Richard Ramsey: Working 9 to 2?
DOLLY Parton famously sang about the grind of working 9 to 5 and the routine of stumbling out of bed, making coffee and battling the traffic five days a week.
But the pandemic has turned that on its head and the routine of work has changed for many workers forever. It has shown that there is perhaps a whole new way to make a living.
Indeed, some organisations are talking about a four-day week becoming the norm and people becoming more productive as a result. Sceptics though will counter this by saying that this is just people wanting four days on a five-day wage. But it has helped to put the discussion about productivity very much back on the agenda.
The term productivity invariably turns a person cold. But its importance cannot be understated. Some businesses would refer to it as operational efficiency. Productivity is the main cause of economic growth and largely determines the long-term economic health of a nation. It helps define the scope for raising living standards and the competitiveness of an economy.
Since 2008, weak growth in productivity has been labelled the UK’s productivity puzzle. A slowdown in productivity has been a problem throughout advanced economies but it has been particularly marked within the UK.
Prior to the pandemic, UK productivity was some 20 per cent below the level that would have occurred if the pre-Global Financial Crisis rates of productivity growth had continued. Instead, the weakness in UK productivity that occurred has been dubbed by The Royal Statistical Society as the “statistic of the decade”.
On average UK workers are less productive than their peers within Italy, France, Germany and the US. Similarly, NI workers’ rates of productivity are well below their UK counterparts.
To illustrate this let’s assume a UK worker works 9am-6pm Monday to Friday with a one-hour lunch break. While a UK worker finishes at 6pm on a Friday their Italian equivalent would have produced the same level of output at 2.24pm just over 3.5 hours earlier.
The French and US workers would have produced the UK worker’s output by 5.06pm and 5.18pm respectively on Thursday afternoon. Meanwhile the most productive workers of all – the Germans – would have left worked at 3.24pm on Thursday afternoon.
So, what about Northern Ireland workers? Productivity – using the output per head measure – is 20 per cent below the UK average (and around 20-25 per cent below the Republic' average). As a result, in order to produce the same output as their peers in the UK, Northern Ireland’s average worker would have to stay in work over the weekend and work until 10.45am on Sunday. Northern Ireland also has the lowest levels of productivity within the UK. So, workers here would have to work seven days to match the output of their UK counterparts.
Compared to our most productive European counterparts, the average German produces in three days what the average Northern Ireland worker produces in five. This means an average German would only have to work 9 to 2 to match a Northern Ireland worker’s output in a full 40 hour week.
Northern Ireland has grappled with low productivity for 100 years. So why is our productivity so poor?
One of the reasons is the make-up of our economy and our dependence on low productivity sectors like agriculture and a relatively small business services sector. The German economy benefits from a large number of highly productive companies in sectors such as the motor industry and pharmaceuticals.
Northern Ireland does have some very highly productive firms that are in the world premier league, we just don’t have enough of them. The same applies to skills. We have an education system that produces some of the best educated, most skilled people in the world.
But for decades we have also churned out an unacceptably high number of school leavers with no skills or qualifications. How unproductive is that! As a result, 16 per cent of our population have no qualifications whatsoever. That is double the UK average. Meanwhile two-thirds of NI’s population have no tertiary education qualifications such as a degree. This compares with 51 per cent for the UK and 48 per cent for the RoI.
Underinvestment is also a problem. This applies to both government and business. For instance, for every £100 the UK spends on science and technology, we spend only £43. Northern Ireland SMEs persistently under-invest relative to their peers elsewhere. This is highlighted by the widening gulf in SME deposits with banks relative to loans for investments.
But the Covid-19 pandemic has both enhanced and worsened productivity. Working from home has removed commute time for many, replacing unproductive time with more productive activities, benefitting employers and/or households.
The rapid adoption of technology could be one of the silver linings from the pandemic. Some economies are already seeing this lead to a surge in labour productivity as unproductive, needless face-to-face interactions are done away with, whilst maintaining those that are important.
Working from home though has disconnected employees from their employers and makes them more likely to move elsewhere. This has an impact on firms’ willingness to invest in the development of team members, which has an impact on productivity.
We are also likely to see a legacy of academic under-achievement as a result of the pandemic, meaning that our issues with under-skilled people becoming worse in the short-term rather than better. Resources dedicated to implement education recovery or catch-up programmes have been disappointingly low.
Analysis by the Institute for Fiscal Studies (IFS) reveals that England, Scotland, Wales and Northern Ireland have dedicated funds amounting to just £200-400 per pupil on these programmes. This compares with £1,800 and £2,100 per pupil in the US and the Netherlands respectively. Northern Ireland’s significant under-investment in this area will have a huge cost economically and socially for years to come.
But whilst the pandemic has brought significant change, the overall issue Northern Ireland has with productivity remains and it’s a subject that is likely to feature significantly in economic debate here for some time to come. Dealing with it is of paramount importance.
Indeed, there has been a coming together of experts, including those from Queen’s University and other universities such as Cambridge, in the form of The Productivity Institute (www.productivity.ac.uk) with the goal of cracking the productivity puzzle. And the Manchester-based institute has made a big-name Dutch signing, Professor Bart van Ark, to lead their efforts, so watch this space.
There will be plenty of academic debates, but you can bet the simple message will be that it’s not about how long you work, or sit at a desk in school, but what you do in that time. Ultimately our standard of living and the competitiveness of the local economy depend on it.
Richard Ramsey is Northern Ireland chief economist at Ulster Bank