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How do you measure productivity?

In case you haven’t heard, the UK is having a productivity crisis. People who in previous years would furiously be tapping at keyboards now sit limp at their desks, staring into middle distance. Factory workers stand listlessly beside production lines while empty conveyor belts whirr past ad infinitum.


There are more of us in work than ever before, but we’re just not getting as much done. Are we all just slightly lazier, or is there something else at play?


What is productivity?


All freelancers and business owners will be familiar with productivity as a concept – getting as much stuff done in a day is what running a business is all about – but most people don’t think about it as a measurable, concrete thing.


Clever economists have solved this problem by turning all the work we do – every blog post, set of year end accounts, dog walk, vegan kebab – into standard measures (usually revenue or quantity of things sold). These homogenous units of work are added up, and divided by the total number of hours worked by everyone in the UK and voilà! We have our productivity measure.


A smaller scale example: Crunch.


In 2014 / 15 our revenue was £5.14 million. We had roughly 140 staff, meaning a working capacity of 273,000 hours. Divide our revenue by working capacity and we get a productivity score of 18.8. Of course that’s a rather simplistic example (and not one that’s readily comparable to anything else). Productivity is often converted to USD to allow for international comparison, and sometimes normalised using an economic theory called Purchasing Power Parity.


Productivity is the Justin Bieber of economic measures – always in the news, and usually not for the right reasons. Try as we might we can’t get it growing fast enough. The UK is currently around 30% less productive than France, Germany and the USA. Our low productivity is blamed on a heady mixture of economic woes – unskilled workers, low wages, poor infrastructure, lack of affordable housing, and excessive red tape to name but a few.


The Chancellor launched a productivity plan to kickstart our flagging productivity. Of the G7 nations only Japan – which is suffering a wider economic malaise – has lower productivity than the UK.




Why does it matter so much?


It’s a given that a freelancer or contractor that works faster will earn more than a plodding colleague, and the same is true on a macro level. If the UK can figure out how to get more done in the average workday we’ll earn more money.


The Government estimates that if UK productivity can be raised to the same level as the USA our GDP will increase by 31%, resulting in around £21,000 in extra income for the average household.


Basically, it’s all about efficiency. At the moment we’re not making the best use of our time – too many tea breaks, most likely. The thinking goes that in a world where computers the size of entire rooms shrink to fit in a pocket in 50 years, society should be getting better at getting things done. Growing productivity is an important part of a healthy economy.


What increases or decreases productivity?


Increasing productivity as a nation isn’t just about us all rolling our sleeves up – almost every aspect of our working lives impacts productivity. To get a sense of the range of economic factors which can cause us to be more or less productive, you can look at the to-do list in George Osborne’s productivity plan.


Tax simplification


The UK has an undeniably-complex tax system, and simplifying it would mean less time spent on compliance by accountants, and less time investigating by HMRC, among other things.


Infrastructure


A workforce that can’t get to work can’t get much done and, as regular travellers on the London to Brighton mainline can attest, the UK’s infrastructure isn’t really up to the job. Faster, more reliable transport and communications system means less time wasted, and a more productive workforce.


Deregulation


Many rules and regulations exist for perfectly legitimate reasons, but many are outdated and need scrapping or overhauling. A study by the Forum of Private Business found that the average small business in the UK spent £14,900 on red tape compliance in 2014, up 8.4% on the previous year.


That’s time and money that could be invested in growing their business.


Digital adoption


Technology plays a big part in the productivity equation. An algorithm can route cars to passengers much more efficiently than a team of human dispatchers, and a team of robots can organise stock better than fleshy shelf-stackers. The more tasks that are offloaded to hardware and software the fewer hours humans spend on those tasks – making us more productive.


So how do you measure productivity?


As with most economic measures the short version is quite straightforward – revenue divided by the time taken to earn it – but the long version is very, very complicated. And as with most macroeconomic problems, fixing it involves understanding every single part of the puzzle.

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