Getting rich slowly: how to achieve sustainable earnings growth

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By Jonathan Boys
Labour Market Economist at the CIPD

Compound interest is the eighth wonder of the world. He who understands it earns it… he who doesn’t… pays it.

Albert Einstein

The latest labour market statistics from the ONS show that annual growth in average weekly earnings for employees in Great Britain increased by 4.0%. After adjusting for the increase in prices this comes down to 2.1%. It’s positive which is more than can be said for much of the post-crash era (see chart) but will it be sustained? And is 2.1% too trivial and amount to get excited about?

FIGURE 1: Total pay (real) annual growth since Jan-Mar 2001

Source: ONS: Average weekly earnings in Great Britain: September 2019

The rule of 70: or why compound interest is the eighth wonder of the world

Grabbing the odd year of positive earnings growth is good but what we need is sustained growth. This is when the magic of compound interest kicks in. If like me, you’ve forgotten the compound interest formula since GCSE or simply can’t calculate logarithms in your head then there is a nifty shortcut, the rule of 70. To estimate how long an initial quantity will take to double you take 70 and divide it by the rate of growth. So, if real earnings were growing at the current 2% it would take approximately 70/2 = 35 years for them to double. In the grand scheme of things, that’s not a very high growth rate and that’s not a very long time. The rule of 70 applies to growth, be it in pay, investments, GDP, or productivity. It’s the reason you are advised to start saving for a pension early, and the reason the communist party of China set such ambitious growth targets.

It’s also the reason that the last 10 years of poor earnings growth is so worrying. Small but steady rates of growth make a country prosperous. As the chart above demonstrates the post-crash experience averages out around zero which is why it is often referred to as a lost decade of pay growth. This challenges the idea that liberal democracies are a successful in generating widespread prosperity and that each successive generation will be better off than the last. It is popularly linked to the Brexit vote and polarisation of politics. It’s why the FT are asking Does capitalism need saving from itself?

Sustaining pay growth

The compound interest formula assumes a constant growth rate across the time period. This is may not be the case for pay going forward. The reason why we are so excited by a 4% nominal pay rise is because of just how rare an occurrence it is. The BBC reported that it was the highest rate since mid-2008. What we need is sustained pay growth. The current (and welcome) 2.1% real pay is due to a tight labour market and not an increase in employer’s ability to pay more. Record high employment/low unemployment are driving up wages as employers compete for workers.

To consistently pay more business will need to improve productivity. On this the most recent figures have been less positive than pay which ultimately means that pay growth is unlikely to be sustained. The important part of Paul Krugman’s overused statement that “Productivity isn’t everything, but, in the long run, it is almost everything” is the long run bit. The positive is that we have demonstrated that modest rates of growth can deliver big gains in the long run.

There are ample gains to be had on the productivity front. Productivity is not really a thing itself. It’s what happens when everything else is done right. When efficient transport networks make living and working in cities possible and when people are managed properly. The sum of a diverse range of good policy measures could add up to the modest change needed to kick start productivity growth and sustainable earnings growth.

Workplace focus

Of interest to us at the CIPD is the growing prevalence of workplace-based research and initiatives to tackle the productivity challenge. Workplace initiatives are attractive as they are more immediate and lower cost than things like skills and infrastructure. Our own People Skills programme launched in Birmingham to offer free HR support to small firms through consultancy. It is accompanied by a free online resource the People Skills Hub which contains essential HR and people management resources for small businesses.

Earnings are growing but let’s make sure that continues by focusing on productivity.


Post script – checking the rule of 70

When Fry was cryogenically frozen in futurama, the 93 cents in his account turned into $4.3 billion when he woke up 1000 years later. This is what can happen when you make time for compounding. For the purists we can check the rule of 70 using the simple compound interest formula on a more modest time scale.

  • P = Principal = 10
  • V = Value = 2P = 20
  • r = interest rate = 0.02 (2%)
  • t = number of years = ?

Using the rule of 70 it will take 70/2=35 years for the principal amount of £10 to double to £20.

Using the simple compound interest formula assuming discrete time and compounding once a year:

V = P(1 + r)t

To find t rearrange the following

20 = 10(1 + 0.02)t

2 = (1.02)t

t = log1.02 2 = 35.00


Factory (food manufacture) scene

Let’s talk productivity

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We have recently completed a Pioneer Project: “Unpicking the productivity narrative in manufacturing organisations”, a collaboration between The Universities of Strathclyde, Aston, York and Bristol.  The project was funded by the UK’s Economic and Social Research Council (ESRC) through the Productivity Insights Network (Reference ES/R007810/1), and set out to investigate if, and how, productivity is being talked about by workers in UK manufacturing companies.

We spoke to 40 employees from 19 UK manufacturing companies involved in the food & drink, aerospace, automotive and pharmaceutical sectors about their experiences of productivity, including how it was perceived and assessed, and the factors driving, constraining and enabling it.  We also talked to them about future challenges facing their organisations, the support they thought would help, and whether or not they felt a productivity problem existed.  We engaged throughout the project with stakeholders from industry, academia and the public sector including Make UK, Be The Business, CBI, EY, Scottish Life Sciences Association (SLA), Scottish Enterprise, Scottish Manufacturing Advisory Service (SMAS), Industry Strategy Council, The Scottish Council for Development and Industry (SCDI) and the Institute of Engineering and Technology (IET), sharing our thoughts and findings via presentations, social media, articles, blogs and academic conferences.

The findings contribute to the productivity puzzle debate by providing a much-needed real-life, company-level perspective about how productivity is perceived, discussed and experienced within UK manufacturing, and reveal a more complex picture than high-level statistics would indicate.  The key findings are as follows.

