FOCUS: Why 'tackling productivity' could be unproductive...

Friday 07 June 2019

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It's a major issue successive governments have failed to resolve and one the incumbent now has laid at its door... But how much is in their control? And could 'tackling' it prove unproductive?

Since the economic crisis, productivity has plummeted by as much as a quarter in the island – a statistic which, paired with Jersey’s ageing population, could kickstart an unmanageable vicious circle for the island’s economy and the workforce's wellbeing.

With a panel of economic experts having recently issued an urgent warning on the real-life ramifications for the island's future, the government has pledged to move fast to take the sting out of the p-word. 

Express investigates the long-standing productivity puzzle, and the oft-forgotten issue of what it means for workers' mental health...

If art is the expression of human creative skill and imagination, then productivity is an art form. It’s the flair and flourish it takes to do more with the same or less; to continue to create amid challenges.

Ask an economist and the answer is more blunt: economic output divided by the number of employees. In other words, how much is each worker ‘worth’ to the economy?

Pictured: Productivity has puzzled many for decades.

But rather than brutally slapping a pound sign over every working islander’s head, there’s an important reason why the government keeps a close eye on this figure. 

There’s a direct correlation between higher productivity with increases in GDP (gross domestic product) per person, expenditure on goods and products per household and the time we get to enjoy to ourselves.

By working smarter, not just harder, we’ve increased our leisure time from less than 20 hours a week in the 1830s to 50 hours a week today, according to Bank of England adviser Silvana Tenreyro. 

The stat came in a 2018 speech on the UK’s “productivity puzzle” given by Tenreyro, who also noted the link between more productive countries and better health outcomes: “Being born in a country with 20% higher labour productivity is associated with higher life expectancy of around one year, as well as with a lower rate of child mortality, with four fewer deaths per 1,000 children.” 

Clearly, then, protecting productivity is crucial – but what is it looking like in Jersey? 

Across the entire economy, productivity has fallen by 23% since 2007, according to the latest figures by Statistics Jersey.

Pictured: Jersey is no exception when it comes to the global productivity slump.

It’s not all bad news: agriculture, utilities and construction are all on the up, but their contributions have not been enough to counter problems elsewhere. 

At first glance, it’s easy to believe the island’s ailing high street and tourism trough might be to blame – sectors whose productivity fell by 1% and 3% in 2017, accompanied by the plummeting manufacturing sector (down 4%). 

Zoom out, though, and it emerges that Jersey’s largest industry is the weight dragging the overall standard down: the £1.7billion finance sector.

Financial services workers might put four times more into the economy annually than the average bar worker (£136k compared with £33k), but statisticians say their productivity has nosedived by over a third since the credit crunch.

Beyond the sector’s control, the main problem has been a shift of employment from the high-productivity banking sector into the less productive areas of trust and company administration. So impactful was the shift that, had it not taken place, the sector would have actually seen its output per worker increase by 13%. 

On top of this, numerous Jersey-based banks had their capital nabbed by their parent companies to support them through global economic turbulence, reducing their overall profitability. 

Pictured: Statisticians say productivity in the finance industry has nosedived by over a third since the credit crunch.

In reaction, the Fiscal Policy Panel (FPP) – a group tasked with advising the Treasury Minister on tax and spending plans – issued a rallying call to politicians to rectify this “broad risk” as they brought the real-life implications of Jersey’s productivity spiral into sharp focus.

“With a tax base heavily skewed towards employment income, falling productivity growth, and thus slower growth in employee compensation means slower growth in tax revenue and therefore makes it more difficult to deal with spending pressures such as those from the ageing society,” FPP Chair Dame Kate Barker wrote in a report.

In a cruel twist of fate, the Chair predicted that, as caring for the ageing population gets harder due to declining productivity, this could itself hurt productivity further. A vicious circle begins.

“With political and environmental limits to immigration, lower fertility and mortality rates, the ratio of working-age people to those of dependent age (more importantly retirees, but also children) is set to fall. This will result in greater spending pressures to fund the care needs of the elderly with no offsetting increase in the number of working-age taxpayers. 

