This quarterly bulletin contains labour productivity statistics for the third 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 20 December 2013. Labour input measures are consistent with the latest Labour Market Statistics published on 18 December 2013. More information on sources used in this release is available in the Note on sources section below.
At the whole economy level output (gross value added – GVA) increased by 0.8% in the third quarter of 2013, while the Labour Force Survey (LFS) shows that the number of workers and jobs (which are closely correlated) both increased by 0.6% over this period, and the number of hours worked rose by 1.1%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 and output per job increased by 0.2% over this period, while UK output per hour decreased by 0.3%2.
Differences between growth of output per worker and output per job reflect changes in the ratio of jobs to workers. This ratio was unchanged in Q3. 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 third quarter of 2013 may be distorted by the impact on the economy of the Olympics and Paralympic Games in 2012 Q3.
Unit labour costs (ULCs) 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 costs3. Growth rates of these series can be decomposed as growth of labour costs (wages) per unit of labour input minus growth of labour productivity. With labour productivity decreasing by 0.2% on an output per hour basis in the third quarter, the 0.8% decrease in ULCs implies that labour costs per hour decreased by 1.0% across the economy as a whole. Labour costs in Q2 were boosted by bonus payments.
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.
Growth rates for jobs and hours differ slightly from growth rates based on LFS aggregate data due to different methods of seasonal adjustment.
Whole economy real (inflation adjusted) output rose in the third quarter at the same rate as in Q2, while growth of labour input measured by jobs, workers and hours worked accelerated. Labour productivity on an output per hour basis fell, reversing most of the increase seen in the previous quarter. Taking the first 3 quarters of 2013 together, the level of output per hour has been slightly lower than the average level in 2012 and around 2 percentage points lower than in 2011. The productivity trends in terms of output per job and output per worker have been steadier over this period.
Quarterly movements in unit labour costs are affected by the timing and magnitude of bonus payments. Taking the first 3 quarters of 2013 together, unit labour costs are around 1 percentage point higher than in 2012.
In the manufacturing sector, the recovery in output has lagged the broader economy. Manufacturing jobs have broadly tracked output, so output per job has been broadly flat during 2012 and 2013. However, the trend in hours worked in manufacturing has been rather stronger, so productivity on this broader measure has been weaker.
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 in 2011, but hours picked up significantly during 2012, and this was followed by faster growth in the number of jobs. Productivity therefore weakened in 2012, especially measured as output per hour. Taking the first 3 quarters of 2013 together, hours have grown faster than jobs; output per job is unchanged from the average level in 2012, and output per hour is around half a percentage point lower than in 2012.
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.
|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|
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 third quarter (a decrease of 0.8%) should be seen in the context of the substantial rise in the level of bonus payments made during April, due to timing changes, as explained in the ONS Economic Review of September 2013 which was reflected in a sharp increase in ULCs in Q2. On a year-on-year basis, whole economy ULCs increased by 1.3% in Q3.
Manufacturing unit wage costs (Figure 4) decreased by 0.3% in the third quarter and were 0.7% higher than 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 shortly after this Labour Productivity release and will be added to the release page in January. The previous component can be found at the following link (209 Kb Excel sheet) .
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.
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.
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.
There is a lot of variation in labour productivity across sub-divisions of manufacturing, much of which reflects variation in output. Taking the first 3 quarters of 2013 together, output per hour in the Transport equipment industry (divisions 29-30) was around 25% higher than in 2010, while output per hour in Chemicals & Pharmaceuticals (divisions 20-21) was some 16% lower than in 2010.
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.
|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|
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 Real Estate Activities (section L). However, output in this section is predominantly property services (including imputed rentals of owner-occupied dwellings) land the relationship between labour inputs and economic output is weaker than in other industries.
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 2013Q3, output has increased by approximately 6 percentage points in both the whole economy and 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 3 percentage points over this period.
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.
This section uses regional estimates of nominal GVA (NGVA) up to 2012, consistent with the regional GVA release on 11 December 2013. The estimates in Table 9 of 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 indicate the relative value of economic output per job and per hour across the NUTS1 regions, indexed to the UK=1001. In interpreting these statistics it should be borne in mind that they do not take account of price differences across regions (e.g. in housing costs) and should not therefore be interpreted as measures of relative living standards.
Regional NGVA estimates have been updated to 2012 and the historical estimates have been revised. Figure 10 shows that of the NUTS1 regions, only in London and the South East is NGVA per job above the UK average, although this is sufficient for England as a whole to be fractionally above average. By the same token, Wales and Northern Ireland exhibited the lowest NGVA per job in 2012.
A broadly similar pattern obtains for NGVA per hour (Figure 11). Differences between Figures 10 and 11 reflect differences in average hours worked across the regions. In 2012, average hours worked were highest in London and lowest in the South West and Wales.
ONS published experimental statistics on real (inflation adjusted) GVA by region (that are not constrained to UK totals) for the years 1998-2011 on 18 December 2013. For 2011, the distribution of productivity shown in Table 9 would generally be very similar using these real GVA estimates as the numerators.
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 27 September 2013. These are mainly due to upward revisions to GDP growth since 2012 Q1.
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 benchmarking of the employee component of productivity jobs to the Business Register Employment Survey. See this article for more information.
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 2005Q4 and 2010Q3, 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 0.2-0.3 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 third quarter of 2013 would be revised down from 0.1% to -0.2% three years from now, and growth of unit labour costs would be revised up from 1.3% to 1.7% over the same period.
|Revisions between first publication and estimates five years later (2005Q4 - 2010Q3)|
|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||0.7||-0.2||0.7|
|Output per job||0.5||-0.2||0.7|
|Output per hour||0.1||-0.3||0.5|
|Unit labour costs||1.3||0.4||1.0|
|Unit wage costs||1.2||0.3||0.8|
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 this would be reflected in apparent 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 HOUR03 estimates are derived by allocating all hours worked to the industry of main employment, whereas the productivity hours system takes account of hours worked in first and second jobs by industry.
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 describing new measures of unit labour costs below the whole economy level, and proposing to replace the currently published series for manufacturing unit wage costs with a broader and more consistent measure of unit labour costs. Work to incorporate these new estimates in this statistical bulletin is ongoing. In the interim period, the new estimates are published as a component of this release shortly after publication.
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.
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.
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.
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. ONS also intends to publish unit labour costs by section.
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.
Other data on productivity
ONS publishes International comparisons of labour productivity in levels and growth rates for the G7 countries.
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.
ONS is keen to develop a greater understanding of the use made of productivity statistics and will be holding a Productivity Statistics User Group Workshop on 28 January 2014. If you are interested in attending please email Productivity@ons.gsi.gov.uk.
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: firstname.lastname@example.org
|John Allen||+44 (0)1633 456086||ONSemail@example.com|