The productivity narrative within companies is diverse but overall we found a focus on efficiency rather than productivity.

Productivity comes in all shapes and sizes! How productivity is described varies within and across companies, as well as between companies and Government. The term productivity isn’t always used, and even where it is evident, there is little consensus except for being synonymous with metrics and/or efficiency. We also identified four different productivity narratives: (i) volume and output, (ii) meeting predetermined targets, (iii) efficiency and cost savings; and (iv) increasing output and value. However, conversations were dominated by a focus on efficiency and reducing inputs, with very little said about increasing business output and adding value – something that may have negative implications in the long term. Perhaps, this focus is unsurprising given that many of the companies have been through process improvement and cost cutting activities in recent years. However, whilst efficiency and productivity are related, they are not the same and, as we found out in this project, are often confused. More definitional alignment is required if policy makers are to use the correct levers to improve productivity.

There are a number of issues relating to productivity measurement, which have implications about comparability and consistency.

Common measures are in short supply. How productivity is assessed varies within companies, across companies, and between companies and Government.  Regional, national and sector reports using different productivity measures adds to the confusion. While earlier research has suggested that certain sectors are more productive than others, we would argue that it is not as simple as this and that we need to be careful drawing comparisons, and recognise that companies within sectors can vary hugely in the nature of their operations. This includes those involved in High Value Manufacturing (HVM), where companies compete on the basis of innovation, quality and brand, often leading to lower volume production but higher margins. Finally, there is also a wider issue of using labour productivity as a measure when looking at “the new economy” where apps and algorithms are adding value with very little direct labour. Such inconsistencies do not help with having a transparent conversation around productivity, nor in aligning the macro/micro measurements, therefore care needs to be taken with measurement and comparability. Further, a focus on productivity is not necessary helpful at the company level particularly if this creates an overt focus on what can be measured rather than what should.

There are a number of commonalities across companies and sectors about the factors that influence productivity.

There is a lot of agreement about the factors that enable and constrain productivity. Product and process design, the planning process, productivity culture, and good management are viewed as having a positive impact on productivity. On the other hand, slow legacy systems, large company size, many regulations about health and safety, slow changing organisations, customers changing requirements, waste within processes and bureaucracy are identified as productivity constraints. Whilst interventions and support can help address some of these, others are less easy to tackle.

The perception of a productivity problem is not widespread among respondents but there are recognised issues at the company and UK level. 

It is fair to say that the productivity headlines in the media do not resonate with many of the people we spoke to. The notion of a productivity problem is not very evident. However, some UK-level issues are mentioned (rising costs, remaining competitive, retaining manufacturing capabilities and workplace culture) as well as some company-related problems (automation and technology, skills, company culture, workforce engagement and company structural changes). We can see evidence of some of these being addressed by, for example, the Industrial Strategy and regional and sector support. However, issues around ownership, company structure and culture are less easy to address through intervention.

Our investigation found that the narratives around productivity within manufacturing companies are not necessarily comparable to those of the economists and politicians. The prevalent focus on efficiency and cost savings within companies, rather than adding value through innovation, is concerning and has implications for longer term sustainability including the locational stickiness of larger, foreign-owned companies. However, there are opportunities to promote a common understanding and language; create new ways of measuring and creating alignment; encourage a focus on innovation and value- added for the long term; and question the appropriateness of labour productivity in the new economy.

The economists might argue that “productivity isn’t everything, but, in the long run, it is almost everything” (Krugman, 1994). However, what we would not want to see is companies becoming too focused on productivity (or the wrong aspects of it) at the expense of looking to the longer term and investing in the future.

Pioneer Project team:
Professor Jillian MacBryde (University of Strathclyde)
Dr. Helen Mullen (University of Strathclyde)
Professor Peter Ball (University of York)
Professor Palie Smart (University of Bristol)
Professor Ben Clegg (Aston University)
Dr. Stella Despoudi (Aston University)
Dr. Donato Masi (Aston University)


Thoughts on the PIN special sessions in Cambridge

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By Dr Neha Prashar
Research Fellow, Enterprise Research Centre

I was very much delighted to be invited to attend a special session hosted by PIN as part of the Regional Science Association International – British and Irish Section (RSAI-BIS) 47th Annual conference, held at Downing College, University of Cambridge. The morning kicked off with a welcome from Professor Philip McCann (University of Sheffield), introducing the PIN team and highlighting the current and upcoming project calls before leading onto a day of productivity related sessions. For full findings from many of the projects outlined below, head over to the PIN publications page. By clicking on the title of each presentation below, you will be able to download their slide deck. Videos from the presentations are also linked to throughout.

The morning session focused on the theme of “Productivity, Inclusive Growth and Wellbeing”, where the first presenter, Dr Joanna Yarker (Affinity Health at Work), explained her fascinating work (with Professor Karina Nielsen and Hannah Evans) on “Returning to and thriving at work following mental ill-health absence.” Mental health is often stigmatised in the work culture and the project’s findings show that there is a need for multi-level interventions to enable successful worker integration back into employment from managers, colleagues and firm policy that would allow greater flexibility for worker’s with mental health issues. This includes potentially tailoring the help needed on an individual basis, which could be difficult to implement in smaller firms where resources may not be readily available, however the benefit of doing so could save nearly £5.2bn lost from sick days taken due to stress.

