· 2 min read · Features

Productivity and pay growth – the challenge for business

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Between 1998 and 2007 improvements in labour productivity – how much value the UK workforce creates in each hour worked – were responsible for three-quarters of Britain’s economic growth. This was about working smarter – not longer or harder – and supported wages rising faster than in any other G7 economy.

The UK has scope to up its game. Our productivity is 16% lower than where it would have been had it risen at the same pace as just before the crisis. This was partly due to firms preserving jobs during the downturn. Keeping people in work was the right thing to do, but it hit UK productivity. So as the economy strengthens further, we must now focus on raising productivity.

Global competition and new technologies mean that the UK’s economy is constantly evolving. As a result the kinds of jobs that are being created are becoming more highly skilled and higher paid. A role with average pay is better rewarded than it used to be. But the journey from the bottom to the middle has become harder as the skills needed for these roles have been upped.

Our research backs this up: one in three workers starting off in the lowest wage group are still there 14 years later. To give these employees the opportunity to get on in work we must get better at delivering the skills that people require to progress. We need action on two fronts here – a government focus on vocational routes to higher skills, and a business commitment to develop employees to reach their full potential.   

Reaching the middle now requires level 4 skills – i.e. higher education – so vocational routes to level 4 must be available. And our fast-changing economy means that education pathways need to be a lifelong process. The government should develop a strategy for adult skills that it focuses on as diligently as it does apprenticeships strategy.

This strategy needs to ensure that skills training matches up to employment prospects. We train five hairdressers for every vacancy in a salon – yet only two people for every five jobs in the automotive industry. Businesses shoulder the burden of paying for vocational training at higher levels, but the government and education providers must focus on economic needs rather than ‘bums on seats’ to have the greatest impact on employment prospects.

The answers aren’t all about reforming the skills system, though – the second element of creating better ladders must come from businesses themselves. The opportunities workers have and the encouragement they receive is critical, and firms realise they need to do more to help people build a path to higher pay. 

For companies to get this right they need a commitment from the top of the organisation, which then needs to ripple out with the right tools and incentives for line managers – it can’t just be an easy line about ‘people being our greatest asset’.   

A commitment to invest in training is an important step to fostering an upwardly mobile workforce. But development isn’t all about spending money – there are many great examples of companies using coaching and mentoring to empower their employees.

Businesses want to build a more prosperous Britain where everyone has the chance to get on in life. But our ambitions must be higher and our goals must be greater. Making growth work for everyone is about more than just getting back to where we were. We need a plan to ensure that growth is strong, sustainable and inclusive.

Katja Hall is deputy director-general of the CBI. Her essay is published as part of the Recruitment and Employment Confederation’s (REC's) book Building the Best Jobs Market in the World: The Expert View, available free online