Practise productivity and growth by reading index data, defining output per worker and judging effects on costs and competitiveness.
Sources for use with Section C
The UK economy
Figure 1 Index of productivity for selected countries (2010=100), 2010 to 2020
Figure 2 UK net migration, 2010 to 2019
Extract A Low productivity In 2021 the UK Government argued that the disruption in UK supply chains was mainly as a result of low wages, inadequate skills, and low productivity. The Government stated that reductions in welfare benefits and in the number of low-skilled immigrants were needed to increase the country’s productivity. 5 The UK Government suggested that a decrease in low-skilled immigration would force businesses to invest in training and in capital equipment. The goal of successive UK Governments has been to increase the UK’s productivity to improve living standards. However, between 1997 and 2008, the average annual productivity growth was only 1.9%. Between 2009 and 2019 it fell to 0.7%. 10 By 2021 productivity was nearly 20% below the level it would have reached if it had continued at 1.9%. Some economists believe that high rates of net migration were not the only reason for the UK’s poor productivity performance. They suggested that three other factors were also significant: 15; the 2008 global financial crisis; the UK’s decision to leave the European Union; the 2020–2022 global health crisis. These factors made many UK businesses particularly cautious about investing in innovation and research and development. 20 In 2021 UK employers reported they were facing significant wage increases, especially in jobs where severe shortages exist. There was a concern that these wage increases would harm the UK economy unless there was a growth in productivity. However, some economists argue that rising wages could incentivise businesses to invest in labour-saving machinery and staff training. 25 The shock of the global health crisis may provide a much-needed boost to UK productivity for reasons not associated with labour shortages. Many businesses have an opportunity to innovate and improve their operations before restarting again. The UK Government intends to solve the country’s low productivity by increasing investment in skills and in infrastructure. It is essential that it works in partnership with 30 businesses to achieve an increase in productivity and in the rate of economic growth.
With reference to Figure 1, explain the term 'productivity'.
