The productivity deficit – two workforce demographics to target

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Recently released figures confirmed that the UK economy remained a growing one in 2015, albeit the headline figures have dropped a little from those of the previous year. Commentators have made much of the fact that this growth outstrips many other developed economies. This is of course a good thing for the country, but perhaps masks a very real challenge to the success of the nation.

Whilst the headline figures are good, we could – and probably should - be doing better still. It’s interesting to look at the ONS graph for how the UK compares in hourly gross domestic product (GDP) against other G7 nations (see p. 4 of this ONS Statistical Bulletin). It will come as little surprise to find that the UK is not as productive as Germany or the US. Yet it is more chastening to realise that we also trail nations with arguably worse industrial relations and/or economic issues such as Italy and France. In fact the only economy we better on productivity within the G7 is Japan, a nation that has, and continues to have, its share of economic challenges.

And this has the potential to become a much greater problem for the UK. Within the next 24 months – and possibly even this year – the UK electorate will be asked to vote in one of the most important issues of recent times - The EU Referendum.

The outcomes of this vote could hardly be more important for businesses of all sizes. Yet it is likely that many voters will be influenced more by national news stories than arcane business ones. It is perhaps inevitable that the migrant crisis and terror threats will play towards the isolationist votes, and could well be the deciding factor leading to an exit decision. 

So a Brexit is now a very real possibility. Where would that leave the business community?

In such an eventuality it is likely that the combined might of the UK’s political and civil service would primarily be deployed in securing new trade deals with varying geographical areas to allow for the continuation of international business. Yet it is one thing being able to trade with another nation; it is quite another being competitive enough to win the contract in the first place.

Which takes us back to the productivity deficit of the UK. To prosper in a Brexit situation the UK will need to be as highly productive as possible. So what steps can employers take to improve productivity?

One area that could be looked at is employee engagement. It is generally accepted that an ‘engaged’ employee is more productive. It therefore follows that if the UK can improve engagement it can only benefit our productivity numbers also. So how to do this?

The key – as always in business – will be the maximum return for the minimum additional spend by the employer. So perhaps employers should look to their existing engagement tools and use these better. Employee benefits are one such tool.

So which areas should employers be looking at? Well, to my mind there are two key workforce demographics that can be better engaged without significant extra costs for the employer.

Working parents

UK employment figures are currently at an all-time high. There are many contributing factors to this, but it is impossible to overlook the movement from the ‘traditional’ 20th century family unit (two parents, one earner) to more modern groupings including single parent working families, and the two-parent family unit where both are in work. The Modern Families Index 2016 found that in almost 1 in 2 (49%) families both parents are now working full time.

It follows that many more families now need to utilise paid-for childcare provision in a way that was not previously the case. The same report found that 68% of families used childcare. The research also included this quote: ‘Parents in the UK spend 33% of their household income on childcare compared to an OECD average of 13%’.

So childcare is a significant cost for Britain’s working families – particularly as childcare costs in the UK have been accelerating way beyond the average household income increases in recent years. This is of course extremely challenging for those employees impacted, and the next quote highlights the possible outcomes of this issue: ‘A report found that of 1,000 parents, almost 20% were considering either giving up work or reducing their hours because of childcare costs’.

The bottom line is that employers need to recognise this is a genuine issue for their employees and react accordingly. Failure to respond to this challenge could result in experienced staff leaving the organisation with all the attendant business disruption and recruitment and training costs that this would entail.

Many employers could go some way to tackling this issue at zero direct cost. The government currently provides valuable financial support to working parents through Childcare Vouchers. Yet many smaller employers do not offer this option, and many others forget to promote the offering to their staff on a regular basis. Either is a terrible oversight that may leave your parent employees facing a more bleak financial decision than need be the case.

Childcare Vouchers will be around until early 2017 – when it is intended they will be replaced with a new (and much delayed) initiative known as Tax-Free Childcare. Until then Childcare Vouchers represent valuable financial assistance to working parents, and I would encourage all employers to include this offering until (and possibly beyond) the introduction of Tax-Free Childcare. 

Older employees

Another – and very much growing – employee grouping to target for improved engagement is older workers. The UK is currently undergoing a period of major demographic change, with the number of workers between age 50 and state pension age increasing from around 1 in 4 (26%) in 2014, to very nearly 1 in 3 (32%) by the next General Election in 2020.

This will probably be a very good thing for UK business. Older workers usually have inherent knowledge and skills, often hold key client and supplier relationships, and may be less prone to spurious absences and changing employer. They are potentially the gold dust in any workforce. It therefore follows that employers should seek to keep these employees as highly engaged as is possible. 

Yet it should not be overlooked that the needs, drivers, and aspirations of this older grouping may be different from their younger colleagues. And employers need therefore to build an engagement policy that meets these challenges head on. Part of the answer may be workplace financial education. 

At first glance this may seem like a strange suggestion. After all older employees are likely to have mastered the disciplines of everyday monetary control over the years. Whilst this is undoubtedly true, it ignores the reality that pensions, retirement legislation and state benefits have been undergoing a radical period of change over the last few years. The bottom line is that older employees may no longer be fully aware of all the options these changes present to them.

For instance the pension freedoms introduced in 2015 completely alter some aspects of pension savings. Before these changes there were many older workers (and in particular those who had not been able to make pension savings until late in their working life) who found it difficult to see a tangible return from joining an ‘average’ workplace money-purchase pension scheme. This was often because of the relatively short period of saving available, loss of access to the contributions, and poor annuity conversion rates. Many such employees may have therefore rejected the employer offering – a situation which is unlikely to improve engagement. Yet now those same individuals can save again in pensions – in the certain knowledge that they have access to the entire fund (including employer contributions) after age 55 and without conversion to an annuity being required. A game-changer that could improve engagement for many.

Yet the new freedoms also have the power to be misused by savers. There is already some evidence to suggest that many are emptying their retirement savings in exchange for cash payments – presumably to use on items other than a pension income. This is often happening at relatively young ages (pensions can now be accessed from age 55), and whilst still in employment. This may be something of a time bomb for employee and employer alike. 

For when an older worker decides that the time might be right to retire, they could be faced with a stark choice as a result of their earlier poor decisions. The options available may be one of retirement to relative penury or perhaps continuing in a job that they might no longer enjoy. Most will probably opt for the latter, but in this situation could be forgiven for lacking real motivation or engagement. 

Employers therefore need to tackle this issue. Whilst it will be impossible to prevent some reaching the above position, financial education of staff will help prevent this becoming a regular occurrence within the workforce. A win-win for both parties. For some handy tips, see ‘Time to improve the financial literacy of your staff?’.

The next few years will continue to bring challenges for UK employers – and Brexit or not it is imperative that the UK improves productivity so that we can match or better our international competitors. Employee engagement should perhaps be a top priority for employers looking to meet this particular aim. 


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