This presentation was followed by a crucial evaluation undertaken by Professor Anne Green (University of Birmingham, with Carol Stanfield and George Bramley) on the long-term impact of the “UK Futures Programme”; a £9 million programme to boost productivity, which ran between 2014-16 before it was abruptly finished when the UK commission for Employment and Skills (UKCES) shut down. The programme aimed to support employer collaborative solutions to the workforce development problems that were innovative. Results from the evaluation showed that the programme did add value to businesses through engaging with projects and activities, which would not have occurred otherwise. Some businesses actually went on after funding stopped to secure further funding to either carry on the programme or start others. The added benefit of cross-sector learning proved that the programme had a mostly positive impact all round – a result that would not have been known without this long-term analysis by Professor Green and her co-authors.

The session ended on the important concept of wellbeing and inclusive productivity growth, delivered by Professor Leaza McSorley (University of Sunderland) who begs the question “Why has productivity been so low since the recession and also long-term when compared with other countries, such as, France, Germany and the US?” We know productivity is a regional problem when looking at the UK and there is a clear correlation between well-being and productivity. Professor McSorley rightly argues that looking at inclusive productivity growth, rather than just productivity growth, is fundamental to the development of the economy and investment into quality childcare and “soft” infrastructure can increase well-being which could, in turn, increase productivity. This notion of “soft” infrastructure should be “essential” as they underpin long-term productivity in the UK. This insightful presentation ended the morning session on an essential point that it is not just about focusing on one indicator of growth but rather a battery of indicators and how it all fits together.

After a short break, the next session, “Regional Productivity Policy” focused on productivity differences across the UK and started with Ben Gardiner (Cambridge Econometrics) presenting a report compiled on performance, productivity, sectors and resilience among businesses for Core Cities UK, which accounts for around 25% of growth in the UK. Their interesting results found significant differences in productivity using a variety of metrics, and as suspected, London is doing significantly better than the other core cities. Ben’s presentation called for governments to focus industrial strategy on building better infrastructure to connect the core cities and pull resources beyond the M25.

Paul Swinney (Centre for Cities) followed on from Ben’s presentation, highlighting the disparities we see even within a single company. Distribution centres which require low skilled labour, tend to be in the north of the country while the headquarters would be in the south so why is this the case? Paul explains that this is because of the relative attributes’ cities have to offer. The south has more knowledge and high-skilled workers but is high in cost while the north have low-skilled workers but it is low cost and so it makes sense for businesses to set up in this way to be cost efficient. The key focus for national and local strategy should be to try and reverse this pattern and try and get businesses to locate outside of high-skilled areas. This is a problematic task that needs more attention in policy in order to close the North-South divide. The middle section of the day ended on an insightful presentation by Dr Nicola Headlam discussing the Northern Powerhouse. Nicola discussed the success and potential improvements needed to be made in and by the Northern Powerhouse in order to create an atmosphere to breed highly productive and successful firms in the North of England.

In the afternoon, Dr Tom Forth (ODI Leeds) gave an excellent presentation on “How big data, open algorithms, new institutions are improving the UK’s productivity policy.” Tom explained in detail his project on looking at the impact of bad infrastructure on productivity, focusing on commute time vs scheduled times of Birmingham buses and how big data can shape future investments into infrastructure. An interesting project where the major infrastructure differences between cities in the UK vs the rest of Europe is highlighted. Policy aimed towards improving infrastructure within cities is key to increasing productivity in all part of the UK but particularly in the North. The following panel discussion with Professor Iain Docherty (University of Stirling), Tom Forth and Emma Fletcher (SmithsonHill) further underlined the importance of accurate and available data needed to undertake important analysis. A move away from a centralised government to give local government more autonomy on where to spend their money could help in building better infrastructure.

The final session of the day focused on “Measurement and new approaches”, beginning with Dr Stef Garasto (Nesta) discussing the topics of skills mismatch and job accessibility. Using a variety of different data sources, Stef looked at the gap between skill demands and skill supply in different regions of the UK, as well as, a range of job accessibility measures focusing on the West Midlands Combined Authority (WMCA) area. Stef’s results suggest that larger areas show a greater diversity of skill supply and certain areas of WMCA are more accessible than others. However, this is with some caution as issues can arise depending on which measurement of skills mismatch or job accessibility is used. Stef highlights that it is important to move to absolute indicators of skill demand and supply to produce more robust and accurate measures.

Elena Magrini (Centre for Cities) followed on with her presentation on “Regional variations in skills and training – what they mean for places” and focused on the importance of skills as a factor in determining economic outcomes for people and places. Elena’s presentation reiterated findings from her colleague Paul Swinney’s earlier presentation – the classic chicken and egg problem -that areas with a higher concentration of low-skilled workers will attracted low-skilled jobs. However, Elena also pinpointed the importance of education, both in schools and adult training, in contributing to this cycle. By providing quality education that prepares young people for the labour market, provide adequate training for current workers and re-training for workers whose jobs are at high risk of disappearing in the future, you can break the low-skilled equilibrium and increase productivity in these areas.

To end the session, Dimitri Zenghelis (University of Cambridge) discussed the importance of correctly measuring elements of “The wealth economy.” Initially, focusing on natural and social capital but eventually have a comprehensive framework that improves the quality of metrics used to advise policy and have a better understanding of quality of life through statistics other than annual income. This fascinating project rightly puts into question the accuracy of current measures of growth and wealth with analysis, thus far, showing that trust is fundamental to economic wellbeing and economic growth and should be one of many factors considered when steering policy.

Overall, the Cambridge special sessions displayed crucial presentations and projects that I personally hope will shape future UK policies and programmes. In particular, the use of big data cannot be emphasised enough in understanding regional divides in productivity and not only helps to shape future policy but also help in improving and creating key metrics that are more accurate to current times.


