Official UK second quarter labour productivity figures published 28th September by the Office for National Statistics (ONS), warns of rise in unit labour costs and a fall in productivity will continue to test the resilience of the labour market.
UK labour productivity fell by 0.9 percent in the second quarter of 2012 on an output per hour basis, and was particularly marked in the manufacturing sector which saw a 1.5 percent fall. This is consistent with CIPD research which showed that almost half (43 percent) of firms in the manufacturing sector have maintained staff levels higher than was required by their level of output during the past year. Meanwhile, whole economy unit labour costs (which include employers’ pension contributions and social security contributions) increased by 0.3 percent in the second quarter and were 3.2 percent higher than a year earlier.
Recent research published by the CIPD suggested that one in four private sector firms are maintaining staff levels higher than they need, with as many as two thirds of these reporting that they will be forced to make redundancies if output or service delivery does not pick up by the first half of 2013.
Gerwyn Davies, labour market adviser at the CIPD, comments: ‘Labour hoarding has to be a part of the explanation why productivity and unit labour costs are moving in the opposite direction desired by employers. As CIPD research shows, many companies are holding on to people with vital skills and experience, even if there isn’t all the work available for them. What’s more, the introduction of the Government’s auto-enrolment pension scheme next week will only add to firms’ unit labour costs. This will put more pressure on those employers that are increasingly facing a stark choice in response to lower levels of demand. Either they will continue to hold on to staff, and in many cases restricting pay rises and reducing working hours, or they will feel compelled to start preparing for redundancies”.
Davies continues: “There are other plausible explanations behind the fall in productivity. The rise in the number of people on part-time or temporary contracts against their wishes and the sharp rise in the number of part-time self-employed are symptoms of low levels of demand. It is also notable how the US appears as the standout nation in the G7 for its productivity numbers. Easy access to finance to fund small businesses and help them grow is a factor that many economists will point to. However, all these factors point to the central problem of how to increase demand, which is tough when our own economy is in the doldrums and our main export markets in Europe are in the same place.”
