Furlough scheme responsible for productivity drop, says ONS

8 Jul 2020 By Francis Churchill

First official figures since lockdown was introduced also reveal the largest yearly increase in labour costs for over a decade

The introduction of the furlough scheme has caused a drop in UK productivity, as worker hours have been reduced without a change to their employment status, the Office for National Statistics (ONS) has said.

The latest productivity figures from the ONS have shown that output per worker fell by 3.1 per cent in the first quarter of the year, from January to March, a time period which includes the start of lockdown and the government’s job retention scheme. During this period there was a 1.2 per cent fall in the number of hours worked.

However the official figures  – the first from the ONS to shed insight onto the impact of the coronavirus on UK productivity –  also show that when looking at productivity per hour worked, the drop was only 0.6 per cent.

This varied widely by sector – output by hour fell 10.5 per cent in real estate and 1.4 per cent in manufacturing compared to the same quarter a year ago, while the same measure of productivity rose 2 per cent in scientific, professional and technical services and 5 per cent in construction – however non-financial services were overwhelmingly responsible for the productivity drop, accounting for 0.9 percentage points of the total.

The latest figures also showed the cost of labour increased 6.2 per cent in the first three months of 2020 when compared to the previous year – the largest increase since 2006. This could also be due in part to the furlough scheme, which has helped support the cost of labour despite the fall in productivity.

Commenting on the figures, Andrew Duncan, UK CEO of Infosys Consulting, said quarterly productivity figures could be “volatile” and might not represent long-term trends. “There has been a fear that the global work from home movement, intended to maintain output and efficiency during the Covid-19 pandemic, could actually generate a worldwide productivity slump,” he said. “But from what we’ve seen so far, there is significant variation in the impact on productivity from Covid-19 across industries.”

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This divide is also likely to grow in the second half of 2020, Duncan said. While sectors including entertainment, food and hospitality have only just started the long process of easing out of lockdown, many other businesses in the service sector are already benefiting from an increase in productivity from the move to home working.

“Many employees [have been] given the autonomy to work flexibly and better juggle their work and home lives. As a result, many businesses will make the permanent shift to digital remote working models, with an ‘anywhere, anytime’ mindset,” said Duncan.

“This increasingly digital workforce will naturally bring about a shift in measuring and incentivising success – and there will be a readjustment in productivity measurements across industries globally,” he said.

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