When UK Chancellor Philip Hammond delivered his Autumn Statement yesterday, he highlighted the sorry state of productivity in the UK. “In the real world, it takes a German worker 4 days to produce what we make in 5,” said Hammond, “… too many British workers work longer hours for lower pay than their counterparts.”
Defined as gross value added per hour worked, productivity across Britain’s industries is a problem. If productivity were only higher, everyone could work less and/or earn more.
The good news is that London is around 30% more productive than the rest of the country, so City employees are doing something right when it comes to justifying their higher pay. Unfortunately, however, productivity across the UK’s financial services and insurance sector is falling. As the chart below shows, it doubled between 1995 and 2009 and has been declining ever since.
This is bad news if you work in the City. Pay for bankers in London soared between 1995 and 2009. If productivity falls, either pay must fall too or bankers will need to work longer hours to justify their compensation.
The alternative, of course, is that productivity rises as banks automate processes and cut jobs. This is already happening and is only likely to happen faster in future – particularly as today’s young bankers are less keen on working long hours than their predecessors. The danger is clearly that Brexit will create a drag on City productivity as banks divert resources to reworking their business for life outside the EU.