From education to employment

Skills and Productivity: Why They Matter for Economic Growth and Prosperity

Mark Morrin

This week marks National Productivity Week, an initiative launched by The Productivity Institute to raise awareness of the importance of productivity to the economy. A new paper by the LEI, analysing survey data from a joint City & Guilds report published last year, highlights how employers and employees perceive productivity and the relationship with skills development.

The UK’s productivity problem is well documented. The long-term impact of the 2008 financial crash had a particularly severe effect on the UK, with economic growth since 2010 less than half the rate of the preceding decade. Productivity has continued to lag other G7 countries like the US, Germany and France, affecting the wealth and general well-being of the nation. Addressing this challenge is pivotal to raising living standards and improving public services—a priority reflected in the Government’s mission to promote productive growth.

Understanding Productivity

The standard measure of labour productivity is the output produced per worker per hour worked. It is a ratio of economic inputs (such as labour, capital, and resources) to outputs (goods and services produced). Higher productivity allows businesses to create more value with the same or fewer resources, translating into higher wages, economic growth, and improved national prosperity.

However, a recent City & Guilds survey conducted by Opinium Research reveals that many UK employers lack a clear understanding of productivity. When asked an open question about how they define productivity, less than 20% of employers referred to the standard economic measure. Nearly 30% equated it with efficiency, while others focused on achieving business outcomes, good time management, or simply working hard. Only a small fraction (4%) identified skills or workforce development as key drivers of productivity.

Skills and their role in Productivity

Skills gaps and limited access to training remain significant barriers to growth. According to the survey, 31% of job seekers feel they lack the skills required for employment, and over one-third of employees report that a lack of skills has hindered career progression or salary growth. On the other hand, 67% of workers view on-the-job learning as the most effective way to develop new skills, while 53% value online courses.

Employers recognise the importance of skills development, with two-thirds planning to invest in upskilling initiatives in the next year. However, disparities persist: junior staff receive training more frequently than senior staff, and access to training varies across regions and sectors. For instance, lower-income regions like the West Midlands and Wales report lower confidence in workforce skills, while industries such as construction and energy face unique skill challenges over the next decade.

Bridging the Skills Gap

The survey findings suggest that productivity shortfall requires a multi-faceted approach to workforce development:

  1. Increasing awareness: Employers need a deeper understanding of productivity and its drivers, including the critical role of skills. Tools like the ONS online productivity calculator can help businesses assess their performance and identify areas for improvement.
  2. Investing in upskilling: Employers and policymakers must prioritise targeted training programs, especially in under-resourced sectors with high growth potential. Modular and accessible learning options can help workers overcome barriers to skill acquisition.
  3. Regional and sectoral focus: Since productivity and skills challenges vary by region and industry, tailored solutions are essential. For example, addressing the needs of the automotive industry in the West Midlands or the construction sector in the South West requires place-sensitive strategies.
  4. Bridging generational gaps: Younger workers generally feel more confident about their skills aligning with career opportunities, while older employees often face challenges adapting to new demands. Customising training programs for different age groups can enhance workforce confidence and capability.
  5. Promoting inclusive growth: Skills development is central to achieving inclusive economic growth, enabling individuals to participate in and benefit from economic opportunities. Training initiatives that support inclusivity—such as unconscious bias training or programs for neurodivergent employees—can foster a more equitable and productive workforce.
  6. Enhancing flexibility: Providing modular, accessible training options can address barriers to skill acquisition among the existing workforce.

The Bigger Picture: Productivity and Inclusive Growth

While productivity is a cornerstone of economic progress, it is not an end in itself. For instance, the United States leads G7 nations in productivity, yet the gap between productivity and pay has increased dramatically since 1979, highlighting the risks of an uneven distribution in wage compensation. The UK must avoid this pitfall by pursuing balanced policies that foster innovation and productivity without exacerbating inequality. This includes ensuring that technological advancements complement, rather than displace, human labour.

There are live debates about whether we are measuring the right things and whether productivity is the metric that matters most in human activity. But as the Nobel Prize-winning economist Paul Krugman famously wrote, “Productivity isn’t everything, but in the long run, it is almost everything”. The biggest opportunities for inclusive growth and achieving higher living standards come not from squeezing more out of labour, but from shifting resources into production with higher social value. The drive for higher productivity must be paired with wider labour market and taxation policies that ensure equitable distribution of its benefits.

The Way Forward

The findings of the City & Guilds survey underscore the intricate relationship between skills, technology, and organisational culture in shaping productivity. The journey toward productive growth is not just about economic metrics; it’s about empowering individuals, businesses, and communities to thrive. By addressing skills gaps, fostering regional and sector-specific solutions, and aligning training programs with future workforce needs, the UK can unlock significant productivity gains.

Mark Morrin, Lifelong Education Institute


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