Work like the Chinese? Why more work doesn’t equal more productivity

It’s an easy conclusion to jump to. It’s true that the number of hours worked per person last year in Britain was below the OECD average of 1,770. The US logged 1,789, while Asian economies like Singapore and South Korea regularly top these tables working in excess of 2,000 hours per year. China is around the level of its neighbours, at about 2,000 hours in large cities, which is more than 40 hours per week.

But it’s a peculiar way for politicians to discuss the dilemma that has taken centre stage in the government’s newly honed growth agenda.

Firstly, working longer hours isn’t the same as working more productively. And even there, British workers aren’t laggards once you dig into the figures.

Measuring true productivity

Britain has a higher proportion of part-time workers than other major economies. For full-time employees, the average is 42.2 hours per week, which is in line with Asian economies and also slightly higher than the US at 41.6 hours per week and exceeds both Germany and France at fewer than 40 hours.

So, it’s not that British workers aren’t putting in the hours. But, it’s hard to measure the productivity of that work when comparing an advanced economy with a middle income one like China. Just based on GDP per worker, the standard measure, China is around one-fifth as productive as Britain. It’s comparing apples and oranges, though, when a middle income country is measured against an advanced economy. In any case, British full-time workers clock around the same number of hours as the Chinese, so a more appropriate metric for the productivity puzzle, i.e., why productivity remains so low while GDP has recovered, is to compare the UK with advanced economies.

Britain is about 78 per cent as productive as the UK Business Secretary Sajid Javid says if we were as productive as the G7 average, then our GDP would be a whopping 30 per cent larger.

Why it matters

The causes of low productivity are less than clear. The Bank of England attributes around half of the productivity gap to low investment, impaired credit markets, and the survival of “zombie” or inefficient firms.

That still leaves rather a lot to be explained. What is clear is that the answer certainly matters. To raise wages, and therefore incomes and standards of living, requires higher output per worker.

Correspondingly, median wages have struggled to rise. Cheaper overseas workers plus greater rewards going to the higher skilled have depressed median incomes. Plus, stagnant wages mean that companies find it more enticing to substitute workers for capital, which in turn depresses investment, so the issues are all related.

That’s why productivity matters even if the recent declines are less of a worry. Another way to view the past few years is that it has been a job-rich recession. Employment recovered before output and unemployment never hit the three million mark reached during the recessions of the early 1980s and 1990s. As less output is demanded, output per hour worked was lower.

Looking to the East

But, employers hoarding workers instead of laying them off doesn’t explain the longer-term puzzle where the UK’s productivity has lagged behind the US, Germany, and France even before the crisis. Part of it may be due to the structure of the UK economy with a large services sector, where both investment and output are poorly measured. But, the US has one too, so mis-measurement is also unlikely to be the whole story.

The productivity puzzle is a huge question hanging over the British economy. But, working hard like the Chinese is unlikely to be the answer. Now that the average worker works in the services sector and not in a factory, China is facing its own productivity challenge.

An EY survey found that Chinese workers spent nearly half of their time in the office not on work. Over an hour and a half each day was spent on activities that they themselves considered a waste of time. Another two hours and 20 minutes was spent on personal activities.

It seems that a good work ethic is a challenge everywhere.