By Daniel Hunter
The United Kingdom's double dip recession owes much to the protection of jobs and the incomes of people in work and the fact that employees reacted by increasing their savings ratio, but avoided private sector investments. The Federation of European Employers (FedEE) reports.
Over the so-called "economic bubble" years from Q1 1998 to Q3 2007 output per worker in the UK as a whole rose by 23%, output per job by 23.8% and output per hour by 27.7%. This balanced out well against a rise of just 25% in labour costs per unit of output over the same period. In other words, as output improved employers were sharing the benefits in an equitable way with their employees.
The third quarter of 2007 is when the economic bubble finally burst and this is clearly visible in productivity figures. Having peaked at an index figure of 104.7 in Q3 2007, output per worker fell to 98.3 in Q1 2009, before lifting slightly and then falling again from Q3 2011. This means that over the period from Q1 1998 to Q1 2013 (the latest available data point) output per worker grew by just 16.8%. Even on the more generous measure of output per hour the productivity improvement over the 15-year period was just 21.8%.
This would not have happened if employers had shed labour in line with falling demand. Yet companies took an even more surprising step, they protected pay levels for the underemployed workers they retained. As a consequence, over the 15-year period since 1998 - and wholly due to companies' protectionist policies since Q3 2007 - labour costs per unit of output moved wildly out of step from labour productivity trends. Thus, whilst productivity levels since 1998 have risen by by just 16.8 - 21.8% labour costs per unit of output have jumped by 43.3%.
Commenting on these findings today, the Secretary-General of the Federation of European Employers (FedEE), Robin Chater, concluded: "The recession has clearly experienced a double dip largely because companies have been protecting employee pay levels at the cost of shareholder returns and investments in their business.
"Although sustained incomes should have led to a consumer spending spree - which would have eventually stimulated economic growth - employees simply increased their savings ratio (http://tinyurl.com/kwtwqgd) by putting funds into building societies and government bonds rather than equities."
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