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There are few subjects more likely to empty a room than a debate between statisticians on how to measure the UK labour market.
Yet a technical change announced by the Office for National Statistics (ONS) last month alters how we understand one of the biggest economic questions of recent years: the UK’s productivity puzzle.
The new estimates are still indicative, rather than official statistics. But if broadly confirmed, they point to an important change in how we interpret our recent economic performance.
Productivity – how much economic output we produce for the effort we put in – matters because, over time, it is the main driver of growth, living standards and the resources we have to fund public services.
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The UK’s productivity story is depressingly familiar. Before the financial crisis, UK productivity grew at around 2% a year. Afterwards, growth appeared to collapse to little more than 0.5%, leaving the UK close to the bottom of the G7.
The ONS now thinks that this picture was too pessimistic.
It has developed a new approach that uses a wider range of data to estimate jobs and hours worked in the economy. It now thinks that we are – on average – are working fewer hours than before the financial crisis.
This matters because the ONS has faced well-documented problems with how it collects its economic data.
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The key point is straightforward. If the economy produced the same amount as previously thought, but people worked less to produce it, then productivity must have been higher.
That is exactly what the new figures suggest.
Between 2007 and 2019, productivity growth is now estimated at around 1% a year, roughly double the previous estimate. On one comparison, Britain moves from near the bottom of the G7 for productivity growth after the financial crisis to near the top.
This suggests that Britain’s productivity “puzzle” may not have been quite as exceptional as we thought, but there is an important catch.
The ONS has not discovered previously missing economic output. The economy is no larger than we thought it was. Instead, the weakness in economic growth has shifted partly from the productivity side of the ledger to the labour-supply side.
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This helps explain why the revision changes our interpretation of the economy without making us any richer. Real wages have still grown slowly. Household incomes have still stagnated. And the level of UK productivity remains well behind countries such as France and Germany.
So, the right conclusion is not that the UK’s economic problems have disappeared. It is that we have a more accurate diagnosis of them.
There are also wider questions about why hours worked have fallen. Some of this may be positive: richer societies often choose more leisure, while flexible and part-time working can help more people participate in the labour market. But some will reflect poorer health, caring responsibilities, a lack of suitable childcare or people being unable to find the hours they want.
For Scotland, these questions are particularly important.
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Our population is ageing and the working-age share is under pressure. That means future growth cannot simply rely on having more people working more hours. We will need to become more productive in the hours that we do work.
That puts renewed emphasis on investment, innovation and getting industrial strategy right, but it also reinforces the importance of education and skills, alongside supporting people into the labour market.
The recent Milburn Review has highlighted concern about growing numbers of young people across the UK disconnected from education, employment and training. Today’s young adults are less likely to be in employment than comparable generations at the same age.
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In an ageing society, we can afford neither to waste the potential of younger workers nor to accept weak productivity among those already in work.
The ONS revisions suggest that one part of the UK’s economic story is better than we thought. But better measurement cannot substitute for better performance.
The central challenge remains the same: how to raise productivity, grow employment and ensure that the benefits of growth improve living standards across society. If anything, the new figures simply highlight the importance of tackling all these challenges at the same time.
Graeme Roy is professor of economics at the University of Glasgow’s Adam Smith Business School.