Labour Productivity Statistics

An Official Statistics Publication for Scotland Labour Productivity Statistics 1998-2014 Release Date: 20 January 2016 KEY FINDINGS In 2014, Scottish labour productivity as measured by output per hour worked was 97.6% of the average UK value (excluding extra regio output) - a gap of 2.4 percentage points. The gap between labour productivity levels in Scotland and the UK average narrowed sharply during the recent recession from around 6 or 7 percentage points prior to 2008 to 2 or 3 percentage points since 2009. Output per hour worked in Scotland increased by 1.3% in real terms (inflation adjusted) during 2014, following a decrease of 0.4% in 2013. Output per hour worked is now 4.4% higher in real terms than in 2007, prior to the recession. Labour productivity as measured by output per job was 95.9% of the average UK value (excluding extra regio output), and increased by 0.9% in real terms during 2014. Output per job is now 2.9% higher in real terms than in 2007. The differences in growth rates between output per hour worked and output per job indicate changes in average working patterns. For example, in 2014 the number of jobs in Scotland increased by 1.7% while total hours worked increased by only 1.3%, indicating a slight decrease in the average number of hours worked per job. ABOUT THIS RELEASE This release reports annual labour productivity estimates for the period 1998-2014 covering total output in the Scottish economy. Labour productivity measures the amount of economic output that is produced, on average, by a unit of labour input (measured in this release in terms of jobs and hours worked) and is an important indicator of economic performance. Results are calculated in both real terms (inflation adjusted) and current prices (nominal, not adjusted for inflation). Labour input measures in this release are consistent with the NUTS1 results for countries and regions in Labour Productivity 2015 Q3 published by the Office for National Statistics (ONS) on 23 December 2015. Current price output statistics are consistent with Quarterly National Accounts Scotland 2015 Q2 (published on 4 November 2015), and real terms output statistics are consistent with Gross Domestic Product for Scotland 2015 Q3 (published on 13 January 2016). 1

LATEST RESULTS Current Price Productivity Measures Labour productivity can be expressed in current prices, also known as nominal terms, which are not adjusted to remove the effects of inflation. The main use of current price productivity statistics is to make comparisons between countries or regions at a particular point in time. Current price productivity statistics can be expressed in terms of monetary values (e.g. per hour of Gross Value Added), but it is more common for results to be expressed as an index relative to the current value in a particular reference country. Within the UK, productivity for the countries and regions is expressed relative to the UK average excluding extra regio activity. For international comparisons the USA is used as a common benchmark, with results for other countries converted into a common Purchasing Power Parity (PPP) standard which accounts for exchange rates and price differences. In 2014, Scottish output per hour worked was 97.6% of the average UK value (excluding extra regio output), representing a gap of 2.4 percentage points. The gap between labour productivity levels in Scotland and the UK average narrowed sharply during the recent recession from around 6 or 7 percentage points prior to 2008 to 2 or 3 percentage points since 2009. Output per job was 95.9% of the average UK value (excluding extra regio output) in 2014, representing a gap of 4.1 percentage points. Over time the levels of output per job and per hour relative to the UK have followed a similar pattern. Since 2010 there has been a small divergence and the relative level of output per job has has been lower than output per hour, indicating that changes in the workforce in Scotland do not mirror the average changes across the UK 100 Figure 1: Scottish Labour Productivity - Current Prices Relative to UK = 100 98 96 94 92 90 Ouput Per Hour Output Per Job 2