“These challenges are compounded by the need to dedicate more labour resources to lower productivity industries as care work takes on a larger share of the economy. Indeed, with the recent expansion of employment in the ‘other business activities’ sector in Jersey, this dynamic may already be contributing to poor productivity growth.”

The ‘other’ sector isn’t entirely care work, but also includes security, cleaning and real estate – and its growth could signal good news, as more ‘low-skill’ jobs available means higher employment. From a productivity perspective alone, though, this is no consolation.

Pictured: Working harder isn't necessarily a sure-fire route to improved productivity.

And there’s another hurdle ahead: stress.

Research shows older finance workers and millennials alike are suffering the effects of burnout – the former striving to pick up slack and/or hold onto their jobs following the financial crash, the latter a product of a ‘yes to everything’ attitude amid competition for limited intern and post-grad opportunities.

In fact, three-quarters of respondents to the largest ever study of stress levels in the UK conducted by YouGov last year said that they had at one point felt “unable to cope” from stress.

Not good for the productivity of the current – or future – workforce upon which Jersey’s prosperity relies. 

No surprise, then, that the ‘p-word’ forms a central pillar in the Council of Ministers’ Common Strategic Policy.

Economic Development Minister Senator Lyndon Farnham assures us that “work is underway” to make the ambition to reverse productivity’s decline a reality “across the whole economy, with additional focus on the agriculture, retail, tourism and hospitality sectors.”

The key to unlocking the productivity conundrum, he says, will be the development of the ‘Economic Framework’. 

Pictured: Economic Development Minister Senator Lyndon Farnham assures us "work is underway" to tackle the productivity problem.

Developing it has so far involved commissioning a firm to carry out “preliminary” work and a number of “political oversight and senior officer meetings”. Following that, there’ll be consultation with stakeholders.

The result, according to the Minister, will be a roadmap to how Jersey’s economy should be shaped and nurtured in the long and short-term, including specific productivity recommendations.

Sounds promising… until you look back at the comments and work of previous governments and their respective ‘Holy Grail’ documents.

Back in 2008, Chief Minister Frank Walker was all about ‘Imagine Jersey 2035’. His message was one of “improving the skills base”, “increasing innovation”, investment in infrastructure and expanding the workforce by “helping the long-term sick return to work.”

Fast-forward three years and the new scripture was Economic Development Minister Senator Alan Maclean’s: ‘A new economic growth strategy: Quality of life through success’. 

His key messages? “Increase the pace of skills and workforce development”, “Jersey ‘Open for Business’”, and “private and public sector investment to drive future economic growth.”

Last October, Senator Farnham announced his soon-to-be-developed plan before States Members.

Compounding the comically cyclical nature of the situation, Deputy Southern joked: “I love it when we get new words. Now we have a ‘framework’.”

The framework isn’t finished, but it’s likely that, as before, the final result will have innovation, infrastructure and investment in skills at its core.

After all, they were the main recommendations of the FPP. In fact, so common sense are the suggestions that, if you Google “policies to improve labour productivity”, they’re on the first result that comes up from an A-Level economics study website – no consultants (£) needed. 

There’s nothing wrong with these principles, but there are hints of a trend of favouring strategising over concrete action, which, ironically, seems to have made the government rather unproductive at tackling productivity over the past decade. It is hoped that won’t be the case this time.

Pictured: How productivity is measured. (Statistics Jersey)

If there’s a realistic chance of increasing Jersey’s output, it likely lies in initiatives that are industry-specific, measurable, future-focused… and not reliant on inward migration, as the island battles another ‘p-word’ (population).

The agriculture and hospitality sectors have said that problems gaining locally-qualified staff is their biggest productivity threat. However, there have been some promising moves in recent years to combat this.

New apprenticeships in hospitality, construction and engineering have been launched to create home-grown talent in sectors that have long been plagued with skills gaps, while the Skills Licensing Fund is helping firms secure specialist training to help staff excel.

