Productivity overview, UK: April to June 2023

Labour productivity

• Incorporating revisions to annual National Accounts, output per hour worked increased by 0.3% in Quarter 2 (Apr to June) 2023 compared with Quarter 2 2022.

• Output per hour worked was 2.8% above its pre-coronavirus (COVID-19) pandemic levels (2019 average level) in Quarter 2 2023.

• Output per worker and output per job in Quarter 2 2023 also rose up 0.2% and 0.4%, respectively, compared with the same quarter a year ago.

• Relative to the same quarter a year ago, the administrative services and construction industries made the biggest upwards contributions to annual productivity growth, while the finance and insurance industry made the biggest negative contribution.

Labour costs and labour income

• Nominal unit labour costs rose by 1.6% in Quarter 2 2023 compared with Quarter 1 (Jan to Mar) 2023, and were 5.8% higher than the same quarter a year ago.

The gross value added (GVA) time series data used to estimate our productivity measure, taken from our Gross domestic product (GDP) quarterly national accounts, UK: April to June 2023 bulletin, have undergone revisions, implemented as part of the Blue Book 2023 National Accounts changes. As such, there may be differences in the labour productivity estimates reported in our UK productivity flash estimate: April to June 2023 article and our latest Productivity overview estimates.

Furthermore, as we have explained previously, response rates for the Labour Force Survey (LFS) have been falling. For this reason, the Office for National Statistics (ONS) is working to transform the LFS to enhance the quality of productivity and labour market estimates.

We will keep users informed about future developments of the TLFS. Because of the limited LFS response rates, this publication excludes industries A, agriculture, and B, mining and quarrying.

In Quarter 2 (Apr to June) 2023, output per hour worked, our headline measure of labour productivity, was 0.3% higher than the same quarter a year ago. Output per hour worked increased because gross value added (GVA) grew at a higher rate, 0.6% over the last year, than hours worked, 0.3%.

Output per hour worked was 2.8% above its pre-coronavirus (COVID-19) pandemic levels (2019 average level) in Quarter 2 2023. Figure 1 shows that this growth was caused by an increase in GVA of 2.2% since 2019, while the number of hours worked decreased by 0.5% over the period.

Output per worker and output per job were above their equivalent Quarter 2 2022 levels by 0.2% and 0.4%, respectively. This is because of higher growth in GVA of 0.6% than in the number of workers and jobs, which grew by 0.4% and 0.2%, respectively.

Output per worker was 1.8% above its pre-coronavirus-pandemic levels, driven by the growth in GVA of 2.2%, which was higher than the growth in the number of workers of 0.4%.

Output per job was 1.7% above its pre-coronavirus pandemic levels. This was because of higher growth, in GVA of 2.2%, than in the number of jobs, which grew by 0.5%.

Compared with its pre-coronavirus pandemic levels, output per worker grew less than output per hour worked because, on average, workers did fewer hours work per week in Quarter 2 (Apr to June) 2023 than in 2019. Similarly, output per job grew less than output per worker because more workers are now doing second jobs.

Figure 1 shows that the new revised data suggest that, while the coronavirus pandemic had a significant short-term effect on the growth rate of productivity, unlike most "standard" recessions (such as the financial crisis in 2008 to 2009) which demonstrate a subsequent fall in productivity, the trend rate has been unaffected when taken from 2009 onwards. Since this trend was historically weak and recognised as the "productivity puzzle", this suggests that underlying weakness in the drivers of productivity growth remain.

Please note that the coronation of King Charles III on 6 May 2023 led to an additional bank holiday on Monday 8 May. This should be considered when interpreting the variation in hours worked in Quarter 2 2023 and the comparison with the previous quarter (Quarter 1 2023). The Queen’s Platinum Jubilee also led to an additional bank holiday on Friday 3 June 2022, and this should also be considered when interpreting the variation in hours worked between Quarter 2 2023 and the same quarter a year ago (Quarter 2 2022).

Figure 2 shows the contribution to annual growth in output per hour worked for 15 industries in Quarter 2 (Apr to June) 2023 relative to the same quarter a year ago.

Administrative service and construction industries made the biggest upwards industry contributions to annual productivity growth. By contrast, finance and insurance made the biggest negative contribution to productivity growth. The hotel and catering industry did not make any substantive contribution to productivity growth over the same period.

Whole-economy growth in productivity is affected by reallocation of economic activity between industries (the between-industry effect). The between-industry reallocation made a positive contribution to productivity growth over the past year, showing that on average, economic activity tended to shift from industries with lower productivity to industries with higher productivity.

Figure 3 shows the decomposition of growth of output per hour worked. In administrative services, growth in output per hour worked was caused by an increase in gross value added (GVA) and a fall in hours worked.

Total employment costs (TEC) grew 1.7% in quarter 2 (Apr to June) 2023 when compared with quarter 1 (Jan to Mar) 2023.  The growth in TEC was stronger than the 0.1% growth in real gross value added for the same period resulting in nominal unit labour costs (ULC) growing 1.6% in quarter 2 2023.  When compared to quarter 2 2022, ULCs increased by 5.8%

Labour productivity

Labour productivity measures how many units of output are produced for each unit of labour input and is calculated by dividing output by labour input.

Labour inputs

The preferred measure of labour input is hours worked ("productivity hours"), but workers and jobs ("productivity jobs") are also used.

Output

Output refers to gross value added (GVA), which is an estimate of the volume of goods and services produced by an industry and in aggregate for the UK.

Total employment costs

Total employment costs represent the total costs of purchasing labour in the economy, not including any such costs funded by employment subsidies.

Unit labour costs (nominal)

Unit labour costs (ULCs) measure the nominal cost of labour input per unit of real (inflation-adjusted) economic output.

Methodological information

Productivity estimates and their inputs are produced to a number of decimal points as reported in the accompanying datasets. However, within the bulletin we have rounded to one decimal point.

Information on the strengths and limitations of the labour productivity data, as well as the quality and accuracy of the data, is available in our Labour productivity Quality and Methodology Information (QMI).

In our labour costs and labour income dataset, we use estimates from the UK National Accounts that are periodically revised to account for updated data, new methods and new data sources. Therefore, please take these revisions into account if you are using these data for contract negotiations or prices.

We welcome feedback about our publication changes. To help us meet user needs, please email productivity@ons.gov.uk.