Think tank proposes increases to wages and annual leave to boost UK’s productivity

Alfie-Stirling
Image credit: NEF

British think tank the New Economics Foundation (NEF) has proposed that minimum wages and statutory paid holiday entitlement be increased in order to improve the UK’s productivity.

The Time for demand: Boosting productivity with public investment, minimum wages and paid holiday report, published in August 2019, suggested that bolstering wages and paid annual leave, as well as implementing changes to fiscal policy, namely government spending and taxation, will create a two-pronged approach to bettering productivity in the UK.

The proposed interventions would aim to raise wages for the lowest paid among the UK workforce, while also awarding employees with more paid time off to spend on improving their quality of life.

The NEF also recommended faster increases to the minimum wage, and that from 2020, the Low Pay Commission (LPC), an independent body that advises the government on the national minimum wage, ensure that all minimum wages are raised to the same rate. This rate would need to satisfy a new mandate: either the national living wage would need to rise at a rate consistent with the voluntary accredited living wage for the UK by 2025, or all minimum wages should be increased as quickly as possible, whichever proves to be higher.

The report also suggests an increase to paid statutory annual leave, to encourage greater spending on recreational activities and to improve the mental and physical health of the UK workforce. The NEF proposes that an external body be created to make annual recommendations to the government on regular increases to statutory leave entitlements; this body would need to liaise closely with or be a part of the LPC.

Reducing working hours, according to the report, would create a virtuous circle between increasing overall productivity and helping to ensure that these productivity gains can lead to social, economic and health benefits for employees.

Alfie Stirling (pictured), head of economics at the NEF and author of the report, said: “Alongside continued supply-side interventions, such as in corporate governance, industrial strategy and finance, demand needs to be increased significantly over the short to medium-term as part of a macroeconomic strategy for boosting productivity.

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“When combined with good labour market regulation and the presence of trade union power, rising labour productivity, [or] output per hour [of] work, is the enabler of higher earnings for [employees]. Across time, the productivity increases are closely associated with rising pay and leisure time for [staff].

“The potential costs of inaction, not bringing in demand-side measures, are potentially far greater than those of over-stimulating demand.”