The UK’s Productivity Puzzle and Public Sector Working Conditions - RSA

The UK’s Productivity Puzzle and Public Sector Working Conditions

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    Vishal Wilde FRSA
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Vishal Wilde FRSA is a Civil Servant on the Generalist Fast Stream. He serves on the Executive Committee (EC) of the FDA (a Civil Service and Public Sector Union) as the EC member for the Fast Stream constituency.

The ‘Productivity Puzzle’ is one of the greatest socioeconomic spectres that haunts the ‘developed’ world; the UK’s ‘Productivity Puzzle’ is especially severe. A (social) scientific hypothesis that is usually not (adequately) considered is the potential for public sector working conditions (pay, hours worked, workers’ health and wellbeing etc.) to further hamstring productivity.

Whilst the Productivity Puzzle afflicts OECD countries, the UK’s public sector has, notably, faced an especially blunt programme (through, for example, reducing headcount or pay restraint, which translates to pay cuts in real terms).

What is the Productivity Puzzle?

In a nutshell, the UK has not returned to pre-crisis trends in productivity growth (i.e. from before the 2007/8 financial crisis which is unusual when compared with previous recessions/crises):

Productivity growth determines real wage growth, with the contemporary productivity puzzle on track to cause Britain’s worst real-wage squeeze in modern history. The following figure, taken from a 2017 report from the LSE’s Centre for Economic Performance, depicts the UK having faced the second-worst average real wage growth amongst OECD countries (Greece being the worst) between 2007 and 2015.

How could the UK’s Productivity Puzzle be affected by Public Sector Working Conditions?

Turning briefly to Greece and the UK – what do they have in common? Both have seen public sector working conditions hamstrung through harmful policies and practices (e.g. the number of public servants in Greece fell by 18% between 2009 and 2015); this detrimentally impacts wider, national socioeconomic malaise and further restrains real wage growth when taking the productivity, morale and well-being implications into account. In the UK, the percentage of people in paid work in the public sector in March 2018 was the lowest proportion since comparable records began in 1999.

A basic understanding of efficiency wage theory (a topic on which I have also previously published a working paper) reveals that workers’ wages are positively correlated to productivity (due to reasons such as morale, health, loyalty, higher quality workforce, lower turnover, increased effort etc.) and that the ubiquitous phenomenon of unpaid hours across workplaces will restrain productivity. Workers have a ‘reservation wage’ (i.e. a wage they need to match or exceed to make it worthwhile working there). Indeed, (prospective) private sector workers and employers will compare salaries, wages, pensions and working conditions to those in the public sector. Congruently, Professor Alison Wolf’s analysis in a thought-provoking 2009/10 report noted that, in order to remain competitive, private sector employers had to match or exceed what was available in the public sector; for example, in regions where public sector pay rates compare unfavourably, the public sector will struggle to recruit and retain a high-quality workforce and, conversely, where they compare favourably, it will be more challenging for the private sector. Essentially, I argue that inflation-linked pay increases and increased headcount in the public sector would help ‘kick-start’ productivity and real wage growth across the UK since pay restraint and anaemic headcount in the public sector weakens private sector workers’ bargaining capabilities.

From a sociocultural perspective, changing (public sector) working norms influence working cultures across employers more broadly. The public sector was once held as an example of ‘work-life balance’ but this is simply no longer the case. Furthermore, ‘network effects’ reinforce this problem; that is, reduced happiness can proliferate throughout society and restrain productivity more broadly. Related to this is the impact of (mental) health and wellbeing upon employees’ productivity (mental health being an increasing concern from early ages which translates to modern workforces) and the biopsychosocial model of health psychology is a lens for understanding this.

Simply examining the deeply disturbing results of the FDA’s (my Union) 2018 Working Hours Survey shows that being under-resourced not only leads to the swelling of unpaid working hours but increased stress and anxiety, unhealthy expectations, resentment, harm to professional and personal relationships, deprivation of family life, depleted morale, substantial decreases in output quality, a toxic environment and much more. Promoting and providing working cultures and institutions that are conducive to equality, diversity and inclusion (e.g. in terms of gender, ethnicity, disability, LGBT+, socioeconomic background, caring responsibilities and much more) do improve productivity and growth in various contexts; however, against a backdrop of fundamental, institutional problems with working conditions, diversity can even lead to unintentionally negative impacts.

Finally, forecasted decreases in productivity growth can, on some views, negatively impact the pound which, in turn, further weakens peoples’ purchasing power because the UK is a net importer; nevertheless, some would argue that a weaker pound can actually improve growth and productivity (although, on my account, the aforementioned, wider socioeconomic malaises probably offset that).

