This short video looks at why labour productivity is important, how it’s measured, and the latest statistics for it in the UK.
Labour Productivity measures the amount of economic output that’s produced by a unit of labour input. In other words, it shows how effectively each hour worked is used to generate goods and services. It doesn’t just mean how capable workers are or how intense their effort is, it largely depends on other things, such as the amount of capital available to each worker, and the development of new technology.
When we talk about output, what we mean is gross value added or GVA. GVA means the total value of goods and services produced, minus the value of goods and services used to produce them. We then remove the effects of price inflation, leaving us with our economic output, or GVA.
Labour input can be measured in different ways; usually, either by hours, workers or jobs. Here at ONS, we prefer to use hours, as it takes changes in working patterns into account, such as people who work part time, or workers who have more than one job.
Labour productivity is closely related to living standards, and economic theory suggests that in the long term, living standards cannot grow faster than productivity
The Labour productivity figures produced by ONS are used by a wide variety of researchers in government, industry, universities and banks across the world.
Historically, output per hour has increased at a fairly stable rate, but after the 2008 economic downturn, it broke from its previous trend.
Let’s take a closer look at what’s happened since the downturn. We can see that after a steep fall to 2009, productivity growth has remained weak and still stands 4.3 percentage points below its pre downturn peak.
Comparisons of productivity with some of the UK’s main competitors show that the level of output per hour productivity in the UK in two thousand and twelve was more than thirty percentage points below that for Germany, France or the USA.
As well as the level of productivity being lower for the UK, productivity growth has been lower than any other member of the G7 since 2007.
Let’s put the effect of the 2008 downturn on productivity into perspective. When we compare productivity after the last four economic downturns, we can see that over the current downturn, productivity still hasn’t reached its pre-downturn peak after 23 quarters. Previously the maximum number of quarters was 5. This has given rise to what economists call the productivity conundrum.
Output per hour from two thousand and eight shows that recent growth in hours has been strong and the level has exceeded its pre-downturn peak. But output, whilst showing a recent positive trend, has not matched growth in hours over this period; this has resulted in productivity remaining more than 4 percentage points below its 2008 level.
Productivity is key to the economic recovery, as increases in productivity lead to real wage increases, which increase household income and consumer spending. All of these factors combined would lead to overall growth in the economy.
This concludes the video. Thanks for listening. If you want to know more about productivity outputs at ONS, click on any of the links to take you to even more summary videos.