Statistical Bulletin

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Labour Productivity Q2 2011Coverage: UKDate: 06 October 2011Geographical Area: RegionTheme: EconomyTheme: Labour Market

Key Points

• Whole economy output per worker was unchanged between the first and second quarters of2011.

• Whole economy output per hour increased by 1.3 per cent from the first quarter.

• Whole economy unit labour costs increased by 0.3 per cent from the first quarter.

• Output per hour for manufacturing increased by 3.7 per cent from the first quarter.

• Services output per hour increased by 1.1 per cent from the first quarter.

Summary

The headline measure of whole economy labour productivity, output per worker, decreased by0.2 per cent in the second quarter of 2011 compared with the same quarter a year ago. This isdown from an increase of 0.1 per cent in the previous quarter. The contraction reflects an increasein whole economy output which is more than offset by growth in whole economy workers. On aquarterly basis, output per worker for the whole economy was flat in both the first and secondquarters of 2011. Unchanged quarterly labour productivity growth is due to equal growth in wholeeconomy output and workers.

An alternative measure of labour productivity, whole economy output per hour worked, increasedby 1.4 per cent in the second quarter of 2011 compared with the same quarter a year ago, and by1.3 per cent compared with the previous quarter. This growth is stronger than the output per workermeasure and is due to a sharp fall in whole economy average hours.

Whole economy unit labour costs (now calculated using a revised methodology, see this article)rose by 0.3 per cent in the second quarter but were unchanged compared to the same quarter ayear earlier.

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Manufacturing output per job was 4.0 per cent higher than the same quarter of 2010, down fromgrowth of 4.9 per cent in the previous quarter. The slow down is due to a decrease in the outputgrowth rate, partially offset by an increased rate of contraction in manufacturing jobs. Output perjob in the services sector fell by 0.2 per cent compared to the same quarter a year ago, but rose by0.1 per cent on the previous quarter.

Whole economy productivity

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Manufacturing and services output per job

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Source: Office for National Statistics

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About this release

A revised industrial breakdown based on the latest internationally agreed industrial classification(SIC2007) has been implemented in this bulletin for the first time. This coincides with the SIC2007implementation in the Quarterly National Accounts Statistical Bulletin published on 5 October 2011.The series published in the Labour Productivity dataset associated with this release are availableback to Q1 1997 and will be backdated further in due course.

The published industrial breakdown of the services sector has been expanded in this bulletin tocoincide with the move to SIC07. The new series are all experimental while we monitor movementsover time. The SIC2007 services sector breakdown provided in tables 5 & 6 is as follows:

G - Wholesale & retail trade, motor vehicle repair

H - Transport and storage

I - Accommodation & food services

J - Information & communication

K - Finance and insurance (experimental)

L - Real estate activities (experimental)

M - Professional, scientific & technical activities (experimental)

N - Admin & support services (experimental)

O-Q - Government services (experimental)

R - Arts, entertainment & recreation (experimental)

S - Other service activities (experimental)

To achieve consistency with the output measure, the employee component of productivity jobscontinues to be derived using employer sources on a reporting unit (RU) basis. Productivity jobsestimates differ from the workforce jobs (WFJ) estimates which are published in the Labour MarketStatistics Bulletin. The employee component of the WFJ estimates is on a local unit (LU) basis,uses a different estimation methodology and the series is not scaled to total LFS jobs. In addition,productivity jobs are calendar quarter average estimates whereas WFJ estimates are providedfrom the last month of each quarter. Further detail on the definition of productivity jobs can befound here.

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A revised methodology for unit labour costs and unit wage costs has been implemented in thisbulletin. The new methodology has improved wage and labour cost estimates for the self-employed.Unit labour costs provide a comprehensive indicator of inflationary pressure in the supply side of theeconomy. More information can be found in this article.

Notes

1. What is a reporting unit?

The term 'enterprise' is used by ONS to describe the structure of a company. Individualworkplaces are known as 'local units' and a group of local units under common ownership iscalled the 'enterprise'. Reporting units are the parts of enterprises that return data to ONS. Whilethe majority of reporting units and enterprises are the same, larger enterprises have been splitinto reporting units to make the reporting easier.

For most business surveys run by ONS, forms are sent to the reporting unit rather than localunits, in other words, to the head office rather than individual workplaces. This enables ONS togather information on a greater proportion of total business activity than would be possible bysending forms to a selection of local units. But it has the disadvantage that it is difficult to makeregional estimates - for instance all the employment of, say, a chain of shops would be reportedas being concentrated at the site of the head office.