Farming has also enjoyed support in recent years through funding and expertise sharing.

The Jersey Royal Company, for example, benefited from working with the government in 2017 when it started using new technology to apply chemicals to crops more precisely, generating economic and ecological benefits by reducing fertiliser use.

Agricultural businesses also enjoy access to a grant scheme funding efficiency-enhancing initiatives. 

Pictured: "Farming has also enjoyed support in recent years through funding and expertise sharing."

Group Director of Economy and Partnerships Dan Houseago hinted in a recent Scrutiny meeting that government funding for more sectors could form part of the new Economic Framework when he stated that the plan would also be accompanied by “an investment framework.”

Even without state support, Jersey’s farmers are shining examples of improving productivity through innovation. 

The island’s most historic sector has reversed its fortunes and made leaps into the modern day, upping productivity by 3% at the last reading as it embraces everything from automated greenhouses to ‘cow Fitbits’.

Technology is set to be a big piece of the productivity puzzle across all sectors. A 2017 PwC report on automation suggests that simple, data-driven tasks will be predominantly taken over by ‘robots’ by the early 2020s, with actions involving physical and manual dexterity following by the mid-2030s. 

In the next few years, most developments will be in the world of FinTech – something Digital Jersey is a big proponent of – such as automated accounting or trading.

But smaller firms will be able to benefit from tech to help their productivity on a simpler level – think online ‘chatbots’ that schedule appointments, freeing up everyone from real estate workers to restaurateurs to prioritise ‘real’ work over admin.

Tourism, on the other hand, needs to ensure accommodation isn’t left empty when the sun isn’t shining. Improving productivity here, therefore, will involve clever marketing and better transport links for off-peak tourists, according to a report commissioned for Visit Jersey in 2017.

Pictured: Improving productivity in tourism will need marketing campaigns and improved transport links to attract visitors in off-peak seasons.

On a micro level, individuals and businesses are also making time and money-saving changes. Many of these are app-based, including digital project management pin boards, social media tools and internet-use timers. 

However, there’s one marmite phenomenon taking the private and public sector by storm: ‘hotdesking’.

The practice sees employees arrive at work each day, find a desk, then clear it away at the end of the day – there are no fixed places.

While it can cut costs of running an office by up to 30%, the government, whose use of hotdesking started with the opening of its new ‘OneGov’ HQ, say its true success is encouraging collaboration between parties that don’t usually communicate.

But it’s worth remembering that there is always a human consequence to any drives to boost employee output.

A study by Wolverhampton University, for example, showed that, by stripping staff of their ‘own’ space, hotdesking can hurt morale and make employees feel less valued – yet another drive to enhance productivity which can actually end up hitting it harder. 

Pictured: "Hotdesking can hurt morale and make employees feel less valued."

Fortunately, many businesses are now making this connection, realising that some of the best productivity pushers are indirect and focused on wellbeing.

At a recent Leadership Jersey event, Standard Bank's Head of Global Inclusion spoke of the value of making the workplace a more welcoming environment for new parents, with dedicated breastfeeding facilities, for example.

At the same event, Jonathan Channing, a local entrepreneur and Chair of the Autism Advisory Board, explained that businesses could benefit from moving away from the “deficit model of difference” – seeing conditions like autism as a disadvantage – and consider the new ways of thinking they can bring. 

PwC, meanwhile, suggests that creating more board-level opportunities for women would give Jersey’s economy a lift worth millions. 

Amid the current government pay dispute, unions say that cost of living pay rises would lead to more satisfied, motivated workers. 

Clearly, the productivity problem is a complex web with a myriad of solutions that change depending on who you ask, but there is a recurring human theme that cuts across all sectors: employees want to feel included, cared for and valued. 

So, before getting bogged down in tech and trend-led productivity initiatives in a bid to increase outputs, it might be worth a pause for thought to consider an important age-old principle: a happy worker is a hard worker.

This article originally appeared in Connect magazine. Click here to read it in full.