before seasonal adjustment) by average actual hours worked from the LFS at an industry level. Results are scaled so industries sum to total unadjusted LFS hours, and then seasonally adjusted. 

Industry estimates of average hours derived in this process differ from published estimates (found in Table HOUR03 in Labour Market Statistics) as the LFS allocates all hours worked to the industry of main employment, whereas the productivity hours system disaggregates LFS hours into both industry of main employment and secondary employment.

Whole economy unit labour costs are calculated as the ratio of total labour costs (that is, the product of labour input and costs per unit of labour) to GVA. Further detail on the methodology can be found in Revised methodology for unit wage costs and unit labour costs: explanation and impact.

Manufacturing unit wage costs are calculated as the ratio of manufacturing average weekly earnings (AWE) to manufacturing output per filled job. ONS does not currently produce unit wage costs figures for the services sector or unit labour costs below whole economy level, but is reviewing the scope to do so. See the Background notes to this bulletin for more information.

What is a reporting unit?

The term 'enterprise' is used by ONS to describe the structure of a company. Individual workplaces are known as 'local units' and a group of local units under common ownership is called the 'enterprise'. Reporting units are the parts of enterprises that return data to ONS. While the majority of reporting units and enterprises are the same, larger enterprises have been split into reporting units to make the reporting easier.

For most business surveys run by ONS, forms are sent to the reporting unit rather than local units, in other words, to the head office rather than individual workplaces. This enables ONS to gather information on a greater proportion of total business activity than would be possible by sending forms to a selection of local units. But it has the disadvantage that it is difficult to make regional estimates – for instance all the employment of, say, a chain of shops would be reported as being concentrated at the site of the head office.

Further differences between reporting unit and local unit data can be seen in the industry coding. Take, for example, a reporting unit with three cake shops and one bakery, each employing five people. The local unit analysis would put 15 employees in the retail sector and five employees in the manufacturing sector. But the reporting unit series puts all 20 people into the sector with the majority activity, in this case, retailing.

Detailed industry figures compiled using the local unit approach will therefore be different from industry figures using the reporting unit approach, although the totals will be the same at the whole economy level.

Background notes

1. This statistical bulletin

   This statistical bulletin presents Labour Productivity estimates for the UK. More detail can be found on the Productivity Measures Topic page on the ONS website.

   Index numbers are referenced to 2009=100, are classified to the 2007 revision to the Standard Industrial Classification (SIC) and are seasonally adjusted.

   Quarter on previous quarter changes in output per job and output per hour worked for some of the manufacturing sub-sections and services sections should be interpreted with caution as the small sample sizes used can cause volatility.

2. Experimental series

   Labour productivity estimates for some service sections use GVA series from the Index of Services (IOS) which are designated as experimental, meaning that they are not yet designated as National Statistics. Market sector GVA is also an experimental series. Since labour productivity estimates are derived as ratios of these GVA series and corresponding labour input series, the resulting labour productivity estimates are also designated as experimental statistics.

   Labour productivity estimates for the following services industries are published on an experimental basis:

   K – Finance and insurance

   L – Real estate activities

   M – Professional, scientific and technical activities

   N – Administrative and support services

   O–Q – Government services

   R – Arts, entertainment and recreation

   S – Other service activities

   The criteria for distinguishing between experimental and National Statistics were set out at the launch of the Index of Services (IOS) in 2000, and include the proportion of data on which the component series are based, and the existence of suitable quality assurance processes. ONS re-launched a structured IOS industry review programme in March 2012 and published an update to this programme in August 2012 (446.3 Kb Pdf) .

   Details of the market sector GVA methodology can be found in an article on the ONS website on Market sector GVA productivity measures (241.1 Kb Pdf) .

3. Quality and Methodology

   A revised and updated Quality and Methodology Information (649 Kb Pdf)  paper for Labour Productivity was published in March 2012. This paper describes the intended uses of the statistics presented in this publication, their quality and methods used to produce them. It also includes more information on the uses and limitations of labour productivity estimates.

