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A targeted research institute will help solve the UK’s productivity puzzle to boost wage growth and drive up living standards.

The £32m Productivity Institute and a complementary £5m research programme, both funded by the Economic and Social Research Council, part of UK Research and Innovation, will advance knowledge and inform significant decisions by policy makers and business leaders to increase productivity.

Science Minister Amanda Solloway said:

“Improving productivity is central to driving forward our long-term economic recovery and ensuring that we level up wages and living standards across every part of the UK.

“The new Productivity Institute and LSE’s innovative research will bring together the very best of our researchers, boosting our understanding of the different drivers of productivity and helping people and businesses earn more in every area of our economy.”

The Productivity Institute is headquartered at the Alliance Manchester Business School at the University of Manchester and will be led by Professor Bart van Ark. Alongside the institute, the Programme on Innovation and Diffusion (POID), is also being funded, based at the London School of Economics (LSE) and led by world-leading economist Professor John Van Reenen.

ESRC’s Executive Chair, Professor Jennifer Rubin, said:

'The Institute at Manchester and the LSE research programme address what is arguably the UK’s biggest economic challenge. Together this funding represents the largest economic and social research investment ever in the UK, befitting its enormous potential to improve lives for millions of people.

'The Institute and programme will address low productivity identified by traditional measures, but will also go beyond these measures to explore wider issues, including variation across places and what can be done to improve productivity for the UK as a whole; the importance of delivering a low carbon economy; relationships between well-being, productivity and skills; and the need for new ways of measuring productivity in a changing economic, technological and environmental context.

‘The aim is to ensure that advances in knowledge inform the significant decisions and interventions that policy makers, businesses and individuals must make to improve productivity, and to achieve the attendant improvements in wages and living conditions that doing so can drive.’

Professor Bart van Ark, Managing Director of the new Institute at Alliance Manchester Business School, said:

'For many years the UK has grappled with how to create better jobs and boost productivity, thereby increasing people’s prosperity around the country. The COVID-19 recession makes it time for a fresh look at these challenges.

'If we are to reboot the economy we need jobs that create high value, use economic and natural resources efficiently, and drive sustained growth through technological change and innovation. Productive jobs will pay more and improve people’s well-being.

'Working closely with businesses, policymakers and other stakeholders across the nation, and learning lessons from other countries, we aim through our research and engagement to develop practices and policies to encourage more productive and inclusive growth across the UK.'

Professor John Van Reenen from LSE said:

'For over a decade, Britain’s economy has suffered from stagnating productivity and wages. We need to reignite innovation and diffusion to recover from this pandemic and the other headwinds beyond.'

Productivity is a measure of how well a society transforms work and other resources into products and services that improve people’s lives. Historically, productivity has trended upwards over time: more goods and services have been produced for the same level of input of resources, allowing living standards to rise.

But since 2007, productivity growth in the UK has stagnated. Had productivity in the UK grown in line with its previous trend, the UK economy would be approximately £300bn larger today. Compared to many of the UK’s peer nations, such as France, the USA and Germany, UK productivity is lower, and by some estimates up to 20% lower.

Understanding and addressing the causes of this is the ultimate aim of ESRC’s investment in productivity research. In addition, this research has become more pressing given the need to support economic recovery in the context of the COVID-19 pandemic.

Funding for the institute, the research programme and additional forthcoming programmes is provided through UK Research and Innovation’s Strategic Priorities Fund. The Productivity Institute and POID will run for five years, starting on 1 September 2020.

The Productivity Institute

The Productivity Institute will bring together world-leading experts from a range of disciplines and backgrounds, and will work directly with policymakers and businesses to better understand, measure, and enable improvements in productivity across the whole of the UK. It will lead to a step-change in the quality and quantity of research available in the UK that will directly inform government policy to improve UK productivity. ESRC is providing £26m of funding, while the Alliance Manchester Business School-led consortium is providing £6m.

The institute will include eight partner institutions across the country: the National Institute of Economic and Social Research, University of Glasgow, University of Sheffield, University of Cambridge, King's College London, Queen's University Belfast, Cardiff University, and University of Warwick. It will be led by Professor Bart van Ark and includes over 40 co-investigators who are world-renowned experts in their fields, including Professor Anthony Venables of the University of Oxford, Professor Richard Jones of the University of Sheffield, and Professor Diane Coyle of the University of Cambridge.

Programme on Innovation and Diffusion (POID)

POID will be based at LSE and led by world-leading economist Professor John Van Reenen. The Programme is rooted in the argument that productivity growth rests ultimately upon two elements: innovation - ideas that are new to the world - and the diffusion of these ideas across the economy. ESRC is contributing £4m, while LSE is providing £1m.

These new investments align with ESRC’s Delivery Plan, which names ‘Transforming Productivity’ within the Productivity, Prosperity and Growth priority area.

They also complement ESRC’s existing investments in the Productivity Insights Network (PIN), the Enterprise Research Centre, the What Works Centre for Local Economic Growth, and the Productivity Outcomes of Workplace Practice, Engagement and Learning (PrOPEL) Hub, a multi-disciplinary hub at Strathclyde Business School.