The UK Commission for Employment and Skills (UKCES) published its Growth Through People report recently. It’s a wide-ranging review of the UK labour market which brings together lot of useful information in one place and highlights the trends we have seen over the past few years.
The report notes that, despite the increasing skill level of the workforce, something I have commented on a few times, (here, here and here) productivity and pay are still in the doldrums.
The UK now has one of the largest graduate workforces in the EU, and one of the largest shares of high-skilled jobs in employment.
We can continue to improve the skills of the UK workforce, but unless we can be sure that workplaces are going to use them, the impact on productivity will be muted.
Where once we feared becoming a low skill, low productivity, low pay economy, instead we have become a high skill, low productivity, low pay economy. Some of this must, says UKCES, be due to the way those skills are deployed and managed in the workplace.
One big part of TFP is the ‘black box’ of the workplace, and how employers turn skilled workers and tools into products and services which customers value. We may have a more qualified and – if qualifications are of good quality – a more skilled workforce, but are those skills being used effectively? It seems that as world markets have become more difficult in the past decade, many of our workplaces have struggled to adapt.
UKCES stops short of directly criticising anyone, this is a government report after all, but by implication, it amounts to a pretty damning assessment of Britain’s bosses. With relatively light regulation, a highly educated workforce and, thanks to our language, access to a vast pool of talent from around the world, our employers still can’t increase the country’s overall productivity. We already seem to be on what CIPD chief Peter Cheese called the low road.
I have a longer piece on all this over at the UKCES site, complete with the usual charts.
Something struck me as odd though. The Growth Through People report sets out a good case for improving the way people are managed in organisations. Unless the UK’s management, development and deployment of its people gets a lot better, productivity growth will be hampered. And as Paul Krugman said:
Productivity isn’t everything, but in the long run it is almost everything. A country’s ability to improve its standard of living over time depends almost entirely on its ability to raise its output per worker.
I would have thought, therefore, that the CIPD would have been waving this report around and shouting about it. Here is a government body effectively saying what HR people have been banging on about for years; that better people management is essential if the UK is to return to growth. Yet the organisation representing the HR profession has hardly said a word.
Have I missed something?
Reblogged this on Employment law in a mad world and commented:
Getting value from the people we pay is the bosses job. So many 9f us gave no clear 8dea how to do this.
Reblogged this on 101 Half Connected Things and commented:
Managing people better is probably good for the economy. Better skills only benefit us when there is a requirement for those skills. Consider this report waving.
Consider what profession a bright graduate might choose – one that pays the most. So lawyer and accountant look good and not too difficult. No surprise that the UK has more lawyers/head of population than either France or Germany (but not so many as the USA). Similarly the UK has vastly more accountants/head of population than either France or Germany and even the USA. Our MBA schools are turning out expert managers by the barrow load. So why the poor productivity?
I suspect the UK’s high student costs and high housing costs force many graduates into what were small elite but not very productive professions. Good solid work is not so prized in the UK and so the students must cherry pick and must go into the flashier professions. The blame – Parliament.
Baristas with PhDs is a sign that the problem is less about the skill level of workers and more about the skill characteristics of jobs – i.e. the issue is one of demand not supply. This is politically problematic because the neoliberal consensus insists that success depends on the improvement of labour rather than of capital.
The secular change in the economy has been the shift away from skilled roles in the middle of the income scale (polarisation). This not only causes stagnation in median wages, it also leads to a simultaneous surplus of skills (many now degree-level) and a dearth of candidates for high-skill roles (hence the demand for highly-skilled migrant workers).
Rogerh points to one consequence of this: the increase in parasitical “business services” roles. This not only depresses aggregate productivity in the short-term (through over-manning and counter-productive “improvements”), but also damages productivity in the long-term because so much of the conventional wisdom ends up being antiquated.
Not that I disagree (far from it) but the challenge for policymakers is what to do about this. The high performance working examples (esp. the Finnish one) have been around for a while, but we don’t know how scalable these are and the degree of deadweight and/or selection bias. (Perhaps some degree of deadweight would have to be tolerated.) If I were a neoclassical economist (I am, but moving swiftly along…) I would also say that we can’t observe the production function from the outside (the “black box”). If employers are not using their workers well then they are also likely to be misallocating capital (otherwise TFP would be higher); the challenge for outsiders is that they don’t necessarily know what the production function “should” be, especially in product markets at the technology frontier.
Can it really be the case that firms are leaving billions of pounds on the pavement by ignoring the chance to make their workforce more productive just by “managing them” better? I suggest that a theory that assume stupidity of thousands of managers engaged in a competitive struggle for survival should treated with skepticism. Especially when this theory is advanced by people with no actual proven management experience whatsoever. Talk about arrogance.
A more plausible reason for the stall in productivity might be the shift in balance between labour and capital, due to immigration by prime aged 20 to 40 year old Europeans into the UK. If labor is cheap and plentiful, simple economics suggests more labor will be used per input and less capital, which feeds right into productivity, Perhaps another reason is improved quality of services which is very hard to measure and allow for in productivity calculations. A crap meal and a good meal at a restaurant looks the same from a productivity point of view. I was reading an article about Trip Advisor recently, describing how hotel operators now have much more pressure as a result to maintain services. If every hotel adds a cleaner as a result of Trip Advisor, but charges the same, measured productivity falls even if quality has risen. The UK notoriously had poor services, especially outside of London. On my regular trips to the UK over the last 20 odd years, I have seen significant improvements in service quality. Perhaps the low starting point of the UK services industry (mustn’t grumble) is why the UK sees this impact more than other countries.
I think this could be partly a problem of measurement – maybe less blatant than direct “tax avoidance” in Greece or “under declaring” in China but there is a norm in the UK workplace for high-skilled people to work albeit long hours for some relatively efficient form of pay – full-time employees value job security, employee benefits, non-contributory pension or working conditions and contract staff put through allowable expenses, VAT reclaims and feel they are career flexible. Otherwise if you are measuring “productivity” as output then the main issue in the UK would I believe be due to higher overheads – particularly in London due to the fixed costs but more generally for large companies that are still shrinking staff.
I’m extremely skeptical of the quality of many of the degrees. Just because someone is a graduate in something or other doesn’t mean they have useful skills or even potential for that matter. Fewer graduates and more apprenticeships and technical skills and qualifications is the way to go.
If wages are so low that it’s cheaper to employ six blokes with cloths and buckets to wash a car rather than buy and operate an automatic car wash machine, then the productivity of the nation falls. i suspect a lot of reverse mechanisation is taking place in Britain because people are so plentiful and cheap and easy to hire and fire. In France where people are expensive and very difficult to hire and fire, you get a great emphasis on automation and efficiency.
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