Good jobs and the productivity puzzle

‘Productivity is not everything, but in the long-run it is almost everything’; on this point, even Paul Krugman’s most hardened critics would agree.1 Productivity lies at the heart of the UK’s two most important political debates: how to boost living standards and how to reduce the deficit. All things being equal, increasing hourly productivity by 10 per cent would add an extra £140 billion in GDP every year.

Such an increase would transform both household budgets and the government’s finances. The disagreement concerns how we get from here to there. At heart, this disagreement hinges on two competing theories of change, which can be summed up in a single question: ‘Should we wait for productivity increases to produce better jobs, or would better jobs increase productivity?’

Recent experience suggests that the combination of globalisation and new technology has a large effect on some sectors, but not on others. Where jobs cannot easily be either off-shored or mechanised, firms are often happy to continue with low productivity, low-pay business models while they remain profitable. This realisation has strengthened the hand of ‘wages first’ advocates, who argue that better jobs can drive productivity gains, not just follow them.

However, there is only so far that this can be done from Whitehall. Raising the statutory minimum wage too far or too quickly comes with its own risks. Instead, policy makers need to start to conceive of firms as institutions and to consider what the drivers might be from within organisations for more ambition on both pay and productivity.

Source:

https://www.demos.co.uk/files/GoodJobs_essaycollection.pdf?1418312724