Productivity flash estimate and overview, UK: July to September 2024 and April to June 2024

Flash estimate of labour productivity for Quarter 3 (July to Sept) 2024

• Preliminary estimates based on the Labour Force Survey (LFS) indicate output per hour worked decreased by 1.8% while output per worker increased by 0.3% in Quarter 3 (Jul to Sept) 2024, compared with the same quarter a year ago.

• Estimates produced using experimental methods, using Pay As You Earn (PAYE) Real Time Information (RTI) and LFS data sources, indicate output per worker increased by 0.5%, compared with the same quarter a year ago.

• Output per hour worked was weak, when compared with medium-term trends, based on the LFS estimates.

Labour productivity by industry section for Quarter 2 (Apr to June) 2024

• The education industry made the biggest upward contribution to productivity growth over the previous year, caused by an upward revision in Gross value added (GVA).

• The mining and quarrying industry saw the biggest growth in output per hour worked over the previous year.

Flash estimate using the Labour Force Survey

As detailed in our Labour market transformation article, work is under way to carry out reweighting of our Labour Force Survey (LFS) estimates to reflect the most up-to-date population and migration data. The results in this article, while consistent with labour market data from our Labour market overview, UK: November 2024 bulletin, should therefore be considered with this forthcoming revision in mind.

Considering these caveats, in Quarter 3 (July to Sept) 2024, output per hour worked was lower (minus 1.8%) than the same quarter a year ago, because hours worked increased more than GVA (2.8% and 1.0%, respectively).

Output per hour worked was 2.0% above its pre-coronavirus (COVID-19) pandemic levels (2019 average level) in Quarter 3 2024, as shown in Table 1. This growth was caused by an increase in GVA of 3.6% and an increase in hours worked increased by only 1.5% over the period.

While the pandemic had a substantial short-term effect on the growth rate of productivity, unlike most "standard" recessions that show a subsequent fall in productivity (such as the financial downturn in 2008 to 2009), the growth rate bounced back to the trend rate.

However, in more recent quarters it has slowed and begun to diverge from the trend, as shown in Figure 1 and Figure 2. This latter trend was historically weak and described as the "productivity puzzle". The recent movements in productivity since the pandemic suggest this underlying weakness in UK productivity growth remains.

Recognising the break in the trend rate of growth around the time of the Global Financial Crisis in 2008, we have extrapolated the 95% confidence interval around the trend in the period between the Global Financial Crisis and the pandemic to contextualise growth in the post-pandemic period, starting the trend at Quarter 2 (Apr to June) 2009. Output per hour worked is outside the lower bound of the 95% confidence interval for the third consecutive quarter.

Output per worker was 0.3% above its equivalent in Quarter 3 2023, as shown in Figure 3. This is because GVA increased by 1.0%, while the number of workers, increased by 0.6%.

Output per worker was 2.1% above its pre-COVID-19 level. This was caused by the growth in GVA of 3.6% being higher than the growth in the LFS number of workers of 1.5% over this period.

The Pay As You Earn (PAYE) Real Time Information (RTI) published in our Earnings and employment from Pay As You Earn Real Time Information, UK: November 2024 bulletin, is an estimate of employees on the PAYE scheme from HM Revenue and Customs (HMRC). It does not include those who are employed but are not part of the scheme, or the self-employed.

Therefore, to generate a comparable estimate of total hours worked, we add the self-employed, as estimated by the Labour Force Survey (LFS) and published in our Full-time, part-time and temporary workers dataset. No adjustment is made for those that are employed but not part of PAYE, for example a domestic worker employed directly by a private household.

The addition of the self-employed from the LFS introduces an element of double counting. This is because self-employed individuals who are employees of their own firm, known as working proprietors, comprise around 10% of total self-employed workers. To address this, we subtract the working proprietors. It should also be noted that data on Real Time Information (RTI) workers are available only from Quarter 3 (July to Sept) 2014 onwards.

As the PAYE RTI counts individuals on PAYE, those individuals with two jobs on the PAYE scheme will be counted as one employee. Any individual who has a main job outside the PAYE scheme and a second job on the PAYE scheme will be categorised as having only a main job on the PAYE scheme.

Therefore, the estimate of RTI workers will inherently include both main and second job counts.

Given the definition of self-employment in the LFS, an individual whose main income source is "self-employment" and whose secondary income is from "employment", will be counted as self-employed by the LFS and as an employee by the RTI. It should be noted that this double counting has not been adjusted for.

Quarterly estimates showed a divergence between output per worker calculated using the LFS, or the RTI series after the coronavirus (COVID-19) pandemic. This is demonstrated in Figure 4, which shows an initial difference in levels between both series but similar movements, before the RTI series decreased from Quarter 4 (Oct to Dec) 2021 onwards. When comparing Quarter 3 2024 for each series with the same quarter a year ago, the RTI increased by 0.5%, while the LFS increased by 0.3%.