Real Terms Index (2007=100) Weekly Hours (millions) Interpreting Real Terms Productivity Statistics Labour productivity can also be presented in real terms, also known as constant prices or volume terms, where the effects of price inflation have been removed. The main use of real terms productivity statistics is to analyse changes in the level of activity over time within a particular country or region, or to compare growth rates between countries or regions. Real terms growth of labour productivity can be decomposed into the growth of output minus the growth of labour input. Whole economy output (Gross Value Added, GVA) increased by 2.6% in real terms during 2014, while the number of jobs and hours worked increased by 1.7% and 1.3% respectively. These movements in output and labour inputs demonstrate that labour productivity increased in terms of both output per job and output per hour during 2014. Differences between growth of output per job and output per hour reflect movements in average hours, which are typically not large from quarter to quarter, but can be material over a period of time. For example, a shift towards part-time employment will tend to reduce average hours. For this reason, output per hour is a more comprehensive indicator of whole economy labour productivity and is usually taken as the headline measure. Real Output Per Hour, 1998-2014 Labour productivity in Scotland, as measured by output per hour, increased by 1.3% in real terms during 2014, following a decrease of 0.4% in 2013. 110 105 100 95 90 85 80 75 Figure 2: GVA and Output Per Hour 2007 = 100 82 81 80 79 78 77 76 75 74 Output (GVA) Output Per Hour Whole Economy Weekly Hours (million) - right axis Figure 2 shows change in Scottish output (GVA), output per hour, and average weekly hours worked in the whole economy each year over the period 1998-2014. In 2014, output per hour was 4.4% higher than the level in 2007 before the recession began. Output per hour grew stongly during 2009 and 2010, and has fluctutated at around its 2010 level since then. 3

Real Terms Index (2007=100) Jobs Filled (millions) Between 1998 and 2004 output per hour grew at a similar rate to GDP (at an average of 2.5% and 2.7% per year respectively). This pattern changed between 2005 and 2008, when productivity growth slowed sharply as the total number of hours worked increased significantly faster than GDP growth prior to the onset of recession in 2008. Between 2008 and 2010, the number of hours worked fell back below 2004 levels due to both a reduction in employment and also a fall in average hours per job, resulting in output per hour increasing during both 2009 and 2010. Since 2010 there has been a steady recovery in both output and total hours worked, resulting in a generally flat trend in real output per hour with fluctuating growth from year to year. Real Output Per Job, 1998-2014 Labour productivity as measured by output per job increased by 0.9% in real terms (inflation adjusted) during 2014, following growth of 1.2% in 2013. 105 100 95 90 85 80 75 Figure 3: GVA and Output Per Job 2007 = 100 2.8 2.8 2.7 2.7 2.6 2.6 2.5 2.5 2.4 2.4 2.3 Output (GVA) Output Per Job Whole Economy Jobs Filled (million) - right axis Figure 3 shows change in Scottish output (GVA), output per job, and the total number of jobs filled in the whole economy in each year over the period 1998-2014. This shows notable differences compared to the previous section on output per hour. Over the period 1998-2006, output per job grew at a slower rate than GDP (at 1.7% per year on average, compared to 2.7% for GDP). This trend is slower than growth in output per hour. During the recession in 2008-09 the number of jobs fell as unemployment increased, but jobs did not fall as sharply as the number of hours worked. This means that output per job increased by a smaller amount than output per hour during the recession. Since 2010 there has been a steady increase in both output and the number of jobs in Scotland resulting in a generally increasing trend in real output per job. 4

Labour Market and Workforce Trends The differences in trends between jobs and hours is due to changes in working patterns over time. This is indicated by the average number of weekly hours per job in the economy, shown in figure 4. Average weekly hours per job in Scotland has been falling gradually over time, from 31.4 hours per week in 1998 to 30.4 hours per week in 2014. During the recession in 2009, average hours fell closer to 30 per week, and remained at that level until 2012. In 2013 average hours increased sharply for the first time since 2007, and have remained at a similar level in 2014. A decrease in average weekly hours per job can be due to a greater number of people employed in part time jobs, or cuts in contracted hours, or some combination of both these factors. 35 34 33 32 31 30 29 28 27 26 25 Figure 4: Average Weekly Hours per Job (Whole Economy) 5

