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Statistical bulletin: Labour Productivity, Q2 2013 This product is designated as National Statistics

Released: 27 September 2013 Download PDF

Labour Productivity, Q2 2013

  • On an output per hour basis, UK labour productivity increased by 0.5% in the second quarter of 2013. Market sector productivity increased by 0.6% over this period.
  • Output per hour increased by 0.7% in the manufacturing sector in the second quarter and by 1.1% in the broader production sector. Output per hour in the service sector increased by 0.1% in Q2.
  • Whole economy unit labour costs increased by 2.2% in 2013 Q2, reflecting the high level of bonus payments in the quarter, and were 2.2% higher than a year earlier. Manufacturing unit wage costs increased by 0.6% in Q2 and were 1.5% higher than a year earlier.

About this release

This quarterly bulletin contains labour productivity statistics for the second quarter of 2013 for the whole economy and a range of industries, together with selected data on unit labour costs. 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. Since labour costs account for around two-thirds of the cost of production of UK economic output, unit labour costs provide an indication of inflationary pressures in the economy.

Output statistics in this release are consistent with the latest Quarterly National Accounts published on 26 September 2013. Labour input measures are consistent with the latest Labour Market Statistics published on 11 September 2013. 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) increased by 0.7% in the second quarter of 2013, while the Labour Force Survey (LFS) shows that the number of workers and jobs increased by 0.2% and 0.5% respectively over this period, and the number of hours worked rose by 0.3%1.  Since growth of labour productivity can be decomposed as growth of GVA minus growth of labour input, this combination of movements in output, jobs, workers and hours implies that UK output per worker increased by 0.5% and output per job increased by 0.3% over this period, while UK output per hour increased by 0.5%2.

Differences between growth of output per worker and output per job reflect changes in the ratio of jobs to workers, which increased a little in the second quarter. Differences between these measures and output per hour reflect movements in average hours which, though typically not large from quarter to quarter, can be material 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 and is the main focus of the commentary in this release.

Year-on-year comparisons of productivity figures in the second quarter of 2013 may be distorted by the impact on the economy of the additional bank holiday in 2012 Q2 to mark the Queen's Diamond Jubilee.

Unit labour costs (ULCs) reflect the full labour costs, including social security and employers’ pension contributions, and including the costs of self-employed labour, 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. With labour productivity increasing by 0.5% on an output per hour basis in the first quarter, the 2.2% increase in ULCs implies that labour costs per hour increased by 2.7% across the economy as a whole.

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. More information on the experimental IOS series is available on the Guidance and methodology section of the ONS website. 

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

Notes for Interpreting these statistics

  1. Growth rates for jobs and hours differ slightly from growth rates based on LFS aggregate data due to different methods of seasonal adjustment. 

  2. Differences between growth rates of productivity and (growth of GVA minus growth of labour inputs) are due to rounding.

General commentary

Whole economy real (inflation adjusted) output rose in the second quarter, while employment and hours rose at a lower rate.  Labour productivity has therefore risen over the past quarter on all measures.  Unit labour costs increased sharply in Q2, however a large proportion of this increase was due to a substantial rise in the level of bonus payments made during April. 

In the manufacturing sector, weakening output growth since 2011 has been accompanied by a pick-up in employment and hours, and productivity has therefore fallen significantly during 2012.  While hours worked rose very slightly in the second quarter of 2013, the number of jobs is estimated to have fallen by 0.5%, and output per job has therefore continued to recover in the second quarter. Manufacturing output per hour remains below the level seen in the second quarter of 2012 but output per job is now above the same quarter of 2012. 

Output in the services sector has been growing at between 1% and 2% a year since the start of 2011.  Employment and hours grew more slowly than output for much of this period, but hours picked up significantly during 2012, and this was followed by faster growth in the number of jobs. Productivity therefore weakened in 2012, although it rose a little in the first quarter of 2013 and was little changed in the second quarter as GVA, the number of services jobs and hours all grew broadly at the same rate.

