Increased productivity will only be achieved when employees are treated better

Editorial: If the UK economy is to make a sustained recovery, the business community will need to find ways of using staff more effectively

Supermarkets have been affected by the recent ‘pingdemic’ (AFP/Getty)

The supermarkets are struggling to keep their shelves stocked, as the Covid-19 test and trace app has pushed more than 600,000 people to self-isolate. But even before this latest blow, employers were struggling to find staff, particularly in hospitality.

Last week, new evidence emerged that staff shortages were climbing in other sectors, including finance and management services. Indeed, the world’s (and the UK’s) largest job-search website reported a surge in demand for staff in London from employers such as EY, Citigroup, PwC and KPMG. Vacancies are now running higher than they were in February 2020, before the pandemic struck.

In one sense, this is welcome. A year ago, the Office for Budget Responsibility published its Fiscal Sustainability Report, which set out three possible scenarios for how the economy might develop over the next five years. Its central scenario saw unemployment rising to nearly 12 per cent by the end of last year, and its most pessimistic scenario to 13 per cent by the end of March this year.

As it has turned out, unemployment is currently at 4.8 per cent. That is in large measure thanks to the government’s furlough scheme, now being run down, but strong underlying demand for labour should hold down the unemployment rate once furlough ends.

If the UK economy is to make a sustained recovery, the business community will need to find ways of using staff more effectively. The practical question employers should ask themselves is: what can I do to make it more attractive to work here? There is an obvious answer to that: pay people more. Pay rates, particularly at the bottom end of the scale, have been rising. Average earnings in the three months to May were up 7.3 per cent, though this exaggerates the true climb as earnings fell sharply last year in the same period. The underlying increase in pay is smaller.

Nevertheless, employers are reporting that they have to increase pay to attract applicants. Earlier this month the government published a research paper looking at ways pay at the bottom end could be pushed upwards. We should wait to see to what extent that aspiration is matched by action.

The government’s plans for increasing the pay of its own lower-waged workers has been widely criticised, all the more so in the light of new proposals that could increase MPs’ pay ahead of the rest of the public sector. But at least the aim is clear.

The key, however, will be what happens in the private sector, for numerically, that is where most people work. Employment in the private sector is 82.4 per cent of the whole, a proportion that has stayed roughly stable for more than 20 years – it was 80 per cent in 1999. The practical issue confronting employers is that if they are to pay higher wages and yet hold down price increases, they have to find ways of increasing productivity.

This is a huge challenge. Low productivity has been the Achilles heel of the UK economy for at least a decade, the counterpart to strong employment growth. Tackling that will mean putting more emphasis into training at every level, more thoughtful management, and better treatment of workers.

Enterprises at every level have responded flexibly to the stresses from the pandemic, embracing working from home, reworking their supply chains, and developing new markets. The adjustments following the UK’s departure from the European Union have been a further burden to businesses. They now need to use the adaptive qualities they have shown to meet the ongoing challenges of a tighter labour market.

This is not just about keeping those supermarket shelves stocked: that is a short-term challenge. The long-term task is to treat employees better in every way – and as a result, lift the nation’s productivity.