Partner Article

Productivity must pick up before wages will increase

Productivity must increase in 2014 if earnings are to rise, even though employment rises are likely to outstrip expectations.

According to the Chartered Institute of Personnel and Development (CIPD) employment is likely to rise by more than the forecast 300,000 over the coming year, but earnings will not follow suit until productivity picks up.

In his annual report, CIPD’s chief economist, Mark Beaston, highlighted that 2013 was the fifth calendar year in a row when average earnings fell in real terms; this is unprecedented in at least the last 70 years.

Mark Beatson, CIPD Chief Economist, said: “This time last year we were talking about the UK’s ‘jobs enigma’. Since then, labour market performance has continued to exceed expectations, turning the UK labour market into a ‘jobs machine’. Employment growth looks set to continue at an impressive rate over the year to come. However, the downside is that UK productivity has yet to improve and remains below its pre-recession level.

“A lot of attention is being given to falling real wages and the UK’s ‘cost of living crisis’, for understandable reasons. But not enough attention is given to the main reason why this has happened - that productivity has fallen since 2008. Skills shortages in certain sectors may inflate wages for some, but if we are to create any realistic prospect of wages rising in real terms across the board, we need to improve productivity.

“Central to this is business and government acting together to improve the way people are managed, with more emphasis on working smarter and creating value. This involves tackling the crisis of trust in many organisations, as well as developing better ways of valuing and making active use of the skills and talents of our workforce.

“While 2012 and 2013 were years when employment exceeded expectations, if both UK competitiveness and real wages are to increase then 2014 needs to be a year in which productivity exceeds expectations.”

This was posted in Bdaily's Members' News section by Tom Keighley .