Blurry image of workers

Distorting Local Productivity Data? Reflections on Fothergill and Beatty

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By Maria Abreu (University of Cambridge) and Tim Vorley (University of Sheffield)

The existence of significant regional variations in productivity in the UK has become so established in academic and political debate it is taken as received wisdom, and so the publication of a report by Steve Fothergill and Christina Beatty (available here) that challenges this wisdom has understandably drawn wide interest. Over the past 18 months Productivity Insights Network has been working with BEIS and HM Treasury, as well as funding research, to rethink the productivity puzzle. A central aspect of our programme of work is the acute geographical nature of the productivity challenge faced by the UK. So Fothergill and Beatty’s somewhat controversial argument certainly merits greater scrutiny and review. Indeed it is increasingly evident that the answer to the productivity puzzle is not in the data, but reframing how the puzzle is understood.

In many senses more than a politically interesting (re)reading of the data, the report falls into the same trap as Chris Giles’s commentary piece on Britain’s Regional Divide – that is to say that the realities are more complex than presented. There is an issue with the way that the report draws on different geographical scales, including Local Enterprise Partnerships (LEPs) and NUTS 2 regions, which cannot reasonably be taken as comparable. Moreover, while the LEPs may be an appropriate unit of analysis for local political decision-making, they are not necessarily appropriate for understanding productivity variations, as some LEPs encompass very diverse areas (the Cambridge and Peterborough LEP being an obvious example). Arguably the report could have compared NUTS 2 regions across the whole of the UK, rather than relying on the LEPs in England, although this may have yielded different conclusions.

The perennial question of which productivity measure to use is also relevant in this report, although not discussed in detail. It is somewhat puzzling that Fothergill and Beatty start from GVA per worker, and then adjust for the distorting effects of demography, hours worked, and commuting patterns, instead of simply using GVA per hour worked, which is also the internationally-recognised best practice measure for productivity analysis. The use of GVA per hour worked would have obviated the need to control for age of the workforce, commuting, and other factors. The focus on commuting is also peculiar given that the key question in productivity policy is the workplace, rather than the residential location of workers.

The findings presented on the report were also peculiar in their focus on removing, rather than explaining, local sectoral composition. It is a long-standing and accepted approach of those engaged in productivity research to understand the differential contribution of different sectors to overall productivity growth. In much of the analysis contributing to the long awaited BEIS Productivity Review, comparisons across sectors are key. A disentangling of the reasons for the sectoral variations across regions, for instance, by comparing productivity in the same sector across regions, would have been helpful.

Related to this, it is puzzling to see a decision to capture the effective productivity of London workers, with the sectoral and occupational specialisation removed via a shift-share analysis. London is more productive precisely because it has a comparative advantage in specific high productivity occupations and sectors, that are located in London in order to benefit from significant agglomeration externalities. Relocating them to other parts of the UK, and expecting to observe the same productivity outcomes, is not a realistic prospect. It is worth noting, however, that other large cities outside of London do suffer from weak agglomeration externalities, and are underperforming relative to what we would expect (or punching below their weight)!

The Productivity Insights Network is all about challenging and changing the tone of the debate, however, this needs to be done in a robust and rigorous manner. The provocations from Fothergill and Beatty have generated media interest, although their conclusions appear to have confused rather than advanced the regional productivity debate. As opposed to spurious reinterpretations of productivity data, the emphasis needs to focus on solving the regional productivity puzzle. Better data at the regional level, particularly on regional price differentials, would help in addressing this gap. More than a market failure, flatlining and regressing productivity figures are better understood as a systems failure that needs to be addresses as such (see systems blog).  There is a need for new insights on how (sub)systems working nationally and regionally can be strengthened to improve UK productivity and reduce the regional inequality that has come to characterise the UK.

Solving the productivity puzzle: What is needed to support workers with common mental disorders stay at work and be productive after long-term sickness absence?

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By Karina Nielsen, Chair of Work Psychology, Director of Institute for Work Psychology, University of Sheffield

The University of Sheffield and the research-based consultancy Affinity Health at Work was in 2018 awarded one of four pioneer grants to answer the main research question of:

What are the resources that help workers with common mental disorders stay  and be productive after return to work?

What’s the problem?

Sustainable return to work for workers with common mental disorders (CMDs), such as stress, anxiety and depression, presents a major societal challenge in terms of scale and costs. In the UK alone, stress, anxiety or depression accounts for 44% of all ill-health related cases and 57% of all working days lost to ill-health in 2017-2018 (HSE, 2018). In total, 595,000 workers suffered from anxiety, stress or depression (new or long-standing) in 2017/2018 (HSE, 2018). Furthermore, according to the Labour Force Survey (LFS), 15.4 million days were lost due to work-related stress, anxiety or depression in 2017/2018. Recurrent sick leave is prevalent and 69% of workers with CMDs report that they accomplish less than they would like to (OECD, 2012). There is an urgent need to better understand how employees can be better supported to return to, and stay in, productive work.

What did we do?

We interviewed 38 workers who suffered CMDs and had recently returned to work after long-term sickness absence and 20 line managers who had experience managing workers with CMDs and their reintegration into the workplace. We interviewed some workers and line managers several times to understand how the need for support change over time. Based on our research, we developed a set of recommendations for what can be done to support returned workers be productive after they return.

How can returned workers be supported?

We developed recommendations for what individuals can do themselves, what their colleagues friends and family can do, what their line manager can do and what the organisation and Human Resource departments can do.

 Recommendations for returned workers

• Listen to yourself and your body: Do not lose a focus on the things outside work that enable you to build your personal resources such a healthy eating and exercise.

• Set clear boundaries between work and leisure time: Do not read emails or take the laptop home with you. If you find this difficult, schedule in time to relax, socialize or exercise.

