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A comprehensive analysis of the productivity performance of the UK’s low-wage sector, undertaken by NIESR researchers for the Joseph Rowntree Foundation, shows that in aggregate it lags 20-30% below that found in Germany, France, the Netherlands and the US. Among ten comparator countries considered by researchers, only Italy’s low-wage sector has levels of value-added per hour below that of the UK.

The report, published yesterday, focused on the ten industry sectors in the UK where at least one-quarter of the workforce are low-paid (that is, having gross hourly earnings below two-thirds of the UK median wage) and explored the role that they play in the UK’s productivity gap with other countries.

The ten sectors span from retail and hospitality to administrative services, agriculture and social work. Retail and hospitality are particularly important given that they are large employment sectors with a high incidence of low pay. A little under half (46%) of workers in retail and just short of three fifths (59%) of workers in hospitality are low paid. The high incidence of low pay means that these sectors alone account for around a third of workers in poverty.

The researchers found that raising productivity in the UK’s low-wage sectors to the levels found in Germany, France and the Netherlands would close between a fifth and a quarter of our national productivity gap with these countries. The UK’s productivity problem was not found to be restricted to low-wage sectors, however, with the UK’s comparative position being, on average, slightly worse among higher-wage industries.

According to the researchers, the productivity gap in low-wage sectors is primarily due to differences in Total Factor Productivity (TFP) in those sectors between Britain and other countries, followed by differences in labour quality, with differences in capital intensity playing a more minor role. TFP is an estimated measure of how efficiently labour and capital are used to produce economic output.

TFP was shown, in turn, to be higher in countries and sectors with:

• A higher proportion of workers in on-the-job training;
• Better management practices, such as the use of performance related pay;
• A higher percentage of workers using Information and Communications Technology, ICT;
• A lower share of temporary workers;
• With less product market regulation.

NIESR Fellow John Forth, who co-authored the report with NIESR’s Principal Economist Ana Rincon-Aznar, said: "Increasing levels of skill and rates of capital investment in low-wage sectors can play a part in closing the UK's relative productivity gap with other countries. However, the UK’s weakness in these sectors lies at least as much in how skills and technologies are put to use, and so close attention must also be given to management practices and the organisation of work."

Notes for editors:

The title of the report, authored by John Forth and Ana Rincon-Aznar is: “Productivity in the UK’s Low-Wage Industries: A Comparative Cross-Country Analysis’” and it can found here.

It was published alongside two other pieces of research commissioned by the Joseph Rowntree Foundation:

• Green et al., Raising productivity in low wage sectors and reducing poverty
• Savona et al., ‘The heterogeneous wage distribution of labour productivity changes’.

Tackling the UK’s productivity problem lies behind the government’s flagship Industrial Strategy. The recent Industrial Strategy White Paper recognised that ‘some of the biggest opportunities for raising productivity’ come from low-wage, high-employment sectors, and promised to develop sector deals for hospitality, retail and tourism ‘to progressively drive up the earning power of people employed in these industries and enhance our national productivity’.

For further information or to speak to the authors of this report, please contact the NIESR Press Office:
Paola Buonadonna on 020 7654 1923 / p.buonadonna@niesr.ac.uk    

NIESR aims to promote, through quantitative and qualitative research, a deeper understanding of the interaction of economic and social forces that affect people's lives, and the ways in which policies can improve them.

Further details of NIESR’s activities can be seen on http://www.niesr.ac.uk or by contacting enquiries@niesr.ac.uk Switchboard Telephone Number: +44 (0) 207 222 7665