Further differences between reporting unit and local unit data can be seen in the industrycoding. Take, for example, a reporting unit with 3 cake shops and 1 bakery, each employing5 people. The local unit analysis would put 15 employees in the retail sector and 5 employeesin the manufacturing sector. But the reporting unit series puts all 20 people into the sector withthe majority activity, in this case, retailing. Detailed industry figures compiled using the localunit approach will therefore be different from industry figures using the reporting unit approach,although the totals will be the same at the whole economy level.

Whole economy labour productivity

(See table 1)

Whole economy output per worker fell by 0.2 per cent in the second quarter of 2011, comparedwith the same quarter a year ago, down from growth of 0.1 per cent in the previous quarter. Thisreflects a decrease in the growth rate of whole economy output from 1.6 to 0.6 per cent, partiallyoffset by a fall in the growth rate of whole economy workers from 1.4 per cent to 0.9 per cent.

The headline measure of labour productivity growth has been weak since the end of the recessionand has weakened consistently since 2010 Q1. The fall in the year to the latest quarter is the firstyear-on-year fall in headline labour productivity since the end of the recession. This reflects a slowpace of recovery in output coupled with a continued growth of workers in employment as displayedin the component chart at the end of this section.

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Whole economy output per worker

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An alternative measure of labour productivity, output per hour worked, grew by 1.4 per centin the second quarter of 2011 compared with the same quarter a year ago. This compares witha contraction of 0.2 per cent recorded in the previous quarter. This contrasts with the headlinemeasure and is due to a fall in the year-on-year growth rate of whole economy hours from 1.7 percent to -0.8 percent. Average weekly hours per worker across the whole economy have fallen from31.6 in the first quarter of 2011 to 31.2 in the second quarter, the lowest since the series beganin 1995. The quarterly falls in the estimates of total hours worked and average weekly hours werepartly due to an additional public holiday on 29 April 2011 (for the Royal Wedding) which occurredfour days after the Easter Monday public holiday.

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Whole economy output per hour

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Whole economy workers, hours worked and output components

Source: Office for National Statistics

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Manufacturing labour productivity

(See table 1,3 and 4)

In the second quarter of 2011, manufacturing productivity on an output per job basis grew by4.0 per cent compared with the same quarter a year ago, down from growth of 4.9 per cent in theprevious quarter. Growth in manufacturing output decelerated to 3.2 per cent (from 4.8 per cent),and manufacturing jobs fell by 0.7 per cent (from -0.1 per cent) in the year to the second quarter.

Manufacturing output per job

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An alternative measure of productivity for the manufacturing sector, output per hour worked,increased by 4.9 per cent in the year to the second quarter of 2011, up from growth of 2.3 per centin the year to the previous quarter. Manufacturing hours worked fell by 1.6 per cent, a larger fallcompared to the jobs series, reflecting a decrease in average hours worked per job.

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Manufacturing output per hour

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Since the end of the recession manufacturing sector labour productivity continues to show muchhigher growth than the services sector and the economy as a whole. Manufacturing output perjob was at its highest level ever recorded in the second quarter. Although manufacturing outputwas 7 percentage points below its peak in Q1 2008, the number of manufacturing jobs have falleneven faster. Over the last year productivity growth has been especially strong in subsections CK(Machinery and equipment) and CL (Transport equipment).

Services labour productivity

(See table 1,5 and 6)

Services output per job in the second quarter of 2011 fell by 0.2 per cent from the same quartera year ago, up from a fall of 0.7 per cent in the previous quarter. Growth in services outputdecelerated to 0.9 per cent, from growth of 1.1 per cent in the previous quarter. However, this wasmore than off set by a slowdown in the growth in services jobs of 1.1 per cent, down from growth of1.8 per cent in the previous quarter.

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Services output per job

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Output per hour worked in services increased by 1.4 per cent in the second quarter of 2011,compared with the same quarter a year ago, up from a fall of 0.4 per cent in the previous quarter. Services hours worked fell by 0.4 per cent in the latest quarter, down from 1.5 per cent growth inthe previous quarter. The difference in the two labour productivity measures for the service sectorreflects a decrease in average hours worked per job over the last year, although not as pronouncedas that in the manufacturing sector.

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Services output per hour worked

Source: Office for National Statistics

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Services sector industries - experimental

(See table 5 & 6)

The published industrial breakdown of the services sector has been expanded in this bulletin andnow includes seven additional series which are published on an experimental basis.

Productivity in terms of output per job for industry K (Finance and insurance), on a quarter onsame quarter a year ago basis, has contracted in all quarters, except two, since Q2 2008. This ispredominately driven by an ongoing contraction in output.

Labour productivity in industry L (Real estate activities), on an output per job basis, showed an earlyrecovery from the recession in 2009, but during 2010 growth contracted. In the first two quarters of2011 output per job, compared with the same quarter a year ago, has increased.