• Structure your work day: If your work day does not have a clear structure, create your own structure, break assignments and projects into smaller tasks and set clear goals.

Recommendations for groups

• Treat returning colleagues as you did before they went on sick leave.

• Let returned colleagues know that you are willing to help and you are there if they need help with their work, but do not insist.

• Continue to provide support in the long-term. Returned employees may take weeks or months before they are able to resume full duties.

• As a family member or friend, be available, but do not be judgemental.

Recommendations for leaders

• Agree with the worker at an early stage in their sickness absence period what needs to be communicated to colleagues, HR, occupational health and others. Do not disclose information agreed with the worker, even after return.

• Continue to follow up on workers’ health and work adjustments, even after the immediate return to work. It may be important to remind workers of agreed work adjustments.

• After critical periods, make sure you follow up and signal that you are available and can help and support.

• Make sure you are familiar with the sickness absence and flexible working policies, are aware of where to find further information and support within your organisation, and facilitate the employee in using these policies to support their return.

Recommendations for organisations: HR

• Allow for work adjustments and support and ensure that these are readjusted on an ongoing basis, if necessary.

• Allow for flexible work, be ready to extend part-time working if needed, and authorise work from home where possible.

• Be flexible in applying the flexible leave policy allowing workers to take holiday or unpaid leave at short notice, this may prevent relapse.

• Allow for accommodating absence policies to support the fluctuating nature of CMDs.

• Facilitate discussions between line managers and returned workers.

Click on the image below for the full report. 

Being an early career researcher within the Productivity Insights Network

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By Dr Daniel Kopasker (University of Aberdeen)

The Productivity Insights Network conference demonstrated the network’s substantial contribution to the productivity debate in the UK. It was also clear that many aspects of the productivity debate will continue for some time. PIN is committed to continuing to advance the debate and one element of this is to support the development early career researchers (ECR) and their research projects.

Two ECR events, led by Professor Leaza McSorley and supported by the Economic and Social Research Council, have been hosted by PIN so far. The first ‘sandpit’ event helped develop research proposals with researchers from various disciplines. The second, a grant writing workshop, was designed to ensure that research ideas were communicated in a way which would maximise the chances of acquiring funding. This incremental approach to the development of ECRs has already benefited several researchers, and with more ECR events planned in the future, PIN will continue to provide valuable insights to support ECRs. Researchers can join the PIN mailing list to hear of opportunities to join the network.

Early career researchers often have a wealth of ideas for future projects. However, these can lack awareness of where a project fits in current debates, how to engage with non-academic partners to generate meaningful impact, and how to improve the chances of these nascent ideas being funded. Finding what funders look for and how to achieve this can be a long, and sometimes uncomfortable, process in the early stages of a career in research. The PIN ECR events provide an open forum to make progress in this area by learning from experienced researchers. One notable feature of the PIN ECR events has been the opportunity to receive advice and feedback on proposals from people with a wealth of experience. This includes individuals from the ESRC, OECD, in addition to the senior researchers who are part of PIN.

Two things were consistently mentioned: the increasing preference for genuine interdisciplinarity in research, and the importance of meaningful impact by involving non-academic partners. Many ECRs already know these things, since they often appear within funding calls. However, fewer know how to deliver and, most importantly for our careers, convince a funding body that these things will be delivered. Forming non-academic partnerships and writing persuasive research proposals are skills. Throughout the project to date, PIN has done both things well. During ECR events, insights gained from this success were shared. For example, the importance of understanding the context within which non-academic partners operate and their incentives for engaging with research. ECRs were also given guidance on identifying where our research sits within the productivity debate and which organisations may be open to engaging with academic research in this area.

The PIN events brought together ECRs from various disciplines to discuss and develop research proposals. Such interdisciplinary perspectives were enlightening, as were the challenges of finding a common language to discuss a productivity-related issue. Some innovative proposals emerged from these discussions and it will be interesting to see how they progress.

Several projects were awarded seed funding to use the knowledge gained from discussions to attempt to strengthen research proposals. This was particularly helpful for me. As James Lloyd has suggested, finding non-academic allies for your research is a caffeine-intensive task. However, as an ECR based beyond the immediate vicinity of many within the policymaking community, it can be difficult to find funds to make a journey to London ‘for a coffee’. Despite this, face-to-face meetings can be the best option, especially when looking to build relationships and understand different viewpoints. The seed funding provided by PIN enabled me to travel from Scotland to meet with organisations relevant to my research on affecting the channel between mental health and productivity. As a result, these organisations have become partners on the project and their interests have been incorporated within the proposal, something which may not have happened without this relatively small amount of funding from PIN. This engagement with non-academic users of research has strengthened the research proposal. Furthermore, the mentoring providing by PIN at the ECR events enhanced many aspects of my grants writing skills.

Acquiring research funding is a key stage during the transition to becoming an independent researcher, but this is often a process of trial and error. The skills acquired from my participation in PIN will have, hopefully, increased my chances of success.

Are Britain’s Regional Divides Large or Small? A Response to Chris Giles

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Philip McCann1
University of Sheffield
16 May 2019

There are major problems with Chris Giles’ piece “Britain’s Regional Divide is Smaller than it First Appears”, Financial Times 9 May 2019.2

Chris Giles states that the evidence on regional inequality is much more complicated than often presented and he proceeds to argue that the UK regional inequality measures are somewhat distorted or even illusory due to “…the unique way the UK defines its administrative boundaries for international comparisons…”. He then compares London, Reading, Milton Keynes and the Wirral – and on this basis suggests that the gap between the highest and lowest urban areas in the UK is largely typical of other countries. He also compares Camden and The City of London with Torbay to argue that household income is a better and more equal measure of regional differences than GDP per capita. On this measure UK interregional inequality is much lower than for GDP per capita.

