The UK’s
‘productivity puzzle’ has been described by Chancellor George Osborne as, “the challenge of our time”, and is,
according to the Office for National Statistics, “unprecedented in the post-war period.” Despite the general
economic recovery from the 2008/09 recession, productivity – essentially the
amount of output firms produce for the amount of input expended, measured by
gross value-added (GVA) per hour worked – has flat-lined, as shown in Figure 1.
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| Figure 1, Source: Office for National Statistics |
As well
as UK productivity being static, we are also falling a long way behind other
developed countries. In 2014, the UK’s productivity gap with the rest of the G7
nations was 18 percentage points – the widest it has been since records began
in 1991.
While
the puzzle has not been convincingly solved, lots of reasons have been advanced
as to why productivity has stagnated in recent years: from a lack of investment by hesitant firms stockpiling cash, to skills gaps, to increases in
employment outpacing growth, to ‘zombie firms’ not dying out in the recession
as they did in previous equivalents.
Productivity in Shropshire
So
that’s the national picture, but what’s the situation here in (the ceremonial county
of) Shropshire? Productivity is also reported by the Office for National Statistics at sub-regional level (NUTS3), roughly
equating to local authority areas or, locally: Telford & Wrekin and
Shropshire (unitary authority). It is reported slightly differently, as nominal
GVA (excluding rental income) per hour worked[1].
Both
Telford & Wrekin (97th of 168 sub-regions) and Shropshire (117th)
are below the UK average for GVA per hour worked of £27.30: Telford &
Wrekin at £24.60, and Shropshire at £23.90. They both rank in the third
quartile against other sub-regions for productivity, as shown in Figure 2
below. Solihull is the highest ranking West Midlands sub-region, and London
dominates the top of the rankings – indeed, the differences are less stark if
London is excluded, with the average figure dropping to £25.
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| Figure 2 |
However,
slightly – but not profoundly – more encouraging is that both Telford &
Wrekin and Shropshire have done marginally better than other sub-regions in
terms of growth over the last decade, and particularly since the recession
which proved the turning point for the rest of the economy.
Figure
3, for the last decade, shows productivity (x axis) and growth rates (y axis)
with both Telford & Wrekin (orange) and Shropshire (green) edging into what
might be termed the ‘low productivity, high growth’ segment. This is also
reflected in their respective ranks among sub-regions, shown in Figure 4, where
both have edged higher over the period. Within the county, it’s interesting to
note how, in 2010, they were separated by just six places; but, since, Telford
& Wrekin has made very strong progress whereas Shropshire – which slipped
into the lower quartile before the recession – has remained more-or-less in the
same place.
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| Figure 3 |
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| Figure 4 |
Perhaps the best
news for the two sub-regions is that, since the recession, Shropshire has
ranked 46th (of 168) and Telford & Wrekin 52nd in
terms of productivity growth, seeing both on the verge of the upper quartile
and, as shown in Figure 5, comfortably above the national average.
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| Figure 5 |
In terms
of where to look for lessons, perhaps the most interesting sub-regions are
those with lower levels of productivity, and higher levels of growth, i.e.
those in the same segment as Shropshire and Telford & Wrekin.
Interestingly, one of the paragons here is West Midlands neighbour Walsall (the
second highest dot on the growth, y axis);
also up there are East Derbyshire and Leicester. In the high productivity, high
growth (upper right) segment – the upper echelons of which are populated almost
exclusively by London and the South East sub-regions – notable local
infiltrators are Cheshire East and Derby.
Looking
at year-on-year changes, Figure 6 shows – even when looking at nominal GVA –
how the ‘productivity puzzle’ has taken hold. The rate of productivity growth
has slowed, nationally, but both Telford & Wrekin and Shropshire have done
OK in comparison; although, in both cases, the pre-recession growth levels have
only been touched once each (in 2009 for Shropshire, and 2011 for Telford &
Wrekin).
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| Figure 6 |
Benchmarking
While
Telford & Wrekin and Shropshire have closed the productivity gap against
the national figure in recent years, it is also insightful to benchmark the two
sub-regions against specific others. I’ll demonstrate the best way to do this
in a future article, but initially they can be benchmarked against two groups:
other West Midlands sub-regions; and those sub-regions that had a similar
productivity level in 2004.
Of the
14 West Midlands sub-regions, both have gained ground: Telford & Wrekin
moving from a rank of 5th in 2004, to joint-third in 2014; and
Shropshire also gaining two places from 9th in 2004 to 7th
in 2014. This is shown in Figure 7, which also shows Solihull and Warwickshire
as the two most productive sub-regions; while Herefordshire and Wolverhampton
are the least productive. As shown in Figure 8, only Walsall – one of the
national productivity stars, having gone from bottom to third in the West
Midlands rankings – as well as Stoke, Dudley and Warwickshire have grown faster
over the period.
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| Figure 7 |
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| Figure 8 |
Benchmarking
them against other sub-regions that had a similar level of productivity in
2004, again both Telford & Wrekin and Shropshire are somewhere in the
middle of the pack. Telford & Wrekin (Figure 9), doing slightly better, is
5th of 11 behind three Scottish sub-regions (Scotland has,
generally, closed its productivity gap with England) and one in the East of
England. Shropshire (Figure 10), meanwhile, is 6th of 10 in close
proximity with Sandwell, Cardiff and Bedford.
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| Figure 9 |
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| Figure 10 |
Conclusion
So, is
this a positive or negative story for Shropshire and Telford & Wrekin? I
think it’s almost certainly positive. No, neither sub-region is as productive
as the country as a whole, but there are often underlying structural economic
reasons for this (discussed in the next article) that can only be affected in the long-term. What is somewhat of an achievement for both sub-regions is
how they have moved up these rankings over the last decade (Figure 4), and that they have
held up particularly well since the recession – hence not as ‘puzzling’ as the
national problem.
But, of
course, there is still a lot more to do. It is worrying, for example, that both – Telford & Wrekin in particular – fell behind the national year-on-year growth rate in 2014 (Figure 6). And it is still true to say that
productivity in both sub-regions has stalled somewhat since the recession, just not to the same
extent as it has done nationally. And, finally, despite being fairly solid and above national averages,
neither really excels in its benchmark group.
About
the author: Tom Fletcher (LinkedIn) is an MBA-qualified freelance market
analyst, specialising in market and competitive intelligence with industry
Challengers, medium-sized businesses (MSBs) and SMEs. In the context of this
article, he has a particular interest in how these businesses can use open data and
micro-level productivity benchmarking to improve performance. If you’re
interested in benchmarking your business against figures like this, then get in touch.
[1] Nominal
GVA does not control for inflation and changes in prices, hence showing growth
– although, still, as shown in Figure 6, that ‘growth’ has slowed. Excluding
rental income makes GVA more closely related to measurable labour input.
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