Good work and productivity puzzles
January 28, 2020
by Andy Haldane, Chair of the UK industrial Strategy Council and Chief Economist of the Bank of England
In January, the Carnegie UK Trust and the RSA published Can Good Work Solve the Productivity Puzzle, a series of challenging and insightful essays, linking the moral and social imperative of good quality work with one of the major economic concerns plaguing policy makers: the UK’s weak productivity performance. I was pleased to be asked to write a foreword for this collection and to join the panel at the launch event at the RSA last week. In this blog, I attempt to sum up my response to the tantalising link demonstrated between good work and productivity in this collection – and what we can do to maximise this link – in 10 points.
- UK productivity is experiencing its worst period of stasis since perhaps the Industrial Revolution. Put differently, the economic cost of productivity having flat-lined for a decade is already multiplies of any estimate of the prospective cost of even a worst-case Brexit outcome. The UK’s productivity crisis is the signature economic policy problem of the day, bar none. Although this is sometimes called the “productivity puzzle”, what is puzzling is not that we have too few explanations for weak productivity but that we have so many – from weakening investment to creaking infrastructure, from skills that are lacking to management that are slacking. No doubt all of these have been ingredients in the productivity mix. If the UK economy were a person, we’d be saying it was a “complex needs” case.
- The UK Government’s Industrial Strategy, put in place a couple of years ago when Theresa May was Prime Minister, was an attempt to address this complex needs case. I am Chair of the Industrial Strategy Council which was set up to evaluate the success of that strategy. Given point 1 – the on-going productivity crisis – you might be forgiven for thinking the Government and the Industrial Strategy Council aren’t doing an especially good job at turning this around.
- My counter to this is that, in my view, government should not shoulder all or even most of the blame for our poor productivity. Structural policy actions by governments take time – years, perhaps decades – to improve productivity. I believe productivity problems – and solutions – are ultimately rooted in business decisions made by firms rather than by governments. It is clear from the evidence that the UK’s productivity problem can be traced to the long and lengthening tail of UK companies whose business decisions have meant their productivity has stood still for a decade and counting.
- With the publication of Can Good Work Solve the UK’s Productivity Puzzle? our attention is drawn to another ailment on the economy’s medical record – the quality of work, or rather the lack of it. As the collection of essays makes clear, there are sound conceptual and empirical reasons for thinking work quality and productivity are intimately linked in ways which, hitherto, have not been properly understood or explored.
- We already know from years of research that one key aspect of work – pay – is closely linked to productivity. The two have moved in lockstep for as long as we have records, not least over the past 10 years. It is not by chance that the lost decade for productivity has coincided with a lost decade for real pay. The relationship between pay and productivity, like all good relationships, is two-way. Rises in productivity pay for pay rises, but rises in pay may themselves also cause productivity to rise, for example by building commitment and satisfaction among workers in their jobs. Economists have a special name for this – the catchily-titled “efficiency wage theory”.
- When it comes to the relationship between another aspect of work – its overall quality – and productivity, however, there is far less research to draw on. That is what makes this new collected volume, Can Good Work Solve the Productivity Puzzle, so valuable. The answer provided to the question of the title – I would say provisionally rather than definitively – is yes.
Like pay and productivity, the relationship between job quality and productivity is two-way. Highly-performing companies are more likely to offer their workers secure and engaging work in the first place. But the reverse relationship is also there in the data and, indeed, in companies’ own experience. More secure and engaging work can itself boost productivity, by motivating and improving workers in their jobs. We could term this “efficiency work theory.”
- What is so interesting is that this relationship between job quality and productivity appears strongest in the lower tail of the work quality distribution. In other words, productivity gains would be largest if a minimum set of thresholds for work quality were to be met – ‘minimum work’ rather than minimum wage standards, if you like.
This is a rare example of a divine policy coincidence. As Matthew Taylor puts it in his piece for the collection – ‘the economic imperative of high productivity aligns powerfully with the social justice goal of making work better for those who are currently least well served by the labour market.”
I do not think it is too much a stretch to hypothesize that the long and lengthening tail of companies offering poor quality work has been a significant causal factor in explaining the UK’s long and lengthening tail of low productivity companies.
- The concern for good work – as a moral, social and economic imperative – is already beginning to reshape parts of the public policy agenda. I understand that almost all the recommendations of Matthew Taylor’s review of modern employment, ‘Good Work’ are being acted on the UK Government. Good progress has been made in developing a common set of metrics for tracking how the UK performs on job quality, notably in previous work by the Carnegie UK Trust and the RSA, Measuring Good Work. The Industrial Strategy Council has already put this work to use by using some of the quality of work metrics in its own framework for evaluating the success of the Government’s Industrial Strategy, which was published at the end of last year. One of the roles of the Industrial Strategy Council will be to keep the Government’s feet to the flame on the implementation of ‘good work’ as a central idea within industrial strategy.
- What might be done next, to build on the diagnosis and early prescriptions set out in Can Good Work Solve the UK’s Productivity Puzzle? My hope is that we can begin to explore the work quality/productivity nexus further and in greater depth. Perhaps on a sectoral basis. Perhaps seeking to better understanding which of the dimensions of quality matter most. Perhaps teasing out how issues of work quality interact with the other factors shaping productivity. For example, are the payoffs from investing in staff especially large in some industries or when accompanied by other actions?
- Boosting productivity is ultimately about improving the micro – that is, businesses and their decisions – as a means to a macro end. I will close these ten points with a provocation. Is there a case for a stronger presumption than at present that individual firms publish data on various standardised metrics of work quality, as part of their regular reporting? Just look at how gender gap or ESG reporting has served as a means of spurring action among companies on diversity and sustainability. Perhaps we need the same sprinkling of company-level transparency to help unscramble our work quality and productivity puzzle?
- Andy Haldane is writing in his capacity as Chair of the UK Industrial Strategy Council. This blog is adapted from his remarks at the launch of Can Good Work Solve the Productivity Puzzle on 16 January 2020. It does not reflect the view of the Carnegie UK Trust, only the view of the author.
- Can Good Work Solve the Productivity Puzzle is an essay collection published by the Carnegie UK Trust and the RSA, featuring new research, opinion and analysis by representatives from almost 20 organisations from policy, business, trade unions and civil society. The collection sets out how a focus on good work can be encouraged to improve wellbeing by boosting good jobs and helping solve the UK’s long-standing productivity puzzle.
- The Carnegie UK Trust has been active for many years in the push to look beyond purely economic indicators to measure and value social progress. We advocate the use of wellbeing frameworks, which measure the success of society not only in terms of its material wealth but also extend to, for example, indicators on quality of work, health, the environment and our sense of security and cohesion. Solving the productivity puzzle, and unlocking the benefits in living standards this can help deliver, must be addressed within this wider need to rebalance the measures through which we understand and assess our progress.
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