Yet, many aspects of Chris Giles’ argument are simply not correct. There is nothing ‘unique’ about how the UK defines its administrative borders; all countries display such idiosyncrasies. This is why it is essential to ensure comparability as far as possible when comparing different countries – exactly what the OECD data are designed to facilitate within individual classification or definitional schemes.

Chris Giles also jumps around between different spatial classification types, namely OECD-TL2 areas, OECD-TL3 areas, and OECD Functional Urban Area definitions. These spatial units cannot be compared in such a manner.

Finally, regional variations in household income will always be lower than regional variations in GDP per capita, so this observation tells nothing new. Household income and per capita GDP are measures designed to tell us different things. While Chris Giles may prefer the former most economists working in the fields or urban and regional economics and economic geography consider the latter to be a much better measure of regional productivity and prosperity, the proper focus for regional policy.

Once we compare like-with-like across 30 countries and for 28 different measures of interregional inequality, amongst the advanced economies which the UK considers as its peer group, the UK emerges as the most unbalanced and unequal country across the largest range of indicators, including disposable income.3 Indeed, apart from five countries at much earlier stages of development, namely Chile, Mexico, Turkey, Bulgaria and Romania, the only OECD or EU country which is more interregionally unbalanced than the UK is Slovakia. As such, the argument that UK interregional inequalities are typical of other countries is simply not correct.

In order to understand the degree to which the UK is interregionally unequal three further observations are very useful.

(a) Immediately after reunification in 1990 Germany was, not surprisingly, the most interregionally unequal advanced OECD economy. However, over three decades Germany has become more interregionally equal, while the UK has become more interregionally unequal. In terms of the ratio of the top 10% over the bottom 10% of GDP per worker levels, the UK became more interregionally unequal than Germany in 2008 and the same is true in terms of the top 20% over the bottom 20%. In terms of the top 10% over the bottom 75% of GDP per worker values, the UK became more interregionally unequal than Germany in 2004. The result of these trends is that today almost half of the UK population live in regions whose productivity (the best proxy for economic prosperity) is no better than the poorer parts of the former East Germany.

(b) Close to half of the UK population today live in regions which are poorer than the poorest US states of West Virginia and Mississippi (McCann 2016) – places which are often the focus of UK journalists aiming to articulate why people vote for President Trump.

(c) Out of the 179 NUTS3 areas within the UK, 159 areas have productivity levels below the UK average.4

Chris Giles has also tweeted5 on the subject “It’s rarely wise to rail against the conventional wisdom on regional divides in Britain. But look at some facts people…”.

This argument is also incorrect.

The longstanding conventional wisdom in the UK, and especially in many of the central institutions and think-tanks, has been that UK interregional inequality is not really important or significant in any way. The recognition that Chris Giles refers to on the part of some politicians and some economists actually represents a very recent, and still very incomplete, shift in thinking. Indeed, the conventional wisdom in many high-level circles is still that UK interregional inequality is still not a major issue. In this context the arguments put forward by Sir Angus Deaton this last week at the launch of new IFS enquiry into inequality were especially pertinent, highlighting the fact that many different indicators of UK inequality are evident interregionally.6

Chris Giles further contributes to the confusion by arguing that “There is no doubt that place has become a serious UK faultline, dividing north from south, urban from rural and cities from towns”. Yet, a careful reading of the OECD, Eurostat and ONS data7 shows that much of this recent conventional wisdom is also incorrect in that within the UK there are few, if any, major gaps in prosperity between urban and rural areas, or between cities and towns. Contrary to some of today’s popular narratives, the UK gaps between cities and towns and urban and rural areas are actually small by international standards.

In other words, the real geographical inequalities and imbalances within the UK are between regions; they are not between cities and towns or between urban areas and rural areas, and by international standards UK interregional inequality is very high. Indeed, the same IFS report referred to by Chris Giles also points out that household income today in most of the Midlands, Northern regions and Wales is equivalent to household income in the South East during the 1990s. In the case of GDP per capita the differences are even greater. I would suggest that many people are well aware that their communities are literally decades behind.

[1] I would like to thank Sir Paul Collier (University Oxford), Professor David Bailey (University of Birmingham), Professor Raquel Ortega-Argilés (University of Birmingham), Dr Paolo Veneri (OECD, Paris) and Ben Gardiner (Cambridge Econometrics) who all provided constructive feedback on earlier drafts of this short paper. The views advocated here reflect my own understanding of the issues.
[2] See:
[3] “Perceptions of Regional Inequality and the Geography of Discontent”, 2018, Discussion Paper, Productivity Insights Network PIN-D1, See:
UK2070 Commission Discussion Paper
A variant of this paper is forthcoming in Regional Studies. See:
[4] See:
[7] “Understanding Spatial Labour Productivity in the UK”, UK Office for National Statistics, 03 May 2019, See:

The value of adopting a systems approach to the productivity puzzle

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Is policy to blame for lagging productivity in the UK?
Since the 2007 financial crisis, productivity growth in the UK has been persistently weak confounding policy makers and prompting a flurry of research around what has become known as the productivity puzzle. There are many theories about the roots of this poor performance but one constant is the perception that public policy ought to be able to intervene to improve outcomes. While most acknowledge that there is likely no silver bullet there is emerging consensus that the evolution of productivity policy in the UK has not (yet) yielded predictable or positive impacts on productivity performance. We argue that the siloed nature of productivity policy may be hindering the development of an effective productivity programme and that adopting a systems approach to policy may provide new insights into the productivity puzzle.

