(3)  Key Facts and Data for General Election 2015

People do not feel much better off when they are told the economy is “growing”.  They aren’t much better off.  There are just more of them.

“Growth” refers to increases in Gross Domestic Product (GDP) and is the figure constantly referred to by politicians and economists as a proxy for the general health of the economy.

• UK Productivity is the average value added per UK worker each year.
• GDP = productivity multiplied by the numbers in work.

GDP Calculations

Because productivity is difficult to assess, GDP is usually calculated from a combination of three approaches (total value of production; total expenditures on goods and services, less imports, plus exports; total incomes derived from the production of goods and services). These should all agree, but never do.

The figures for GDP published by the UK National Statistics Office are a combination of all three approaches, which is why they are subject to much guesswork and repeated revisions. The latest results from the ONS for the years 2007 to 2014 are in Table 1.

The net change from 2008 to 2014 is +3.4%.

Productivity (Value Added per worker) Assessments

The productivity of the 24 million private sector employees, including one-man businesses, can in theory be assessed from the Value Added (VAT) returns of the 4 million businesses in the UK.  The productivity of the employees in a business is simply the firm’s Value Added divided by the number of its employees.

The problem lies with the 7 million people in the public sector, which does not make VAT returns.  The usual approach is to equate the value added to the cost of provision of the public service, minus bought-in goods and services, such as drugs in the NHS.

The average UK value of productivity, or added value, per worker, in current prices, is around £56,000 per employed person per year[1]

• Added value per worker in a job is basically their wages plus the value of knowledge and equipment used on the job.
• Many occupations use only their labour plus hand tools or push-button equipment. By contrast, skilled workers in factories, power stations, or chemical plant employ capital many times their annual wages, so their added value per person (productivity) is very high (in the hundreds of thousands of £s)[2].
• Since the Labour government’s relaxation of controls on immigration, in 2004, immigrants have overwhelmingly clustered in Agriculture, Retail, Hotels, Restaurants and Bar work; Health and Social Care, and Construction.
• The first four occupations pay average wages around two-thirds of the national average (many are on the minimum wage), thus dragging down national added value per person (productivity). Construction is a little better paying about 90% of the national average, but immigrant numbers there are comparatively small, as are those in high paying occupations such as doctors and engineers.
• The increase in the employed work force is almost entirely due to immigration from Eastern Europe in the period 2004 to the present. This vastly exceeds the natural increase (new native workers minus retirees).
• If you subtract 2 million workers on two thirds of average wages in the 7 year period of the recession 2008-14, you reduce the GDP of the remaining 27-28 million workers by 2.5%[3].
• Cumulative growth in Table 1 is now 0.9%, not 3.4%, barely at all noticeable in the living standards of the remaining population.
• You also raise productivity back to the 2011 level at the beginning of the Conservative/LibDem Coalition, better than 2014, but not nearly good enough in a cut-throat competitive world.

This is the solution to the problem, supposedly baffling economists and Treasury mandarins – as to why national employment is high, but productivity has fallen.

End Notes

[1] This is in current 2014 prices.  The average productivity in 2008 at the start of the recession was £50,490 or £58,050 in 2014 prices.  So productivity has fallen over the period.

[2] Capital employed in new car plants is typically above £1 million per worker.

[3]

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