Table A: Current Price Labour Productivity Whole Economy Output Per Hour and Output Per Job Year Gross Value Added (GVA) 1 million Output per hour 2 Output per job 2 compared to UK = 100 3 compared to UK = 100 3 1998 65,532 16.75 94.4 27,371 93.9 1999 65,906 16.98 93.1 27,649 92.8 2000 69,129 17.82 92.8 28,843 92.5 2001 73,560 18.27 92.0 29,796 92.2 2002 77,002 19.38 92.4 31,074 92.0 2003 81,388 20.49 92.3 32,561 91.3 2004 87,118 21.99 94.8 34,710 93.2 2005 92,528 22.82 94.0 36,134 92.5 2006 99,083 23.91 94.0 38,280 93.7 2007 102,803 24.56 92.2 39,391 92.1 2008 108,164 25.60 94.1 40,965 94.2 2009 107,842 26.96 97.2 42,328 96.8 2010 108,950 27.89 97.7 43,654 96.6 2011 112,546 28.46 97.1 44,467 96.0 2012 113,944 28.85 97.0 45,060 95.1 2013 118,430 29.33 96.3 46,538 95.3 2014 123,663 30.23 97.6 47,784 95.9 1 Consistent w ith Quarterly National Accounts Scotland for 2015 Quarter 2 2 NUTS1 Labour Input series from ONS Labour Productivity 2015 Q3 release 3 UK excluding extra regio, consistent w ith Table 9: Productivity Measures By Region in ONS Labour Productivity 2015 Q3 6

Table B: Real Terms Labour Productivity Indices Whole Economy Output Per Hour and Output Per Job Year Gross Value Added (GVA) 1 Output per hour 2 Output per job 2 2007=100 3 change on previous year 2007=100 3 change on previous year 2007=100 3 change on previous year 1998 79.7-85.3-86.9-1999 80.8 1.4% 87.2 2.2% 88.5 1.9% 2000 83.6 3.4% 90.2 3.5% 91.0 2.9% 2001 86.6 3.6% 90.0-0.2% 91.6 0.6% 2002 88.4 2.1% 93.1 3.4% 93.1 1.7% 2003 90.9 2.8% 95.8 2.9% 94.9 1.9% 2004 93.4 2.7% 98.6 3.0% 97.1 2.3% 2005 94.9 1.6% 97.9-0.7% 96.7-0.4% 2006 98.9 4.2% 99.9 2.0% 99.7 3.1% 2007 100.0 1.1% 100.0 0.1% 100.0 0.3% 2008 99.6-0.4% 98.7-1.3% 98.5-1.5% 2009 96.6-3.0% 101.1 2.4% 98.9 0.5% 2010 96.7 0.1% 103.6 2.5% 101.2 2.2% 2011 97.3 0.6% 103.0-0.6% 100.4-0.8% 2012 97.7 0.3% 103.5 0.5% 100.8 0.4% 2013 99.4 1.8% 103.1-0.4% 102.0 1.2% 2014 102.0 2.6% 104.4 1.3% 102.9 0.9% 1 Consistent w ith Gross Domestic Product for Scotland for 2015 Quarter 3 2 NUTS1 Labour Input series from ONS Labour Productivity 2015 Q3 release 3 Volume indices w ith reference period 2007 selected to assist interpretation over the course of the recession in 2008 and 2009 7

Table C: Labour Productivity Input Series: Hours and Jobs 1 Year Productivity Jobs change on previous year Whole Economy: Average Weekly Hours change on previous year Whole Economy: Average Weekly Hours per job 1998 2,394,212-75,243,306-31.4 1999 2,383,652-0.4% 74,654,106-0.8% 31.3 2000 2,396,700 0.5% 74,617,622 0.0% 31.1 2001 2,468,768 3.0% 77,438,543 3.8% 31.4 2002 2,478,030 0.4% 76,428,420-1.3% 30.8 2003 2,499,549 0.9% 76,384,900-0.1% 30.6 2004 2,509,865 0.4% 76,178,873-0.3% 30.4 2005 2,560,725 2.0% 77,990,335 2.4% 30.5 2006 2,588,366 1.1% 79,675,915 2.2% 30.8 2007 2,609,812 0.8% 80,481,168 1.0% 30.8 2008 2,640,377 1.2% 81,260,905 1.0% 30.8 2009 2,547,761-3.5% 76,918,487-5.3% 30.2 2010 2,495,752-2.0% 75,121,508-2.3% 30.1 2011 2,530,995 1.4% 76,039,228 1.2% 30.0 2012 2,528,711-0.1% 75,953,769-0.1% 30.0 2013 2,544,825 0.6% 77,653,031 2.2% 30.5 2014 2,587,954 1.7% 78,665,228 1.3% 30.4 1 NUTS1 Labour Input Series from ONS Labour Productivity release for 2015 Quarter 3 Productivity Jobs and Productivity Hours by NUTS1 region (Excel sheet 1047Kb) 8

