Improving business productivity key to being better off as a nation, says top economist

Institute for Fiscal Studies boss kicks off the first day of the CIPD’s Festival of Work with insight into inequality, pay progression and dispersal of wages

Credit: Peter Spinney/Rehmat Rayatt

Improving business productivity is key to increasing wages and improving the quality of life in the UK, one of the country’s top economists has said.

Speaking during the opening keynote address for the CIPD’s Festival of Work, Paul Johnson, director of the Institute for Fiscal Studies (IFS), said the UK “can’t as a nation get better off unless the population and businesses are becoming more productive”.

Education was a big part of the solution, he said, explaining that the UK was the only country in the Organisation for Economic Co-operation and Development (OECD) where the basic literacy and numeracy skills of 20-year-olds were no better than those of 60-year-olds.

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He added that the UK doesn’t “have the clear paths through technical and vocational education that most of Western Europe does,” and that lifelong educational opportunities were not accessible to all. 

“[Employers] put more effort into training people who are already well educated and we've got a long tail of people still in the UK who are not well educated,” said Johnson.

Johnson went further into inequalities between different groups in the workplace, noting that those with the lowest levels of qualifications had “fallen further and further behind the rest” when it came to opportunities to increase earnings.

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“If you're a 30-year-old man with no qualifications, you're twice as likely to be out of work [when] sick than if you're a 60-year-old man with higher qualifications,” he said.

Women working part time were also among those least likely to increase their earnings, said Johnoson, noting that statistically, part-time work “does about as much for [a woman’s] future earnings as being unemployed”.

Another inequality in the workforce is the dispersion of wages, according to Johnson, who said that, post Covid, those at the top of wage distribution were seeing pay grow the fastest, while there was not a huge difference for everyone else.

“In the media, we hear about hospitality and HGV drivers getting big [wage] increases,” he commented. “What we're actually seeing is much bigger growth right at the top of the earnings distribution.”

This was a big change from three years prior to the pandemic, where those in the lowest-paid percentile saw significantly higher pay increases than those in the middle-paid population.

Johnson also offered some observations on the state of the labour market at the moment, specifically the rise in inactivity among people over the age of 55 and even more so among those over the age of 60 – all of whom are leaving the market as they choose to retire early. 

“What we don't know is what happens to the next cohort,” he warned. “Will it flatten out or will it return to its pre pandemic trend of inactivity falling? I don’t know [but] it really matters for employers, for the public finances and for the economy.”

Discussing these issues with Johnson, Peter Cheese, CEO of the CIPD, said that businesses were facing a number of problems, including underinvestment in workplace technology and difficulties improving job quality. But, he said: “It is within our agency as employers and organisations do something about it.”

Cheese said businesses needed to “put people back at the centre of our thinking in business”.

“At the end of the day, we all spend a lot of time working, and work should be good for us,” he explained. “It should be good for our wellbeing, we should feel that we have the opportunity to get the best out of ourselves, to progress and to learn new things.”