By Michael Northcott Friday, 01 February 2013

Brits slowdown due to lack of bunce, say economists

Research has found that lower wages are causing a 'dramatic' fall in productivity levels in the workplace. The situation will not be helped by the dreary weather, either.

Research from economists at the Institute for Fiscal Studies has found that workers are producing 2.6% less each hour than they were right at the beginning of 2008. They are also producing 11.8% less than if the pace of growth before the financial crisis had continued over the last five years.

It’s not really a hard concept to grasp: people not working as hard if they think the pay is crappy. But the research also found that this drop in real wages has enabled firms to take on additional members of staff whilst the level of work productivity remains flat. That would go some way to explaining why Britain’s GDP has been flat-lining for the last two years despite increases in the number of people in work.

A senior research economist for the institute, Helen Miller, said: ‘Given the scale and persistence of falls in output since 2008 it is remarkable that there are more people in work today in the UK than there were before the recession.

The result though is a dramatic fall in labour productivity. The scale of the productivity fall, and the degree to which it is permanent, matters for policy prescriptions.’ Miller also explained that the labour market appears to have become ‘more flexible’, and that the benefits system is ‘doing a much better job of ensuring that people remain in touch with the labour market.’

The IFS also pointed out though, that part of the reason for falling productivity could also be a lack of investment by companies (there has been a 16% drop in capital expenditure). This, for example, could mean that workers do not have up to date systems that could help improve productivity. The research found that workers with less cash to work with in business, will produce less as a result.

So, let’s hope that firms find the financial strength to invest a little more this year so that UK plc can, at last, pull its finger out…

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