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  (152 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

Seasonally adjusted

Figure 1: Whole economy output per worker
Source: Office for National Statistics

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Figure 2: Whole economy output per hour

Seasonally adjusted

Figure 2: Whole economy output per hour
Source: Office for National Statistics

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Table A: Whole economy labour productivity components

Seasonally adjusted

Output Productivity Jobs Productivity Hours
Per cent Change on quarter a year ago Change on previous quarter   Change on quarter a year ago Change on previous quarter   Change on quarter a year ago Change on previous quarter
2009 Q3 -5.4 0.0 -1.6 0.0 -2.4 -0.5
Q4 -2.8 0.3 -1.5 -0.1 -0.9 1.3
2010 Q1 0.2 0.6 -1.5 -0.5 -1.4 -2.2
Q2 1.9 1.0 0.3 0.9 0.5 1.9
Q3 2.5 0.5 0.9 0.6 1.1 0.1
Q4 1.9 -0.3 0.7 -0.3 0.2 0.4
2011 Q1 1.6 0.4 1.8 0.6 2.5 0.1
Q2 0.9 0.2 0.8 -0.1 -0.6 -1.2
Q3 1.0 0.6 -0.3 -0.5 0.1 0.8
Q4 1.2 -0.1 0.1 0.1 -0.1 0.2
2012 Q1 0.8 0.0 0.1 0.6 0.5 0.7
Q2 0.1 -0.5 0.8 0.6 2.2 0.5
Q3 0.2 0.8 1.6 0.3 2.6 1.2
Q4 0.0 -0.2 2.1 0.6 2.7 0.3
2013 Q1 0.3 0.2 1.2 -0.3 2.2 0.2
Q2 1.5 0.7 1.1 0.5 2.0 0.3

Table source: Office for National Statistics

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Unit labour costs

Figure 3 shows whole economy ULCs in terms of percentage changes on the previous quarter and on the previous year. The movement in ULCs in the second quarter (an increase of 2.2%) principally reflects an increase in labour costs per hour as although output per hour has also increased, this was of a smaller magnitude of 0.5%.  On a year-on-year basis, whole economy ULCs also increased 2.2% in Q2.  A large proportion of this increase was due to a substantial rise in the level of bonus payments made during April, as explained in the ONS Economic Review of September 2013.  Looking at ULCs in the first two quarters of 2013 combined, the average rise was just over 1% per quarter.

Figure 3: Whole economy unit labour costs

Seasonally adjusted

Figure 3: Whole economy unit labour costs
Source: Office for National Statistics

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Manufacturing unit wage costs (Figure 4) increased by 0.6% in the second quarter and by 1.5% compared with a year earlier. As well as being a narrower 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 published proposals for replacing manufacturing unit wage costs with a broader and more consistently derived measure of manufacturing unit labour costs in an article 'Sectional unit labour costs' on 28 November 2012. It is our intention to replace the current series in future editions of this release, along with publication of additional ULCs below the whole economy level, subject to final quality assurance and testing of production processes.

New estimates are currently produced about a week after this Labour Productivity release and will be added to the release page when available. The previous component can be found at the following link (209 Kb Excel sheet) .

Figure 4: Manufacturing unit wage costs

Seasonally adjusted

Figure 4: Manufacturing unit wage costs
Source: Office for National Statistics

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More information on unit labour costs and unit wage costs is available in Table 2 in the  Reference Tables (150.5 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

Seasonally adjusted

Figure 5: Manufacturing output per job
Source: Office for National Statistics

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Figure 6: Manufacturing output per hour

Seasonally adjusted

Figure 6: Manufacturing output per hour
Source: Office for National Statistics

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Table B: Manufacturing labour productivity components