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Services sections K & L output per job

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In the second quarter of 2011, output per job increased by 3.2 per cent for industry M (Professional,scientific & technical services), compared with the same quarter a year ago. This is the first increasein productivity since Q4 2008 in this industry.

Output per job growth in industry N (Admin & support services) has been volatile over the recessionand recovery.

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Services section M & N output per job

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Labour productivity in industry O-Q (Government services) is much more stable compared toother services industries. This reflects the methodology used to construct the output series. Moreinformation on labour productivity for the public service is available in this article.

Output per job for services industry R (Arts, entertainment & recreation) is another volatile seriesover the recession and recovery. Compared to the post recession high in Q4 2009 of 18.9 per cent(on a quarter on same quarter a year ago basis), growth in the last four quarters has been mostlycontracting due to growth in jobs.

Growth in output per job for industry S (Other services activities), compared to the same quarter ayear ago, was relatively strong through the recession, but then decreased during 2010. In the firsttwo quarters of 2011 output per job has increased.

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Services sector O-Q, R & S output per job

Source: Office for National Statistics

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Unit labour costs

(See table 2)

In the second quarter of 2011, whole economy unit labour costs were unchanged compared to thesame quarter a year earlier, up from a fall of -1.2 per cent in the first quarter of 2011. The changein the growth rate of whole economy unit labour costs is explained by a slowing in the growth ofwhole economy output from 1.6 per cent to 0.6 per cent, coupled with an increase in labour costsgrowth from 0.3 per cent to 0.5 per cent in the second quarter of 2011.

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Whole economy unit labour costs

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Manufacturing unit wage costs in the second quarter of 2011 fell by 2.1 per cent compared with thesame quarter a year earlier, compared with a fall of 4.1 per cent in the previous quarter. The slowerrate of contraction is explained by a decrease in the growth rate of manufacturing output per job (4.9to 4.0 per cent), combined with an increase in the growth rate of manufacturing average earnings(0.6 to 1.8 per cent).

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Manufacturing unit wage costs

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Notes

1. A revised methodology for unit labour costs and unit wage costs has been implemented in thisbulletin. More information can be found in this article.

Market sector labour productivity – experimental

(See table 7)

In the year to the second quarter of 2011, market sector output per worker fell by 1.4 per cent,down from a fall of 0.8 per cent in the previous quarter. Market sector output per hour worked grewby 0.2 per cent in the year to the second quarter of 2011, compared with a fall of 0.5 per cent inthe previous quarter. Growth of both market sector labour productivity measures was lower thanthe growth of the equivalent measures for the whole economy. This is due to weaker market sectoroutput growth coupled with stronger growth in the labour input measures, and is consistent withproductivity trends in services.

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Market sector labour productivity

Source: Office for National Statistics

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Regional labour productivity

(See table 9)

Regional labour productivity estimates refer to 2009 and are unchanged from the 2011 Q1 bulletin.

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Regional NGVA per job, 2009

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Regional NGVA per hour, 2009

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Source: Office for National Statistics

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Revisions

Reference table R1 shows the overall revisions to growth rates of the main productivity variables forthe whole economy, manufacturing and services.

Industry level estimates are published on SIC07 basis for the first time and updated seasonaladjustment models for RU- based jobs and hours have been implemented.

Indices have been updated to reference 2008=100.

Revisions are consistent with gross value added and wages and salaries revisions published in theQuarterly National Accounts Statistical Bulletin on 5 October 2011.

Background notes

1. This Statistical Bulletin

This Statistical Bulletin presents Labour Productivity estimates for the United Kingdom. Moredetail can be found on the Productivity Measures topic on the National Statistics website.

Index numbers are referenced to 2008=100, are classified to the 2007 revision to the StandardIndustrial Classification (SIC) and are seasonally adjusted.

2. Understanding the data

The measure of output used in the numerator is the chain volume measure of Gross ValueAdded (GVA) at basic prices, apart from the regional analysis, where the output measure isnominal GVA.

The number of whole economy workers is the seasonally adjusted total from the Labour ForceSurvey. Whole economy jobs and hours are the sum of the seasonally adjusted industrycomponents. The industry components are scaled to the unadjusted LFS totals before seasonaladjustment.

To achieve consistency with the output measure, the employee component of productivityjobs is derived using employer sources on a reporting unit (RU) basis. Productivity jobs isthe sum of RU based employee jobs, LFS self-employed jobs, government supported traineejobs and HM forces jobs by industry. Results are scaled so industries sum to unadjusted totalLFS jobs, and then seasonally adjusted. Productivity jobs estimates therefore differ from theworkforce jobs (WFJ) estimates which are published in the Labour Market Statistics Bulletin.

