Sunday, May 20, 2018
Long hours are part of the productivity problem
Posted by David Smith at 09:00 AM
Category: David Smith's other articles

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My regular column is available to subscribers on www.thesundaytimes.co.uk This is an excerpt.

After Ben Broadbent got into hot water a few days ago for his clumsy metaphor, I am determined today not to follow the Bank of England deputy governor and use language that anybody of any sex or age will be offended by. Having said that, I must also comment on what I can only describe as a worrying droop in productivity. Whatever the opposite of a virility symbol is, we appear to have it.

Those who have been following the productivity story will know that it is not been a happy one. I was sceptical about whether an apparent rebound in the second half of last year was another false dawn and rightly so, it turns out. The latest “flash” estimate from the Office the National Statistics showed a drop of 0.5% in productivity, gross domestic product per hour worked, in the first quarter, leaving it just 1.5% higher than ten years ago in the spring of 2008. In 10 years Britain has achieved less growth in productivity than would have been expected in a normal year in the past.

When I talk to business people about productivity, there is often puzzlement. Most are committed to raising productivity in their organisations, and can point to successes in doing so.

Rarely a day goes by when I do not receive a report pointing to ways of raising productivity. The Federation of Small Businesses says small firms could boost productivity significantly if given help by larger businesses further up the supply chain. A study by Oxford Economics, commissioned by Ricoh, says that £37bn of productivity gains could be unlocked, if we invested in what they describe as “the optimal office”; a better workplace resulting in greater efficiency.

When it comes to the macro figures for productivity, as opposed to micro solutions, the calculation is a very simple one. You have GDP which, despite its faults, is still the best overall measure of economic activity. And you have the labour input, measured in hours worked, of which more in a moment.

There are many reasons for Britain’s poor productivity performance. Investment as a share of GDP over the period 1997-2017 was the lowest of 34 advanced economies, including Greece and Italy. Low business investment and inadequate infrastructure are bad for productivity. Levels of skills also compare badly with other countries.

Since the crisis, the normal forces of “creative destruction”, in which inefficient, low-productivity firms fail and new growth leaders emerge has been thwarted. Too many zombies still roam Britain’s economy. A service-sector dominated economy is likely to be less productive than one with a larger manufacturing base.

There is, though, another factor and it goes back to the way that productivity is calculated. We can debate whether the numerator, GDP, is under-recorded, particularly in an increasingly digital age. It may be, but probably not by enough to make a serious difference.


The denominator, however, is also of interest. Throughout modern economic history, it appeared to be a certainty that the working week would decline. So, in Britain, the average working week, 60 hours or more in the 1850s, 55 by 1900, less than 50 in the inter-war years and close to 40 in the post-war period, would fall much further. Computers and automation would reduce the need for people to be in the workplace for so long.

This was the context in which Keynes, in his Economic Possibilities for Our Grandchildren in 1930, speaking out against “a bad attack of economic pessimism”, wrote of the prospect of 15 hour working weeks becoming the norm.

It has not happened. The average working week for full-time workers in Britain in the first three months of this year was 37.1 hours. Not only is that a lot more than 15 but it has barely declined – by just over an hour – in a quarter of a century. The downward progress of the working week has been halted.

It is easy to observe examples of why this is the case. Longer opening hours in retailing – which may merely have spread the available spend over an extended time period – mean longer working weeks for employees, together with more hours of dead time, long periods when there is nobody in the store and very little productivity is being generated.

Other “always on” consumer and business-facing sectors, which are expected to provide a round the clock service, are in a similar situation. While some countries have begun to move towards four-day working weeks as the norm, Britain has not. Being present is either required or expected. It is more than 60 years since C. Northcote Parkinson came up with what became known as Parkinson’s law, that “work expands so as to fill the time available for its completion” but it is arguably more accurate now than then.

How unusual is Britain? According to OECD data, hours worked by Britons in 2016, an average of 1,676 hours per person, was barely lower than the 1,700 of the year 2000. Not only did other countries have much larger falls, in the case of Germany by nearly 100 hours, but European countries that outshine Britain on productivity tend to have much shorter working hours.

On the basis of GDP per hour worked, Germany, where workers put in 300 hours less a year than their British counterparts, achieves 34.5% higher productivity. France, where average annual hours worked are 200 less than in Britain, has 28.7% higher GDP per hour worked.

You can also see this very clearly in an alternative measure of productivity, GDP per worker, where the gap closes dramatically. On this basis German productivity is a mere 9.3% higher than in Britain, while France is 13% higher.

The argument is not as perfect as it might be. America works longer hours than Britain, more than 100 extra a year on average, but also has significantly higher productivity, as much as 36% higher, however it is measured. The post-crisis productivity record for Britain on a GDP per worker basis has also been feeble.

But there is something in it. Studies suggest for every extra hour put in after a certain point there is a decline in productivity; diminishing returns. The Parkinson’s law point stands. It is quite likely that in many organisations where staff attendance is not essential that working hours could be reduced without any meaningful impact on output. It is not the solution to the productivity crisis but it could be part of the solution.