Seasonally adjusted

Output Productivity Jobs Productivity Hours
Per cent Change on quarter a year ago Change on previous quarter   Change on quarter a year ago Change on previous quarter   Change on quarter a year ago Change on previous quarter
2009 Q3 -10.5 -0.2 -6.8 -0.2 -7.0 -0.5
Q4 -4.7 1.3 -5.4 -0.3 -4.8 1.4
2010 Q1 2.1 0.9 -4.3 -1.8 -1.8 -2.8
Q2 4.0 2.0 -2.2 0.1 -0.8 1.1
Q3 5.5 1.2 -2.0 0.0 -0.2 0.1
Q4 5.1 0.8 -0.8 0.9 0.5 2.1
2011 Q1 4.4 0.2 1.2 0.2 3.2 -0.1
Q2 2.5 0.2 0.5 -0.6 -0.6 -2.7
Q3 0.9 -0.4 -0.3 -0.8 -1.1 -0.4
Q4 -0.4 -0.4 -1.6 -0.4 -3.4 -0.3
2012 Q1 -0.6 0.0 -0.9 0.9 -2.3 1.1
Q2 -2.2 -1.4 1.4 1.7 1.7 1.3
Q3 -1.5 0.4 2.9 0.7 3.5 1.4
Q4 -2.6 -1.6 3.0 -0.3 2.8 -1.0
2013 Q1 -2.7 0.0 0.8 -1.3 2.1 0.4
Q2 -0.4 0.9 -1.4 -0.5 0.9 0.1

Table source: Office for National Statistics

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More information on labour productivity of sub-divisions of the manufacturing sector is available in the  Reference Tables (152 Kb Excel sheet)  section of this release (Tables 3 and 4), 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.

Taking Q1 and Q2 together, Output per hour growth is stronger in Chemicals, Pharmaceuticals (divisions 20-21) after a very weak productivity performance in 2012 in these divisions and weaker in Machinery and equipment (division 28) after increasing in 2012.

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

Seasonally adjusted

Figure 7: Services output per job
Source: Office for National Statistics

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Figure 8: Services output per hour

Seasonally adjusted

Figure 8: Services output per hour
Source: Office for National Statistics

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Table C: Services labour productivity components

Seasonally adjusted

Output Productivity Jobs Productivity Hours
Per cent Change on quarter a year ago Change on previous quarter   Change on quarter a year ago Change on previous quarter   Change on quarter a year ago Change on previous quarter
2009 Q3 -3.6 0.1 -0.8 0.3 -1.5 -0.3
Q4 -1.9 0.2 -0.6 0.0 0.0 1.4
2010 Q1 0.0 0.3 -0.6 -0.1 -0.6 -1.9
Q2 1.0 0.4 1.0 0.8 0.9 1.7
Q3 1.4 0.5 1.3 0.6 1.3 0.1
Q4 0.9 -0.3 1.2 -0.1 0.2 0.3
2011 Q1 1.2 0.5 2.0 0.7 2.4 0.3
Q2 1.2 0.4 1.3 0.1 -0.3 -1.0
Q3 1.6 1.0 0.1 -0.6 0.3 0.7
Q4 2.0 0.0 0.4 0.2 0.6 0.6
2012 Q1 1.7 0.2 0.2 0.5 1.1 0.8
Q2 1.1 -0.1 0.8 0.7 2.7 0.6
Q3 1.1 0.9 1.9 0.5 3.3 1.3
Q4 0.9 -0.1 2.5 0.8 3.3 0.6
2013 Q1 1.3 0.6 1.8 -0.2 2.6 0.2
Q2 2.1 0.6 1.7 0.6 2.5 0.5

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More information on labour productivity of sections within the service sector is available in Tables 5 and 6 in the  Reference Tables (152 Kb Excel sheet)  section of this release, and in the tables at the end of the PDF version of this statistical bulletin. 

In general, the dispersion of labour productivity performance across the service sector is less pronounced than within manufacturing.  An exception is the fall in output per job in Real Estate Activities (section L) in the second quarter of 2013, principally reflecting a quarter on quarter increase in jobs in this sector of 9.4%, as output in this section has grown by 0.8%. Output per hour in this sector (a more robust measure of productivity) registered a smaller fall, reflecting a drop in average hours per job. 

Market sector labour productivity - experimental statistics

Figure 9 shows movements in labour productivity in the market sector compared with the equivalent series for the whole economy. On a year on year basis the two series have moved similarly in recent years. Between the trough of the recession in 2009Q3 and 2013Q2, output has increased by approximately 4 percentage points in the whole economy and 5 percentage points in the market sector. However, over this period hours worked in the market sector have increased by around 2 percentage points more than hours worked in the whole economy. Hours worked in the non-market sector have fallen by around 4 percentage points over this period.   

