This report published by the Joseph Rowntree Foundation (UK) looks at the role productivity plays in employers’ wage-setting decisions in low-wage sectors and asks how employers think about, understand and measure productivity and what role productivity plays in employers’ wage-setting decisions among other factors.
Key findings are: “The persistence of in-work poverty indicates that, for many, earnings in work are not sufficient to move people out of poverty. Hence, addressing in-work poverty has become a key focus of debates on poverty. One potential mechanism that is increasingly discussed is the need to grow productivity in low-wage sectors as a means of generating higher pay.
The research described in this report suggests that productivity is only one factor, and often not the most important factor, among several factors influencing wage-setting. Some employers emphasise the total reward package and consider non-wage factors as well as financial recompense. There is recognition that productivity is necessary for wage growth but it is not sufficient on its own.” (p. 30)
Finally, the authors say that at an aggregate level “productivity growth is a critical factor for national economic prosperity and living standards. However, the link between productivity growth and wages for low-paid workers at the firm level is less well understood. There is often an implicit assumption of a linear model of productivity increases being linked automatically to employers providing ‘better work’ and increases in pay. This assumption is challenged by the findings from this research. Productivity growth can therefore be viewed
as an important but (on its own) insufficient factor in addressing the prevalence of low-paid employment. In the absence of a neat linear model, it is appropriate to distinguish between (a) policy recommendations for raising productivity and (b) policy recommendations for making sure that workers benefit from productivity increases.” (p. 31)
The Joseph Rowntree Foundation is an independent social change organisation working to solve UK poverty (JRF website).
Source: Green, Anne; Paul Sissons; Amir Qamar; Kevin Broughton 2018 Raising productivity in low-wage sectors and reducing poverty