It’s complicated: systems and productivity policy
We observe that even when a productivity policy in the UK was explicitly defined it was conceptualised as a bundle of separate policy areas rather than as a coherent policy programme. Even though there have been efforts to join-up policies and work cross-departmentally the policies affecting productivity have largely been enacted in disconnected silos.

The policy model depicted in Fig 1 (from the Industrial Strategy) illustrates this kind of thinking, which assumes that policies created in silos will aggregate to produce positive outcomes. Yet problems rarely conform to these assumptions. Policy spaces are messy, complex, and, sometimes even chaotic. There can be relationships between phenomena that appear stable but are subject to sudden shifts, or relationships that seem like they should function a certain way but do not. In fact, the ‘working whole’ is not reducible and cannot be described by the attributes of its parts alone.

Systems approaches focus on mapping and explaining systems or processes characterised by complexity – in other words systems that lack order and stability and universal laws. Fig 2 reimagines, in a vastly simplified form, the productivity landscape as seen through a systems lens. The core tenets of systems thinking are that outcomes are driven by intersections and interdependencies between elements within a system and that these relationships are (a) imperfectly recognised in the state of the art of research and policy and that (b) these relationships are not easily knowable.

What can systems approaches offer policy?
Here we highlight two of several high-level implications of adopting a systems approach to productivity policy.

First, bundling disparate policies is not enough. Rather, policies should be conceptualised to uncover, understand, and act on the interdependencies inherent in the system. This is not an easy task but will certainly remain elusive as long as policy silos dominate. Here there is an opportunity to build bridges between policymakers and researchers to better map and model the policy landscape.

Secondly, systems approaches encourage the adoption of experimental policy practices. These are interventions designed to engage with core stakeholders in targeted programmes and are explicitly designed to process feedback to better understand policy effects and uncover missing links. These policies emphasise experimental policy designs that incorporate rigorous and collaborative evaluation processes as well as the potential for frequent course corrections in response to findings. While experimental processes have been adopted in some areas of policy at present they tend to be small-scale and disconnected projects.

The Productivity Insights Network aims to contribute to the development of more effective policy by adopting a systems lens to mapping the systems and subsystems that affect productivity. The project’s mandate specifically aims to uncover intersections and interdependencies that have been overlooked or underplayed in an effort to better understand the dimensions of the productivity puzzle.

Dr Jen Nelles, City University of New York
Professor Tim Vorley, University of Sheffield

Read the full report here.

Reframing Inter-City Transport and Agglomeration Potentials

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An earlier version of this blog is available on the author’s personal blog.

£300,000 for trans-Pennine road links

Highways England has recently announced a £300,000 study that is to look at the improvements to the road links ostensibly linking Preston and Leeds Travel-to-Work Areas (TTWA). The study as the Transport Secretary Chris Grayling has put it[1]

is part of our ongoing work to ensure the routes between Lancashire and Yorkshire are fit for the future – helping link communities better and boosting the economy to supercharge the Northern Powerhouse.

The announcement does make references to the importance of the East Lancashire-Yorkshire corridor to the freight traffic of the industries there. That being said, as with the original plans for the Northern Powerhouse, the choice of cities and regions to be connected, be it via road or rail, can appear arbitrary and the growth- and agglomeration-related language raises a few questions.[2] Put simply, we tend to believe bigger cities to be more efficient with their resources and more productive economically.[3] This boils down to the ability of cities to facilitate and maximize interactions between people ‘boosting the economy’ such that the per capita output of the city increases with population. This is mainly why the efforts aimed at addressing the economic performance gap between the North and the Southeast have focused on connecting major urban centers in the north, at least as far as transport strategy is concerned. These inter-city transport links are seen as a way of constructing a virtual city in the North that has the size of London and hence improved productivity and efficiency.

Agglomeration-based infrastructure intervention

When it comes to the perceived powers of urban agglomeration, however. there is fine print involved. From a theoretical perspective, for cities belonging to a given urban system – say that of the UK – we would expect to see a balance between the cities’ economic output and what they pay in terms of the costs of moving people about in the city to enable those economic returns – a size-cost balance if you will.[4] As a function of the cities’ density and productivity, this size-cost balance would look something like this.


We would then expect our cities to have evolved over time – think many decades – so that they are, more or less, scattered over the  curve around that point of optimum . What is more interesting is the type of infrastructural/planning intervention a city would need to get closer to the optimum , if they happen to be a long way to either side of it. For cities that are located to the left of the optimum , the city suffers from insufficient interactions. These are cities that are not meeting their potential because their population do not enjoy adequate internal mobility. Climbing the hill to the left would then require providing such cities with better intra-city transit systems.

The cities to the other side of the hill, on the other hand, have usually grown too large because of their economic success resulting in an escalation of mobility costs. To minimize the mobility tolls while maintaining social interaction, these cities would then benefit from densification facilitating shorter-distance interactions more efficiently.

Examining infrastructure needs of cities in the UK from this perspective points to a systematic abundance of cities that are to the left of the performance hill and in need of better internal mobility and accessibility.[5] However, if we really insisted on going ahead with inter– rather than intra-city solutions, what the agglomeration-based inter-city transport arguments point to is the complementarity that exists between the needs of cities that are not realizing their potentials to the left of the hill and their counterparts on the other side of the curve. If two such units happened to be in one another’s neighborhood, then an adjustment of urban boundaries and provision of comparable transport between the two cities would help configure a metropolitan area that potentially performs better than the two initial units.

One thing to note here is that this mutual improvement on the original city units is not a given. It is perfectly possible to sacrifice performance balance from a particularly well-performing urban center to provide support for an ill-performing unit on the periphery.