Figure 9: Market sector and whole economy output per hour

Seasonally adjusted

Figure 9: Market sector and whole economy output per hour
Source: Office for National Statistics

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Longer time series on market sector labour productivity are available in Table 7 in  Reference Tables  (152 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 (152 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 28 June 2013.

Since productivity jobs and hours are benchmarked to LFS totals which have not been revised, revisions to employee jobs affect only the distribution of labour input across industries, and not the whole economy estimates. All jobs series below the whole economy level have been revised due to the incorporation of Section T (activities of households as employers) into productivity jobs.  As jobs data are benchmarked to LFS total jobs, this will affect the distribution of all sections as section T is introduced into the whole economy figure.  As a result of the introduction of section T, historical figures have been re-seasonally adjusted to take into account revised figures. 

Revisions to productivity jobs (and hence output per job) are larger and more extensive than revisions to productivity hours (and output per hour) because Section T was already included in the productivity hours system.  For more information on coverage see the Introducing New Labour Productivity statistics publication. 

A research note on sources of revisions (145.4 Kb Pdf)  to labour productivity estimates is available on the ONS website.

Table D below 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 2005Q3 and 2010Q2, 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 (1.59 Mb Excel sheet) component of this release.

This revisions analysis shows that whole economy labour productivity growth estimates have tended to be revised down over time, by 0.1-0.2 percentage points (on a year-on-year basis), while unit labour cost growth estimates have tended to be revised up by 0.3-0.4 percentage points. Absolute revisions have been larger for unit labour costs than for productivity. Were the average revisions to apply to the current release, growth of output per hour in the year to the second quarter of 2013 would be revised down from -0.4% to -0.6% three years from now, and growth of unit labour costs would be revised up from 2.2% to 2.6% over the same period.

Table D: Revisions analysis

Whole economy

 
Revisions between first publication and estimates five years later (2005Q3 - 2010Q2)
Change on quarter a year ago Value in latest period (per cent) Average over 5 years (bias) Average over 5 years without regard to sign (average absolute revision)
Output per worker 0.5 -0.1 0.7
Output per job 0.5 -0.1 0.7
Output per hour -0.4 -0.2 0.5
Unit labour costs 2.2 0.4 1.0
Unit wage costs 1.9 0.3 0.9

Table source: Office for National Statistics

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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  (152 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 and hours by industry 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 employee and self-employed 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 the Labour Market Statistics release) 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. On 28 November 2012 ONS published Productivity Measures: Sectional Unit Labour Costs for new measures of unit labour costs below the whole economy level, including replacing the currently published series for manufacturing unit wage costs with a broader and more consistent measure of unit labour costs.

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 2010=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. Quality and Methodology

    A revised and updated Quality and Methodology Information 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.

  3. 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.

    ONS has recently developed new and improved measures of labour input as part of ongoing work to comply with EU regulations.  Specifically, these new measures provide an industry breakdown of employment (i.e. on a headcount basis rather than a job basis), and provide a split between employees and the self employed.  For methodological consistency, this work has also made some changes to the computation of corresponding hours series.  These series are currently available on the Eurostat website and ONS has published an article entitled Introducing New Labour Productivity Statistics which describes these new series.  

    Subject to user feedback, it is ONS's intention (i) to bring the estimates of productivity hours in this Release into line with the estimates provided under EU regulations and (ii) to replace the estimates of productivity jobs in this Release with new estimates of "productivity workers"; that is, to focus on a headcount distribution rather than a jobs distribution of labour. Both of these changes would have implications for the corresponding measures of labour productivity, which are set out in the Introducing New Labour Productivity Statis tics article.

  4. 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 used 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.

  5. User engagement

    ONS is keen to develop a greater understanding of the use made of productivity statistics and will be organising a Productivity Statistics User Group Workshop in early 2014. If you are interested in attending please email Productivity@ons.gsi.gov.uk.

    You can follow ONS on Twitter: www.twitter.com/statisticsons and Facebook: www.facebook.com/statisticsons and watch our videos at www.youtube.com/onsstats

  6. 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

Statistical contacts

Name Phone Department Email
John Allen +44 (0)1633 456086 ONS productivity@ons.gsi.gov.uk
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