What if productivity statistics are not truly telling the tale?

In the Autumn Statement, Philip Hammond spoke at length about the productivity crisis in the UK, and how he intends to address it.

And doubtless, the creation of higher skilled jobs, of better broadband, of better trains, will all make it easier for UK workers to do more, benefitting the workers and the economy alike.

But what if the productivity statistics are wrong?

Although they hardly belong to the same generation as me, I have three friends or acquaintances who have yet to reach retirement age, but have pension provisions sufficiently large that they are not seeking employment, nor do they claim unemployment benefit.

The government has such folk as a zero in the productivity number, they don’t appear in the unemployment data, nor in the wage data.

So we have had years where unemployment was much lower than might have been expected in a recession, wage growth stayed stubbornly muted even as the number of people in employment rose markedly.

Those folk in the blessed position of being retired early not showing up in that basket of government statistics, it arguably makes the fundamentals of the economy look worse than they are, and prompts concerns about productivity.

But there is one part of the government data where they are represented, consumption, because they still spend the pensions they receive.

So we have had years where consumer spending was going up faster than wages, and productivity.

That makes it look like consumption is rising faster than wages, and that wages won’t catch up because the labour force isn’t productive enough to earn a wage rise.

The implication is that the consumption is being wholly funded by debt, and that the party will be soon be over.

Doubtless that has been true to some extent but if consumer spending has been rising faster than wages because there are quite a number of people who are retired early, and so spending, it implies the economy is not in particularly bad shape.

The key to this is that the baby boom of the post war years mean that there are more people in the cohort of the population aged 50+ proportionally than at any time in history, exaggerating the effect of this group on the wider economy.

The group were largely also fortunate enough to receive excellent pension provisions, reducing their incentive to work right up until mandatory retirement age.

That is not to say that Hammond’s Autumn Statement actions are in any way wrong. Stagnant levels of global trade mean that the economies which thrive in the coming years will be those that can generate their own demand, rather than rely on exports. So the more productivity, and the more stimulus to domestic demand the better.

Measures that make the UK economy more efficient, which is what genuine productivity changes should be achieving, can only aid the levels of consumption in the economy over time.

And higher productivity would definitely benefit the young still working, rather than the retired, helping to address the inter-generational inequality that is the biggest stain on the record of policy makers since the financial crisis.

* David Thorpe was the Liberal Democrat Prospective Parliamentary Candidate for East Ham in the 2015 General Election

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7 Comments

  • Peter Hayes 30th Nov '16 - 4:21pm

    To the retired early add the redundant in their sixties. I was in the fortunate position of being made redundant with a decent package and savings so treated it as retirement even though I had to wait to draw a pension. Others are less lucky but get by for a year or two rather than trying and failing to find work.

  • Graham Evans 30th Nov '16 - 4:42pm

    As we don’t know what percentage of the potential working population in other western companies have also retired early it is impossible to say whether the productivity gap between the UK and other advanced economies is real or not. However we do know that the UK economy is more service orientated than many of our competitors and it is much more difficult to improve productivity through capital investment in this sort of economy. So those who decry the need to re-balance the economy more towards manufacturing, construction and other sectors where capital investment can significantly improve productivity condemn the UK to forever being a low productivity and therefore relatively low wage economy.

  • David Thorpe 30th Nov '16 - 5:57pm

    Thats a good point Graham-worth noting that the UK and US attract a lot of migrants-who tend to be younger and to therefore be working-meaning those countries have., until now at least, escaped the worst of the demographic problems of say, Italy, but its a puzzle where the demographic numbers are in those countries.

  • Graham Evans 30th Nov '16 - 11:37pm

    It is true that the US attracts lots of immigrants but it also has one of the world’s most productive workforces. I presume that its economy is much more capital intensive than you might imagine, despite all the talk about rust belt states.

  • This article would have been more convincing if it had examined how the productivity figures are calculated. The ONS have published a statistical bulletin entitled “Labour Productivity: Apr to June 2016” and this paragraph I think makes it clear how the figures are arrived at:

    “Whole economy output (measured by gross value added – GVA) increased by 0.7% in Quarter 2 2016, while the Labour Force Survey (LFS) shows that the number of workers increased by 0.5%, while the number of jobs increased by 0.6%. Total hours worked grew more slowly, by 0.1%. This combination of movements in outputs and labour inputs implies that labour productivity across the whole economy rose by 0.6% in terms of output per hour, 0.2% in terms of output per worker, but output per job remained unchanged (subject to rounding).” (https://www.ons.gov.uk/employmentandlabourmarket/peopleinwork/labourproductivity/bulletins/labourproductivity/aprtojune2016)

    It therefore seems clear that one way of increasing productivity would be for economic growth to be much higher than the number of new jobs created. However to have the economy grow by 0.7% and productivity by 0.6% an hour does not seem at all bad for a quarter.

    Those not in work (for whatever reason) are not counted against the productivity figure. Perhaps this article is about something else!

  • David Thorpe 1st Dec '16 - 12:56pm

    michael; as the article clearly states-those not in work are not counted in the productivity fiogure-that is true-but the fpcus of the debate is missing that point-the ONS are not-the politicians worrying about productivty are..thats why the article cxlearly states ‘those not in work are counted as a zero!’

  • @ David Thorpe

    I do not know if you suggested the title for this article but if you did you got it wrong. As I stated at the end of my last comment – “Perhaps this article is about something else” (i.e. that it not about productivity).

    In the article you refer to people who are not counted in the productivity figure so how are they relevant to an article on productivity?

    I think this article has no clear focus. I have no idea what you are trying to communicate!

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