Britain's low-wage sectors have big productivity deficit, study shows
Low-wage sectors in the UK are up to 30% less productive than their equivalents in other developed countries, a study has found.
Productivity in retail and hospitality, agriculture and other low-paid industries lags Germany, France, the Netherlands and the US by 20-30%, the study, carried out by the National Institute of Economic and Social Research, found. In a group of 10 comparator countries only Italy’s low-wage sectors were less productive than the UK.
Raising the productivity of Britain’s low-wage sectors to match Germany, France and the Netherlands would close Britain’s productivity gap with these countries by between a third and a fifth. Retail and hospitality are significant sectors because they employ lots of people on low pay and account for about a third of workers in poverty.
The productivity gap in low-wage sectors is mainly caused by lower total factor productivity, which measures how efficiently labour and capital are used, followed by labour quality. Total factor productivity is higher when there is more on-the-job training, better management practices, more workers using technology, fewer temporary workers and less product market regulation.
NIESR fellow John Forth, who co-wrote the report, said: "Increasing levels of skill and rates of capital investment in low-wage sectors can play a part in closing the UK's relative productivity gap with other countries. However, the UK’s weakness in these sectors lies at least as much in how skills and technologies are put to use, and so close attention must also be given to management practices and the organisation of work."
UK policymakers have been trying to find ways to close Britain’s persistent underperformance in terms of output per worker per hour. The Bank of England has blamed low productivity for its judgment that the economy can only grow at about 1.5% a year without stoking inflation.
The report, commissioned by the Joseph Rowntree Foundation, looked at ten sectors where at least a quarter of the workforce earns below two thirds of the UK median wage. High-wage industries performed slightly worse, the study found.