UK productivity puzzle ‘result of expansion in low-paid work’

10 Aug 15

The UK’s so-called productivity puzzle can be partly explained by a shift in the economy towards low-skilled, low-paid sectors such as food and accommodation, the Institute for Public Policy Research has found.

Although the UK economy grew between 2012 and 2014, productivity fell by 1.15% – something the think-tank said was “unprecedented” in the post-war period.

Its analysis found that half of this productivity weakness was because of the change in the mix of jobs. A bigger proportion of people now work in relatively low-productivity sectors, while there has been a fall in the proportion working in sectors with higher productivity like manufacturing and finance.

IPPR chief economist Tony Dolphin said: “Our analysis of the UK’s productivity performance shows that an unfavourable shift in the structure of the workforce towards relatively low-productivity sectors has been a significant factor holding back aggregate productivity in the last three years.

“Another five years of stalled productivity is not something the chancellor can allow to happen. Using public spending to support productivity by introducing industrial policies for the domestic sectors of the economy are steps the chancellor could take in the Spending Review.”

The think-tank argues that government needs to support big employment but low productivity sectors such as hotels, catering, retail and social care to help them boost their productivity.

Cuts to infrastructure, skills provision and research should also be minimised as they can discourage business investment.

  • Vivienne Russell

    Vivienne Russell is managing editor of Public Finance magazine and publicfinance.co.uk

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