BACKGROUND NOTES Release Notes 1. Labour productivity measures the amount of economic output that is produced by a unit of labour input (measured in this release in terms of jobs and hours worked). 2. Output statistics in this release are consistent with the latest Quarterly National Accounts Scotland published on 4 November 2015 and Gross Domestic Product published on 13 January 2016. 3. Labour input measures are consistent with the ONS regional results in Labour Productivity 2014 Q3 published on 23 December 2015. 4. The component series used for output and labour inputs are designated as National Statistics, meaning they have been assessed as being readily accessible, produced according to sound methods and managed impartially and objectively in the public interest. The derived productivity series in this release have not yet been assessed by the UK Statistics Authority and do not carry this designation. Methodology and Definitions 5. The labour productivity measures in this bulletin are presented in terms of current prices (also known as nominal estimates; without adjustment for inflation), suitable for cross-country and inter-regional comparison of levels of productivity for a single year, and real terms (also known as constant prices, or volume estimates, which have been adjusted for inflation) which are suitable for analysis of changes in productivity performance over time. 6. Real terms productivity estimates are indexed to a particular year. The index year is set at 2007=100 in order to focus on movements in labour productivity since the onset of recession in 2008. 7. GVA estimates for Scotland are for the onshore economy only (identified as the NUTS1 region of the UK with code UKM). Comparisons with the UK average are consistent with those published by ONS for all NUTS1 regions and countries in its 2015 Quarter 3 productivity release. These are made to onshore UK GVA only (that is, UK excluding overseas and offshore activity classed as extra regio in UK regional accounts). The main reason for using only onshore output in analysis of UK countries and regions is that the Labour Force survey, which is used to determine the labour inputs series, associates all workers and hours with one of the 12 onshore countries and regions of the UK, and therefore there are no labour inputs directly associated with offshore activities. 8. Users should note that this introduces a potential bias to the onshore productivity estimates, given that a portion of the workforce is not counted against the output that they produce. For Scotland, and the UK total, this means that labour input series are larger than they might otherwise be, and therefore that reported productivity will be lower than if only the onshore workforce was used in the calculation. The analysis of the scale of this effect and investigation of potential adjustments to mitigate it are included in the development plan for future productivity statistics releases. 9

Key Quality Issues 9. Labour productivity estimates are derived statistics produced using simple calculations based on other statistics. Their quality and accuracy is therefore dependent on the output and labour input data. While there are some known issues with the consistency between GVA and labour market statistics due to factors including the different survey sources, workforce residency and commuting effects, and differing definitions of business unit classifications, the data sources used to produce the estimates in this bulletin are all individually recognised to be of high quality and are designated as such. 10. The methodology employed is also straightforward and robust, meaning that the estimates produced for this release are comparable to ONS estimates of labour productivity for the UK. Other Productivity Statistics for Scotland 11. Current price estimates in this release are produced to provide productivity statistics which are consistent with Quarterly National Accounts Scotland and other economic statistics produced by the Scottish Government. 12. Alternative statistics are available from the Office for National Statistics which are consistent with the NUTS1 Gross Value Added (Income approach) produced for all countries and regions of the UK. ONS estimates of GVA differ from Scottish Government estimates because of adjustments made by the Scottish Government during the production of Supply and Use Tables which balance estimates of GVA using Production and Expenditure data sources as well as Income. 13. Estimates of labour productivity are derived directly from GVA statistics, and are often analysed alongside GVA and GDP. It is therefore important that productivity statistics should be used in context with the GVA data they are consistent with. 14. For users of Scottish Government GDP and Quarterly National Accounts Scotland statistics, the recommended productivity statistics are those in this release. Users of ONS Regional GVA statistics are recommended to continue using the ONS Regional Productivity statistics as a consistent product. Likewise, users who focus primarily on productivity statistics should ensure that any comparison to GVA or GDP makes reference to the consistent product. 15. Real terms productivity estimates show the evolution of productivity within a country or region, but should not be used to compare productivity levels across countries or regions at a point in time. Productivity growth can be decomposed into growth of output minus growth of prices and the growth of labour input, and these components can move in different directions within and across countries. This should be borne in mind in interpreting the real terms productivity estimates in this release. 10

