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October 2019

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The time has come to sharpen the focus on productivity

By | Uncategorised

By Dr Vicki Belt
Deputy Director
Enterprise Research Centre

Raising productivity is often cited as one of the UK’s most important economic challenges. On the surface of it, improving productivity sounds like a pretty straightforward idea to grasp. It’s about economies, workplaces and people being more efficient, increasing the volume of goods created in relation to the inputs used to produce them. But in practice, things are more complicated than that. Productivity is a term that is used and understood in multiple ways, varying depending on context. A mix of ideas also exist about how to best measure productivity and about exactly what needs to be done to improve productivity levels. But what do these multiple meanings and ideas mean for policymakers tasked with finding solutions to the UK’s productivity problem? Where should the priorities be? A joint event organised by the Enterprise Research Centre (ERC) and the Productivity Insights Network (PIN) brought together a group of researchers from different disciplines looking at productivity through different lenses to explore this crucial question.

Philip McCann, Co-Director of the PIN opened the workshop, using the lens of geography to examine the UK’s productivity problem. His presentation highlighted the marked productivity imbalances that exist in the UK, both between and within regions. These disparities are especially pronounced in the UK compared to other countries. Although there have been many attempts to theorise these patterns, their complexity means that they defy simple explanation. Philip argued that this fragmentation points to the need for more place-based productivity policies that are tailored to the needs of specific areas, rather than top-down, national productivity policies.

Nigel Driffield of Warwick Business School continued the discussion on the relationship between productivity and place, drawing on insights from his work on inward investment. Inward investment is highly important to the UK economy, and studying its impact on localities can shed light on the key ingredients of productivity growth. The presence of inward investors can lead to productivity improvements in local economies, but the mechanisms by which this happens are not straightforward. Much depends on the specific local context, particularly the types of firms that invest (e.g. sectors and job types/skill levels) and the linkages that are established with local firms and supply chains. To ensure positive impacts, policymakers need to carefully consider what sort of investment they want to attract and how they can ensure it becomes properly embedded in their local economies.

In the next presentation, Stephen Roper, Director of the ERC refocused the productivity lens from the local level to look inside the workplace, exploring employer perceptions of productivity.  Drawing on the findings from new research into understandings of productivity in six sectors, he drew attention to the ‘disconnect’ that exists between policymakers and employers on productivity. In most cases, employers interviewed in this study were likely to have narrow definitions of productivity associated with efficiency. In fact, productivity itself was a term that was rarely used spontaneously, and some interviewees declared it as virtually meaningless. This raises big questions about how resonant policy messages about productivity improvement are likely to be with employers. Is it possible to create a successful national narrative on productivity improvement when businesses do not have a shared understanding of what it is and how it applies to them? Would it be better to in fact to refocus the policy dialogue more clearly on how to ‘create value’ through people?

Temitope Akinremi, Research Fellow at the ERC provided further evidence on employer understandings of productivity in her presentation looking at productivity improvement practices in the metal industry. Interviews with employers in this sector show that again productivity is often defined in simple terms, typically linked to the efficiency and profitability of production, making cost savings and ensuring minimal human intervention in the production of outputs, with only a minority measuring value added per employee or per hour. Even within this specific, relatively small sector there are a diversity of productivity-related measurement practices in place, and a lack of consensus on exactly which measures should be used. Temitope argued that there is a strong case for an agreed industry-focused measurement to help raise productivity in this sector.

Katy Jones of Manchester Metropolitan University continued this more fine-grained focus on individual understandings of productivity, drawing on her research with employers in low paid work in the service sector. Amongst these employers it was notable that employer understandings of productivity were not all focused on efficiency related measures. Instead, different dimensions come into play, recognising the central importance of employee motivation in these jobs, with customer satisfaction and employee engagement, skills and training taking on more significance in considerations of productivity.

The panel discussion that followed picked up on a range of issues, but a central concern was the implications that the complexity of productivity definitions and theories brings for policymakers and practitioners. As one delegate pointed out, as more and more data has become available on productivity, it feels like we understand less and less about it. This causes confusion about what action is needed to improve it. One delegate questioned whether we should abandon use of the term productivity completely given the lack of transparency that surrounds it.

What was agreed though is that the productivity problem is clearly not straightforward. If we are to have a chance of tackling it, we need to look beyond the headline statistics and trends. We need to avoid the temptation to over-simplify. We need to work hard to understand properly what productivity means to people in different contexts, precisely where their specific challenges lie, and recognise that a one-size-fits all approach to productivity policy will not work. We also need to encourage employers and policymakers to think beyond productivity as being all about efficiency and cost savings, but also about adding value through human creativity and innovation. In short, it is time to sharpen our focus on productivity.

View all of the workshop presentations here.