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2014 is not shaping up to be a year of productivity, warns CIPD

Figures published today by the Office for National Statistics show that unemployment has seen the largest annual fall since records began, but the CIPD is warning that this has not been accompanied by an increase in productivity, which explains why wage growth remains weak. 

Mark Beatson, Chief Economist at CIPD, comments: “At the beginning of this year CIPD said that 2014 needed to be a ‘year of productivity’ when organisations took advantage of better economic conditions to raise their game through investment in capital and machinery, improving workforce skills and adopting smart working practices. We warned that this would be the only way to sustain the recovery and create the headroom for higher real pay.  Unless there are some very big revisions to the second quarter GDP estimates published on Friday, we can now take stock half way through the year and conclude that we still have a long way to go.

“The number of people in work has increased by over 450,000 in six months and average hours worked have increased marginally, so this is not because work is being spread more thinly. About half of this growth has been in self-employment and this could mean that hours and earnings become more variable in future, as the self-employed tend to vary these rather than stopping (or starting) self-employment.  Unemployment continues to fall sharply and, with our Learning to Work programme entering its third year, we are now seeing real progress in terms of reducing youth unemployment. The number of 16-24 year olds who are unemployed and not in full-time education fell by 135,000 in the last two quarters.

“The latest headline earnings growth figure is negative but this is probably a one-off - one of the ripples from changes to the top rate of income tax.  But if we look at the data excluding bonuses, average weekly earnings in June were the same as in December last year and up by only 0.8% on June last year.  This may be because labour productivity, measured by the value of output each of us produce per hour worked, has not increased in the first half of 2014 alongside strong employment growth in low-paid sectors such as restaurants and hotels.

“Looking ahead, the official figures show unfilled vacancies at their highest level since March-May 2008.  Our Labour Market Outlook survey, published recently, showed that employers expect strong economic growth to be reflected in more hiring and weak wage growth.  The pattern we have seen so far this year therefore seems likely to be repeated in the second half of this year.  Although business investment is now picking up, this takes time to show up in higher productivity and needs a skilled workforce to make best use of it.  Employers need to take advantage of the favourable market conditions to develop their workforce or else we face the prolonged prospect of a low pay, low productivity cycle.”