Concluding Remarks

From a social scientific perspective, public sector employment, pay and working conditions more broadly are contributing to and exasperating some of the greatest socioeconomic and international macroeconomic crises through the effect upon firms’ and workers’ productivity, morale, well-being, and wider sociocultural norms; most do not make or have not seen the arguments that policies towards public sector workforces can have (unintended) consequences for national (and international) productivity and real wage growth.

There is insufficient headcount for the jobs and tasks at hand; amongst those who are employed, they are often unsatisfactorily compensated for their time in workforces that are inadequately resourced to foster and bolster equality, diversity and inclusion. These dimensions of the Productivity Puzzle are not usually considered and should be incorporated into subsequent analyses, research and discourse on the topic.

These social scientific observations were researched and written by Vishal in a personal capacity during his own time as an independent researcher. Vishal is happy to provide detailed references for his research upon request.

Vishal holds a BSc (Hons) in Philosophy, Politics and Economics from the University of Warwick and an MSc in Advanced Computer Science with Internet Economics from the University of Liverpool.

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  • The UK has had a long-term productivity problem. Various ideas have been put forward to explain why this is a deeply entrenched issue.

    One factor, which appears regularly over the years, is the connection between productivity and unemployment. During and after significant increases in the unemployment account, productivity improves. Th explanation advanced is that unemployment inevitably results in less-productive workers leaving the workforce. Since the financial crisis of 2008 and the subsequent recession, the government has claimed, not without justification, the success of its policy in keeping unemployment in check and increasing the number of people in work. However, there are a number of people in work engaged in marginal activities on very low wages. There must be a distinct possibility that the productivity of such workers is very low and, dependent on the scale of this under-employment the likely effect on overall productivity is likely to be more than negligible.

    Charlotte Davies raises a very important point about the way in which Government contracts have been increasingly awarded to companies that appear to offer value-for-money but in practice do exactly the opposite. It is one of the great mysteries of modern politics that this disreputable and damaging practice has been allowed to continue without any real attempt to abandon it because of its manifest failings. Both major political parties have been guilty of subscribing to and actively embracing policies, which are both cost- ineffective and highly damaging in many respects.

    This is almost certainly connected with of the lack of knowledge and expertise in the current political class and is a factor constraining informed public services (both national and local) from taking appropriate action. It can be argued that governments over the past thirty years have assumed managerial roles for which they have no knowledge or expertise at the expense of administrative structures much more capable of undertaking such roles effectively.

  • In the 1980's the Japanese came to the UK and introduced all sorts of exciting innovations like single status canteens and toilets, JIT, and TQM. Previously, as identified by researchers such as Huw Beynon, companies like Ford were more than happy to shovel completely defective work out of the factory to consumers and have a totally disempowered workforce. The Japanese came and brought a whole new mind-set to management and worker relations and we all thought that the UK was going to move on from its class ridden culture to a new industrial democracy. Alas, what we have actually seen has been the demise of industry, the failure of successive governments to create any kind of industrial strategy and the concentration of capital to a relative few hands. Those relatively few hands have gone on to fund right wing think tanks who have promoted an Alt-Right agenda which has attempted to both cut the size and cost of the State whilst also annexing public-sector juicy contracts and dictating what constitutes "valid evidence" when the researchers have no practical understanding of the underlying industry public or private sector. So we have seen a lot of top slicing of funds by companies that won tenders which they then pass through various hands until some lowly minion on minimum pay with no job security delivers the actual service - that is a high cost and inefficient way of delivering any public service. Wages have stagnated at a time of increasing insecurity in employment and housing; and insane demands for paperwork to justify every move made by every worker. Meanwhile senior workers in both the public and private sector have awarded themselves massive pay awards and cut themselves off from the rest of the population socially, economically and geographically.

    It is not just Brexit that has been crazy, it has been successive Governments, for 30 years at least, lacking basic industrial experience that comes from building a complex industry with skilled workers over decades. Understanding the cost and value of investing in people so that the Nation has a skilled workforce that is not habitually worn out by never getting off the bottom of Maslow's hierarchy of needs. 

    • Charlotte Davies lays bare a cultural problem in the UK. She writes of “Government lacking basic industrial experience”. It goes deeper than that. In our class ridden society the “upper ruling class” takes great pride in its lack of mathematical skill, scientific training and logic. I write as an engineer whose formation required those skills coupled with knowledge and understanding of community needs and its rules and regulations in respect of safety, the environment and public welfare. But in the UK I am conflated with garage mechanics, plumbers and TV repairers.

      Study the professional backgrounds of today’s MP’s and it is made clear what the nation thinks of engineers compared to soldiers, accountants, doctors etc.

      Vishal Wilde’s argument that both increasing the number of civil servants and paying them more will increase UK productivity is mind blowing. Wages and salaries are often referred to as “earnings”. This is because the right work done the right way increases the nation’s wealth. Claims for more pay must be accompanied by a justification that goes beyond simple comparisons with others pay.

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