As RTI does not collect actual hours worked, the whole-economy hours worked for both the RTI and the LFS is calculated by multiplying LFS average hours worked with the number of workers, as shown in Figure 5. By varying the data source for workers, the impact on output per hour can be observed, given the differences in worker counts reported by each source.

A widening gap between LFS and the RTI can be seen starting in Quarter 2 2022. Comparing Quarter 3 2024 for each series with the same quarter a year ago, the output per hour calculated using RTI fell by 1.6%, while output per hour calculated using the LFS saw a larger decrease of 1.8%.

These estimates provide some evidence of alternative trends, with RTI demonstrating a more pronounced decline over the period than estimates resulting purely from the LFS. The two series share similar volatility patterns despite differences in trend growth rates.

The contribution to growth in output per hour worked for 19 industries in Quarter 2 (Apr to June) 2024, relative to the same quarter a year ago, is shown in Figure 6.

The education industry made the largest upward contribution to productivity growth over the last four quarters. By contrast, over the same period, the real estate industry (excluding imputed rental) made the largest negative contribution to productivity growth.

Even if every industry sees zero productivity growth, the whole economy can see growth if higher productivity sectors grow, and weaker productivity sectors shrink. This movement, or "between-industry effect" has made a negative contribution to productivity growth over the past year. This shows that, on average, economic activity tended to shift from industries with higher productivity to industries with lower productivity. This is the third consecutive quarter a negative re-allocation effect has been measured.

Figure 6: The education industry made the biggest upward contribution to output per hour over the last year

Contribution to growth of output per hour worked, percentage points, relative to Quarter 2 (Apr to June) 2023

Notes:

1. Imputed rental is excluded from the real estate industry and the total.
2. The industry contributions may not add up to the total growth in output per hour. This is due to the National Accounts balancing value and the impact of rounding.
3. "Other services" industry includes: activities of households as employers, undifferentiated goods and services producing activities of households for own use, activities of membership organisations, repair of computers and personal and household goods and a variety of personal service activities not covered elsewhere in our Standard Industrial Classification (SIC) 2007.
4. The relative size of an industry shown is based on the CP value from a year ago.

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The decomposition of growth of output per hour worked is shown in Figure 7. In the mining and quarrying industry growth in output per hour worked was caused by a decrease in hours worked and GVA. In the transport and storage, education, administrative services, and IT industries, growth in output per hour worked was caused by an increase in gross value added (GVA) and a decrease in hours worked.

Gross value added

Gross value added (GVA) is the value generated by any unit engaged in production and the contributions of individual sectors or industries to gross domestic product (GDP).

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.

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

On 2 November 2023, the Office for National Statistics (ONS) published our Labour Force Survey: planned improvements and its reintroduction methodology to enable the reintroduction of the Labour Force Survey (LFS) following its suspension in October, when falling response rates led to increased data uncertainty.

Following the development plan, we published our Impact of reweighting on Labour Force Survey key indicators: 2024 article on 5 February 2024. Our Labour market overview, UK: November 2024 bulletin reinstated reweighted LFS on 18 July 2024. This bulletin uses the latest published reweighted LFS data.

The reweighting exercise has improved the representativeness of our LFS estimates for the period July to September 2022 onwards, reducing potential bias in our estimates.

Productivity data in this release reflect reweighted LFS data consistent with our Labour market overview, UK: November 2024 bulletin. Whole-economy estimates of workers are in line with our Employment, unemployment and economic inactivity by age group dataset released on 12 November 2024, in our Labour market overview, UK: November 2024 bulletin. Whole-economy estimates of second jobs and total hours have been adjusted back to mid-2011 to ensure that headline productivity statistics can be assessed without a discontinuity, for the purposes of the productivity estimates, and are not part of the labour market release. Therefore, the adjusted productivity jobs and the adjusted productivity hours worked diverge slightly from the estimates in our Full-time, part-time and temporary workers dataset and our Actual weekly hours worked dataset, in time periods from 2011 to 2022.

Imputed rental is excluded from "Industry L: real estate" and for "Industry B: mining and quarrying", employee average hours are calculated at section level.

New estimates of gross value added (GVA) are more volatile on a quarterly basis, especially in production industries. This reflects the use of new data and methods, but also challenges in reconciling quarterly and annual data, as explained in our Recent challenges of balancing the three approaches of GDP article. As productivity is a structural feature of the economy, we continue to advise users to focus on long-term trends of productivity.

The Pay As You Earn (PAYE) Real Time Information (RTI) comes from our monthly Earnings and employment from Pay As You Earn Real Time Information, UK: November 2024 with estimates of payrolled employees and their pay from HM Revenue and Customs (HMRC). More information on the methods used to derive monthly employee and earnings estimates from PAYE RTI administrative data can be found in our New methods for monthly earnings and employment estimates from Pay As You Earn Real Time Information (PAYE RTI) data: December 2019 article.

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