Report calls for wage and holidays hike to boost productivity

A new report suggests increasing wages and holidays could improve productivity.

Pay Day


Increasing wages and holidays could raise the UK’s productivity, according to new research from the New Economics Foundation (NEF).

The report calls for the creation of a working-time commission to increase holiday entitlements for workers and for a new mandate for the Low Pay Commission for further sustainable increases in minimum wages.

It argues that when demand is weak, firms reduce investment and rely instead on cheap labour that can be shed quickly if demand doesn’t improve and that that in turn affects productivity. Based on data from the Office of National Statistics (ONS) and Office for Budget Responsibility (OBR), it shows that since 2012, firms have increasingly relied on cheap labour to deliver goods and services rather than investing in making their businesses more efficient for the long term.

NEF’s analysis shows that the proportion (relative to all workers) of zero-hour contract employees, self-employed workers and one-person micro-companies has grown by two fifths since before the financial crisis and that a corresponding lack of investment by firms could explain at least 25% of the UK’s gap in productivity with the historical trend.

It recommends faster increases in the minimum wage to encourage workers to spend rather than save any increases in salary, gradual increases in statutory paid holiday to increase economy wide-demand and life satisfaction, the frontloading of public investment for a ​‘green transformation’and an increase in public spending on services and welfare changes, including a new ​‘weekly national allowance’ (WNA) – worth £2,500 per year for most adults, plus an increase in child benefit – by abolishing the personal allowance of income tax, favouring poorer families.

Alfie Stirling, Head of Economics at the New Economics Foundation, said: “For more than 10 years now, economists and policy makers have sought to solve the UK’s productivity crisis from the ​‘supply-side’ – intervening to change the way we make goods and deliver services in the economy. It hasn’t worked. Average productivity, wages and living standards have experienced their worst decade in almost two centuries.

“It is increasingly clear that weak demand has been the overlooked problem. The issues include many that are deep and structural, ranging from austerity and high levels of inequality to an ageing population and uncertainty over the UK’s trading future. With or without Brexit, the policy response needs to be equally transformative.

“Raising demand by putting more cash in the pockets of the UK’s poorest workers, while giving people more paid time off from work to spend it, should now be part of a radical mix of options for any government that is serious about increasing productivity in a way that works for people and society.”

The report comes as a survey from telecomms company Onecom shows that senior managers spend on average 18.9 hours a year on work-related calls and emails whilst on holiday and as quarterly employment figures showed a 3.9 per cent increase in unemployment, but also a rise in employment, driven by a growing number of part-time jobs with full-time jobs falling. Meanwhile, total pay, including bonuses, increased 3.7 per cent in the April-June period compared with a year earlier.

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