So what?

Going back to the choice of cities or regions to connect in the North, we can now make this implicit reasoning in the existing agglomeration arguments explicit and look at all the possible city pair combinations and pick the pair that delivers the closest performance to the optimum . This is exactly what we have done for all cities in England and Wales defined at various spatial scales and over various neighborhood distances.[6] So, how do our synthetic city-regions look when mapped?

Both of the above maps highlight the top 1% most frequent pairings when aggregating various distances and definitions of cities onto the 2011 Travel-To-Work Areas. A keen observer would notice that of these highly frequent pairings, regardless of the overall method, quite a few show pairings of a city with itself – most prominently that of London but also those of Manchester, Leicester, Exeter, and Chelmsford. These effectively note that there are units that have the potential to be better linked while being situated in the same overall Travel-to-Work area. What we need to note right afterwards is that none of these TTWAs have an intra-city transport infrastructure comparable to the one overseen by Transport for London that does in fact provide the type of connectivity the framework is suggesting.

The other important take away from these maps is the observation that many cities – take Sheffield as a case in point – tend not to form recurring links with any one place. What is being highlighted in such cases is that many cities across the country have infrastructure needs that are very much unique to themselves. These places won’t readily lend themselves to inter-city region-building schemes as their infrastructural need, be it better internal mobility or increased density, is not complemented by any of their neighbors. Such units would benefit more from tailored infrastructure solutions that address their needs internally.

Finally, let us introduce a crucial constraint and focus on the Preston-Bradford area for brevity. Instead of aggregating at all distances looking at all possibilities, we can choose our pairings preferring closer pairs over those further apart unless there are no suitable pairs available locally. This allows us to gradually grow regions outward and build on existing proximities. The top 5% most frequent of these pairings across the Pennines look like this.

What we tend not see in these pairings are strong links between Preston and Bradford – note that it is only under the purely agglomerative approach and without our geographic constraint that we see a link between Preston and Bradford. This brings us back to what appears to be the arbitrary types of choices of regions to connect when considering transport projects to boost the economy.

Caveats or why we could still do with a trans-Pennine study anyway

The approach we have reviewed does in fact let us identify the infrastructural needs of city units across spatial scales. It does also provide a systematic way of identifying potential intra- and inter-city transport links. What it does not do, however, is provide a cost-benefit assessment that would gauge the cost of realistically implementing such transport connections versus the real-terms economic benefits they might provide. However, what this approach can do in a more systematic manner than Cost-Benefit Analysis is to help to set out a feasible set of options based on a genuine system-wide analytical framework rather than simply a project-based approach.

Dr Hadi Arbabi
Department of Civil & Structural Engineering
The University of Sheffield







Early Career Researchers Changing the Tone of the Debate

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The worlds of academia and UK research councils are increasingly interested in interdisciplinary research due to its ability to generate new insights and perspectives on often complex and intricate topics and issues (Phillipson and Lowe, 2006). There is also a body of research to suggest that interdisciplinary research teams that include early career researchers have mutual benefits for the both the ECR and research organisation; the ECRs develop their research and interpersonal skills and the organisation can retain and development new talent (Sobey et al., 2013).

In March 2019 PIN was delighted to welcome back early career researchers (ECRs) old and new to our second ECR workshop in Sheffield. PIN, with the full support of the ESRC  and under the leadership of Professor Leaza McSorley, is committed to developing ECRs interested in cross-cutting themes that affect productivity. Building on the success of our first ECR sandpit in November 2018, we hosted our second two day ECR event to incorporate the expertise shared at the PIN conference and mentoring from a range of experts in the field.

On the first day of the ECR event participants joined the PIN conference and heard fascinating insights on a range of productivity issues from our keynote speakers Professor Sir Paul Collier, Professor Jennifer Rubin, and Murray Sherwin. Lively debate and discussion ensued as our esteemed panel experts shared views on productivity in places, practice and prospects. For an overview of the conference, see our Advancing the Debate blog.

On the second day we heard from Lukas Nüse and Armando García Schmidt from the Inclusive Productivity project at Bertelsmann-stiftung, an organisation whose programmes deal with the challenges that result from globalization, demographic change and the growing diversity of Germany’s population. Lukas shared their approach to inclusive productivity and the Q & A that followed raised what for some was a surprising insight into Germany’s productivity divide between the North and the South, not dissimilar to the issues facing the UK.

This was followed by a bid writing development workshop from Professor Tim Vorley. Tim provided an overview of the PIN open call  along with sharing advice and valuable insights on bid preparation. Having heard from the German and UK productivity research landscape in the morning it was the New Zealand perspective that followed after lunch. Murray Sherwin built on his key note speech delivered at the conference to answer questions and share his views on the pressing issues that merit further research. Full of questions, our ECRs were then mentored by PIN members including Professors Leaza McSorley, Philip McCann and Dr Rob Wapshott, who advised them on the questions that they had about their own research.

We look forward to continuing our support for the network of talented and engaged ECRs that we are seeing emerge with the encouragement of PIN. There will be further opportunities for the ECRs to become part of the PIN network and updates on this will be shared via the mailing list and Twitter.


Phillipson, J. and Lowe, P. (2006) ‘Special Issue Guest Editorial: The Scoping of an Interdisciplinary Research Agenda’, Journal of Agricultural Economics. doi: 10.1111/j.1477-9552.2006.00044.x.

Sobey, A. J. et al. (2013) ‘Incorporation of Early Career Researchers within multidisciplinary research at academic institutions’, Research Evaluation. doi: 10.1093/reseval/rvt004.