4. Future developments

   ONS is currently undertaking a review of reporting unit (RU) and local unit (LU) based measures of employment by industry, which may lead to changes in methodology and results for productivity jobs and productivity hours. We are also undertaking a review of seasonal adjustment, including reviewing the point at which seasonal adjustments are made. Currently, productivity jobs and productivity hours are separately seasonally adjusted and divided into seasonally adjusted estimates of GVA. Methodologically it would be preferable to construct unadjusted productivity estimates using numerators and denominators before seasonal adjustment, and then to seasonally adjust the resulting productivity estimates. But in this case, published productivity estimates would typically not be exactly consistent with published output and labour input estimates.

   As mentioned above, ONS is reviewing the scope to publish section-level estimates of unit labour costs (ULCs), using an analogous methodology to that used in constructing whole economy ULCs. This methodology exhibits greater consistency between labour market and National Accounts data, in particular with respect to labour costs attributable to the self employed. A paper setting out a Revised methodology for unit wage costs and unit labour costs was published in October 2011.

   We welcome views and comments from users on these and other suggestions for development of productivity statistics. Following ONS best practice, we will publish details of the impact of proposals affecting statistics in this release prior to their implementation.

5. Other data on productivity

   ONS publishes International comparisons of labour productivity in levels and growth rates for the G7 countries.

   More international data on productivity are available from the OECD, Eurostat, and the Conference Board.

   ONS publishes experimental estimates of Multi-factor productivity (MFP), which decompose output growth into the contributions that can be accounted for by labour and capital inputs. In these estimates, the contribution of labour is further decomposed into quantity (hours worked) and quality dimensions.

   ONS also publishes experimental indices of labour costs per hour. These differ from the concept of labour costs used in the unit labour cost estimates in this release. The main difference is that experimental indices of labour costs per hour relate to employees only, whereas unit labour costs also include the labour remuneration of the self-employed.

   Lastly, ONS publishes a range of Public sector productivity measures and related articles. These measures define productivity differently from that employed in the ONS labour productivity and MFP estimates. Further information can be found in Phelps (2010) (252.5 Kb Pdf) .

   More information on the range of ONS productivity estimates can be found in the ONS Productivity Handbook.

6. Publication policy

   Details of the policy governing the release of new data are available from the Media Relations Office.  National Statistics are produced to high professional standards set out in the Code of Practice for Official Statistics. They undergo regular quality assurance reviews to ensure that they meet customer needs. They are produced free from political interference.
   
   ONS publishes a pre-release access list (34.1 Kb Pdf) for each of its publications, outlining the roles of those people granted access to the bulletin 24 hours before the general public.

   All of the data in this release can be downloaded free of charge from the ONS website. Additionally, disaggregated data on productivity jobs and productivity hours are available on request. 

   To obtain a full time series of the data from the bulletin or parent release:

   1. Select 'Data in this release' (top right of page)

   2. Select 'datasets associated with this release' (left hand side of page)

   3. Select the latest release

   4. Select 'Select series from this dataset' (Green button, top right)

   5. Select the reference table of interest

   6. Select the series of interest (note you can use ctrl and shift to select multiple series for a custom download)

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7. Copyright and reproduction

   © Crown copyright 2012

   Under the terms of the Open Government Licence and UK Government Licensing Framework, anyone wishing to use or re-use ONS material, whether commercially or privately, may do so freely without a specific application for a licence, subject to the conditions of the OGL and the Framework.

   For further information, contact the Office of Public Sector Information, Crown Copyright Licensing and Public Sector Information, Kew, Richmond, Surrey, TW9 4DU.

   Tel: +44 (0)20 8876 3444

   Email psi@nationalarchives.gsi.gov.uk
   
   

8. User engagement

   ONS is keen to develop a greater understanding of the use made of labour productivity statistics. If you have something to tell us, please use this feedback form, or email us at productivity@ons.gsi.gov.uk.

   You can follow ONS on Twitter and Facebook and watch our videos at YouTube.

9. Details of the policy governing the release of new data are available by visiting www.statisticsauthority.gov.uk/assessment/code-of-practice/index.html or from the Media Relations Office email: media.relations@ons.gsi.gov.uk

   These National Statistics are produced to high professional standards and released according to the arrangements approved by the UK Statistics Authority.

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