Productivity might be up as hiring intentions down to lowest levels since 2014
A slump in firms' hiring intentions could indicate that the productivity puzzle is finally on the way to being solved, a report out today suggests.
The study by professional services firm BDO discovered that, while companies' hiring intentions had dropped to their lowest levels since 2014, their levels of output and optimism are still strong, suggesting they have finally figured out a way to do more with less.
BDO suggested that the low levels of hiring intentions may have been brought on by the introduction of national living wage, which came into force at the start of April and requires all employees over the age of 25 to be paid at least £7.20 per hour for their efforts.
However, the accountancy firm also pointed out that some bosses may be holding off on their hiring until after the EU referendum on 23 June.
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"Our figures this month on hiring intentions suggest that UK businesses are starting to look harder at whether recruiting new staff is always the right answer," said Peter Hemington, partner at BDO. "While this trend will slow the growth of the workforce, it could signal the start of a move toward a higher investment, higher productivity economy. In the long run, this would help us generate higher living standards and more interesting jobs for UK workers."
Figures from the Office for National Statistics illustrate that, in 2014, the UK measure of GDP per hour lagged 20 percentage points behind the average for the other G7 economies, with only Japan having lower levels of productivity.
Research carried out by the Resolution Foundation and the Chartered Institute of Personnel and Development before national living wage was implemented, discovered that almost a third (30 per cent) of employers were planning on improving their productivity to help soak up the additional costs of a higher wage bill.
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However, when the think tank and the professional body questioned employers on exactly how they intended to improve productivity, many seemed to have little idea of where they would start.
Meanwhile, a survey released by Close Brothers in March found that 50 per cent of SMEs owners and managers believed that the compulsory payrise would have little effect on their staff's productivity, despite a previous survey by the government discovering that 59 per cent of those who would be receiving a paypacket boost said it would make them more motivated at work.