Claims that UK businesses became more productive during the pandemic could be illusory, according to new data from the Office for National Statistics.
The ONS’ latest “labour productivity flash” shows that output per hour fell 0.5% between April and June, but was up 3.1% compared to the same quarter in 2020.
The data also showed that output per worker was 2.7% below pre-pandemic levels, although it was up 4.5% quarter-on-quarter.
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Between April and June, output per hour worked fell by 0.5% compared with the previous quarter, caused by hours worked rising by 5.4% – a steeper rise than gross value added – a measure of output based on goods and services produced.
But the ONS warned that while the latest productivity figures suggest that there has been little damage to productivity levels caused by the pandemic and large proportion of employees on furlough, this may be down to the “allocation effect”.
This describes the way that productivity in different industries moves around when impacted by a serious event, such as pandemic lockdowns. In this case, resources moving from badly impacted sectors to others (such as hospitality workers moving into retail) creates a positive allocation effect.
This, in turn, impacts the reliability of productivity figures. The ONS said that productivity growth between 2020 and 2021 would have been “below pre-pandemic level if not for a large positive allocation effect”.
“The coronavirus pandemic has led to some less productive industries shrinking. Meanwhile, more productive industries now make up a proportionately larger share of the economy. This increases aggregate productivity in the economy,” it added.
Furlough has also caused employment to remain closer to pre-pandemic levels than GVA, which has led to lower output per worker levels, it said.
Although output per worker rose 23.4% quarter-on-year, this compares with the low-point of productivity during the early months of the pandemic from April 2020.
Bart van Ark, professor of productivity studies at the University of Manchester, said the recent rise in working hours primarily resulted from a reduction in furloughed hours from current workers rather than hiring new workers.
The effects of lockdown on badly hit sectors such as hospitality were “not yet fully played out”, he explained.
“It is plausible to expect ongoing negative reallocation effects in the next few quarters as these sectors continue to grow their share in the economy to a pre-pandemic normal.”
He added: “Another important uncertainty for the productivity outlook is how the balance between negative and positive effects on the labour market will play out.
“On the negative side, labour scarring due to a gap in training of furloughed workforces and potentially longer-term effects from damage to education of new entrants in the labour market, may negatively impact on productivity.
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“On the positive side, rising labour shortages, especially for blue collar workers and those working in some personal services, may lead to wage increases and attract more qualified workers, which in turn might incentivise companies to invest in automation and workforce skills.”
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