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The employee component of the WFJ estimates is on a local unit (LU) basis, uses a differentestimation methodology and the series is not scaled to total LFS jobs. In addition, productivityjobs are calendar quarter average estimates whereas WFJ estimates are provided from the lastmonth of each quarter. Further detail on the definition of productivity jobs can be found here.

Productivity hours is derived by multiplying productivity jobs at an industry level by averageactual hours worked from the LFS at an industry level. Results are scaled so industries sum tototal unadjusted LFS hours, and then seasonally adjusted.

Whole economy unit labour costs indices are calculated as the ratio of total labour costs to GVA.Further detail on the methodology can be found in this article.

Manufacturing unit wage costs indices are calculated as the ratio of manufacturing averageweekly earnings (AWE) to manufacturing output per filled job. ONS does not currently produceunit wage costs figures for the services sector.

Quarter on previous quarter changes in output per job and output per hour worked for some ofthe manufacturing sub-sections and services sections should be interpreted with caution as thesmall sample sizes used can cause volatility.

3. Experimental statistics

Market sector productivity estimates presented in this bulletin are experimental. Details on themethodology can be found here. Please note, in order to be consistent with whole economyproductivity measures, four key methodological changes have been made to the market sectoroutput per hour worked series since the publication of that article. For more information pleaserefer to this briefing note.

Labour productivity estimates for the following services industries are published on anexperimental basis:

K - Finance and insurance

L - Real estate activities

M - Professional, scientific & technical activities

N - Admin & support

O-Q - Government services

R - Arts, entertainment & recreation

S - Other service activities

4. Summary quality report

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A Summary Quality Report for Labour Productivity describes the intended uses of the statisticspresented in this publication, their quality and methods used to produce them.

5. Revisions

Given the magnitude of the changes to the output and input series involved in implementingSIC 2007, some series in this release are based on estimated rather than finalised data, andaccordingly may be more than usually subject to revision.

This Bulletin contains an analysis of past revisions to productivity growth estimates. ONS willprogressively introduce similar analyses into all of its key economic statistics releases. Detailscan be found here.

The table below compares first published estimates with the equivalent figures three years later. The calculations used for the table repeat this process, stepping through the first estimatepublished between Q3 2003 and Q2 2008 and comparing it with the estimate three years laterfor the same quarter.

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Revisions

Whole economy: Value in latestperiod (per cent)

Revisions between first publication andestimates three years later

Average over 5years (bias)

Average over 5years withoutregard tosign (averageabsoluterevision)

Output perworker. Changeon quarter a yearago

-0.2 -0.04 0.32

Output per job.Change onquarter a yearago

-0.2 0.02 0.34

Output per hour.Change onquarter a yearago

1.4 0.20 0.44

Unit labourcosts. Changeon quarter a yearago

0.0 0.09 0.98

Unit wage costs.Change onquarter a yearago

0.1 0.03 0.78

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6. Future Changes

In addition to the changes introduced in this release, ONS is continuing to review ourmethodologies, including the estimation of average hours and consistency betweenpublished data series. Comments from users are welcome, and should be sent via email toproductivity@ons.gsi.gov.uk.

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7. New ONS web site

The launch of the new ONS web site on 27 August 2011 has brought changes to the design andformat of statistical bulletins. The bulletin main body is available in html and pdf format with thedetailed data tables available as Excel spreadsheets to help make it easier for users to obtainthe data. Time Series datasets continue to be made available in their current format. The newwebsite improves the way users can access our statistics but many existing bookmarks andlinks no longer work and users need to update them.

You can follow ONS on Twitter: www.twitter.com/statisticsons and Facebook:www.facebook.com/statisticsons and watch our videos at YouTube/onsstats

8. Publication policy

Details of the policy governing the release of new data are available from the Media RelationsOffice.

National Statistics are produced to high professional standards set out in the Code of Practicefor Official Statistics. They undergo regular quality assurance reviews to ensure that they meetcustomer needs. They are produced free from political interference. © Crown copyright 2011.

You may use or re-use this information (not including logos) free of charge in any formator medium, under the terms of the Open Government Licence. To view this licence,visit http:www.nationalarchives.gov.uk/doc/open-government-licence/ or write to theInformation Policy Team, The National Archives, Kew, London TW9 4DU, or email:psi@nationalarchives.gsi.gov.uk.

These National Statistics are produced to high professional standards and released according tothe arrangements approved by the UK Statistics Authority.

9. Statistical contact:

Ainslie Restieaux

Tel: 01633 456299

Email: productivity@ons.gsi.gov.uk

Next Publication Date:23 December 2011

Issuing Body:Office for National Statistics

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