Future Developments to Scottish Labour Productivity Statistics 16. As part of the Scottish National Accounts Programme (SNAP), a work package is investigating further development of productivity statistics for Scotland. This will examine what data is available and how it can be used to extend the scope of existing statistics to better meet the needs of users. Planned developments include: Investigating how labour market source data can be used to reproduce and then extend the ONS productivity jobs and hours series for Scotland. This could allow us to improve: o The timeliness of productivity statistics, by attempting to shorten the current 9-12 month lag between first estimates of annual GDP and the corresponding productivity input statistics being released o The frequency of productivity statistics, by investigating whether quarterly productivity estimates are feasible on the same basis as the annual figures. o The labour input components, through the possible addition of workers as well as jobs and hours. Investigating whether appropriate labour market series can be produced to allow analysis of productivity by industry. This would be of interest for economic policy, for comparisons to UK and international statistics, and for better understanding the trends in whole economy productivity. Investigating the treatment of offshore GVA and offshore workers in existing labour market statistics and their impact on productivity estimates. UK whole economy productivity statistics include all offshore GVA and all offshore workers, but the situation is not as simple for sub-uk statistics including those for Scotland, as mentioned in note 8 above. 17. Some users have expressed interest in the development of estimates of Total Factor Productivity (also known as Multi-Factor Productivity) for Scotland, which takes account of changes in the composition of labour input and the utilisation of capital input to production as well as the labour input measured in Labour Productivity statistics. At present the required data on capital stocks, investment and depreciation are not available to allow such estimates to be produced for Scotland or other sub-uk areas, but the SNAP team plan to research opportunities for this in the future. Recent experimental estimates for the UK are published by ONS, with a fuller explanation of the definition of TFP and methodologies used in the article at http://www.ons.gov.uk/ons/rel/icp/multi-factor-productivity--experimental-/2013/art-mfp- 15.html. 18. Any additional statistics developed as part of this programme are likely to be designated as experimental official statistics and consulted on with users and other stakeholders. Users will be kept up to date with developments through the ScotStat register and in meetings of the Scottish Economic Statistics Consultation Group. 11

An Official Statistics publication for Scotland Official and National Statistics are produced to high professional standards set out in the Code of Practice for Official Statistics. Both undergo regular quality assurance reviews to ensure that they meet customer needs and are produced free from any political interference. Correspondence and enquiries For enquiries about this publication please contact: John Dowens, Scottish National Accounts Programme, Office of the Chief Economic Adviser e-mail: john.dowens@scotland.gsi.gov.uk or economic.statistics@scotland.gsi.gov.uk For general enquiries about Scottish Government statistics please contact: Office of the Chief Statistician, Telephone: 0131 244 0442, e-mail: statistics.enquiries@scotland.gsi.gov.uk How to access background or source data The data collected for this statistical bulletin may be made available on request, subject to consideration of legal and ethical factors. Please contact the national accounts team for further information. Complaints and suggestions If you are not satisfied with our service or have any comments or suggestions, please write to the Chief Statistician, 3WR, St Andrews House, Edinburgh, EH1 3DG, Telephone: (0131) 244 0302, e-mail statistics.enquiries@scotland.gsi.gov.uk. If you would like to be consulted about statistical collections or receive notification of publications, please register your interest at www.gov.scot/scotstat Details of forthcoming publications can be found at www.gov.scot/statistics Crown Copyright You may use or re-use this information (not including logos) free of charge in any format or medium, under the terms of the Open Government Licence. See: www.nationalarchives.gov.uk/doc/open-government-licence/ 12