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Unpicking the UK productivity tangle

When it comes to productivity, the UK has lagged behind many of its western neighbours for decades.

Productivity is the source of a society's wealth and standard of living. Slow decline means falling prosperity for all of us, so tackling the problem is crucial. And yet, over the years we have not been able to get to grips with it. Why?

Productivity puzzle

This is a question asked in an Acas policy discussion paper pdf icon The UK Productivity Puzzle - is employment relations the missing piece? [255kb]

The paper said that the UK's poor productivity, in comparison to countries such as the US, Germany and France, was connected to deep structural problems, such as inequality and low pay, and a workforce with low levels of engagement.

One of the biggest influencing factors is the make-up of the economy, which favours short-termism, and low investment in training, innovation and development.

With low investment, and a tendency to prioritise low cost, standardised products, the UK gets 'forms of work organisation and job design that have little need for higher skill levels'.

The labour market in the UK does not demand high skills for many jobs, where in comparable countries the same jobs might be 'broader and require a deeper level of skill'. The problem of our young people leaving education unready for work adds to a toxic mix.

Short-termism

Putting the emphasis on shareholder value weakens corporate long-term objectives that would seek strategies for growth and productivity. The set-up encourages expansion by mergers and take-overs rather than internal growth.

For all its power, the UK financial system is bound up in the problem, the paper said. Investors head towards funding a small number of large and 'later stage' businesses at the expense of start-ups and 'SMEs with high growth potential'.

The move towards sub-contracting and outsourcing in employment contracts, has resulted in an 'externalised and 'fragmented' employment relationship'. If the upside of this is flexibility, the downside is the challenge to engage employees and pursue policies emphasising quality products and services.

Policy makers find it difficult to unravel the interrelated problems, particularly when 'powerful vested interests' stand in the way. Change on so large a scale would take longer than a single Parliament - adding to the difficulty.

Improving from the workplace up

The paper argues that despite the level of difficulty, much can still be improved 'by adopting a bottom-up approach that focuses on the workplace'.

For example, research from the London School of Economics said that half of the productivity gap with the US was due to 'different ways of working - how firms are organised and how they use technology'.

A strong body of evidence suggests a clear link between improved productivity and workplace management approaches.

The ways to improve are 'simple'. One is by having clear and easy-to-understand policies in key areas of people management, such as discipline, grievance, absence and equality. The second is by improving communications and employee voice.

Acas publications and services

Acas has detailed information and advice about improving employment relations and workplace performance. Acas experts can come to your organisation, look at your procedures and processes, and develop practical Workshops, projects and business solutions to a range of people management issues. Call the customer services team on 0300 123 1150 for more details.

Acas practical training is also available on key areas of employment relations, including People management, Discipline and grievance and Absence management.

Communication, employee voice and engagement can be improved through courses in Staff retention, Skills for supervisors and Performance management.

For free, impartial advice and guidance visit Acas Helpline Online.

Visit the Acas Training Courses, Workshops and Projects area for more information.


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