In two previous posts, one at the end of 2019 and one in July 2021, we looked at moves around the world to introduce a four-day working week, with no increase in hours on the days worked and no reduction in weekly pay. Firms would gain if increased worker energy and motivation resulted in a gain in output. They would also gain if fewer hours resulted in lower costs.
Workers would be likely to gain from less stress and burnout and a better work–life balance. What is more, firms’ and workers’ carbon footprint could be reduced as less time was spent at work and in commuting.
If the same output could be produced with fewer hours worked, this would represent an increase in labour productivity measured in output per hour.
The UK’s poor productivity record since 2008
Since the financial crisis of 2007–8, the growth in UK productivity has been sluggish. This is illustrated in the chart, which looks at the production industries: i.e. it excludes services, where average productivity growth tends to be slower. (Click here for a PowerPoint of the chart.)
Prior to the crisis, from 1998 to 2007, UK productivity in the production industries grew at an annual rate of 6.1%. From 2007 to the start of the pandemic in 2020, the average annual productivity growth rate in these industries was a mere 0.5%.
It grew rapidly for a short time at the start of the pandemic, but this was because many businesses temporarily shut down or went to part-time working, and many of these temporary job cuts were low-wage/low productivity jobs. If you take services, the effect was even stronger as sectors such as hospitality, leisure and retail were particularly affected and labour productivity in these sectors tends to be low. As industries opened up and took on more workers, so average productivity fell back. In the four quarters to 2022 Q3 (the latest data available), productivity in the production industries fell by 6.8%.
If you project the average productivity growth rate from 1998 to 2007 of 6.1% forwards (see grey dashed line), then by 2022 Q3, output per hour in the production industries would have been 21/4 times (125%) higher than it actually was. This is a huge productivity gap.
Productivity in the UK is lower than in many other competitor countries. According to the ONS, output per hour in the UK in 2021 was $59.14 in the UK. This compares with an average of $64.93 for the G7 countries, $66.75 in France, £68.30 in Germany, $74.84 in the USA, $84.46 in Norway and $128.21 in Ireland. It is lower, however, in Italy ($54.59), Canada ($53.97) and Japan ($47.28).
As we saw in the blog, The UK’s poor productivity record, low UK productivity is caused by a number of factors, not least the lack of investment in physical capital, both by private companies and in public infrastructure, and the lack of investment in training. Other factors include short-termist attitudes of both politicians and management and generally poor management practices. But one cause is the poor motivation of many workers and the feeling of being overworked. One solution to this is the four-day week.
Latest evidence on the four-day week
Results have just been released of a pilot programme involving 61 companies and non-profit organisations in the UK and nearly 3000 workers. They took part in a six-month trial of a four-day week, with no increase in hours on the days worked and no loss in pay for employees – in other words, 100% of the pay for 80% of the time. The trial was a success, with 91% of organisations planning to continue with the four-day week and a further 4% leaning towards doing so.
The model adopted varied across companies, depending on what was seen as most suitable for them. Some gave everyone Friday off; others let staff choose which day to have off; others let staff work 80% of the hours on a flexible basis.
There was little difference in outcomes across different types of businesses. Compared with the same period last year, revenues rose by an average of 35%; sick days fell by two-thirds and 57% fewer staff left the firms. There were significant increases in well-being, with 39% saying they were less stressed, 40% that they were sleeping better; 75% that they had reduced levels of burnout and 54% that it was easier to achieve a good work–life balance. There were also positive environmental outcomes, with average commuting time falling by half an hour per week.
There is growing pressure around the world for employers to move to a four-day week and this pilot provides evidence that it significantly increases productivity and well-being.
Articles
- Results from world’s largest 4 day week trial bring good news for the future of work
4 Day Week Global, Charlotte Lockhart (21/2/23)
- Four-day week: ‘major breakthrough’ as most UK firms in trial extend changes
The Guardian, Heather Stewart (21/2/23)
- Senedd committee backs four-day working week trial in Wales
The Guardian, Steven Morris (24/1/23)
- ‘Major breakthrough’: Most firms say they’ll stick with a four-day working week after successful trial
Sky News, Alice Porter (21/2/23)
- Major four-day week trial shows most companies see massive staff mental health benefits and profit increase
Independent, Anna Wise (21/2/23)
- Four-day week: Which countries have embraced it and how’s it going so far?
euronews, Josephine Joly and Luke Hurst (23/2/23)
- Firms stick to four-day week after trial ends
BBC News, Simon Read, Lucy Hooker & Emma Simpson (21/2/23)
- The climate benefits of a four-day workweek
BBC Future Planet, Giada Ferraglioni and Sergio Colombo (21/2/23)
- Four-day working week: why UK businesses and workers will continue with new work pattern, plus pros and cons
National World, Rochelle Barrand (22/2/23)
- Most companies in UK four-day week trial to continue with flexible working
Financial Times, Daniel Thomas and Emma Jacobs (21/2/23)
- The pros and cons of a four-day working week
Financial Times, Editorial (13/2/23)
- Explaining the UK’s productivity slowdown: Views of leading economists
VoxEU, Ethan Ilzetzki (11/3/20)
- Why the promised fourth industrial revolution hasn’t happened yet
The Conversation, Richard Markoff and Ralf Seifert (27/2/23)
Questions
- What are the possible advantages of moving to a four-day week?
- What are the possible disadvantages of moving to a four-day week?
- What types of companies or organisations are (a) most likely, (b) least likely to gain from a four-day week?
- Why has the UK’s productivity growth been lower than that of many of its major competitors?
- Why, if you use a log scale on the vertical axis, is a constant rate of growth shown as a straight line? What would a constant rate of growth line look like if you used a normal arithmetical scale for the vertical axis?
- Find out what is meant by the ‘fourth industrial revolution’. Does this hold out the hope of significant productivity improvements in the near future? (See, for example, last link above.)
In the UK, we take it for granted that if you need to see a doctor, you go and give little, if any thought, to the cost. It may be petrol costs, time off work or the cost of a prescription, but beyond that, receiving treatment is free at the point of use. Funded through a progressive tax system, the NHS is seen as being one of the more equitable health care systems.
When a mother gives birth, the main thing she will have to worry about is the labour – and not whether to have certain painkillers or stay an extra night, because of the cost.
The International Federation of Health Plans (IFHP) looked at data on the cost of giving birth, based on insurance company payments. For someone living in the UK, the figures make for quite astonishing reading. In the USA, a normal delivery will cost $10,000, while a caesarean totals $15,000, meaning that giving birth in the USA is the most expensive place in the world. The article linked below takes the case of Mari Roberts, whose total delivery bill came to over $100,000. The insurance did cover it, but that’s not always the case. Medical bills in the United States are one of the leading reasons for bankruptcy and with these types of figures, perhaps it’s hardly surprising.
Other countries also see high costs for delivery, where expectant mothers really do need to give consideration to the length of their stay in hospital and perhaps even whether they are willing to forgo a pain-relieving drug and save some money. There is often said to be an efficiency–equity trade-off in the area of healthcare, with countries offering a free at the point of use service delivering an equitable system, but with a lack of responsiveness to the demands of the patients. In the UK, you don’t pay to see a doctor but, with a ‘free’ service, demand is understandably very high, thus creating a shortage and waiting lists. In countries, such as the USA, a higher price for treatment does limit demand, creating more inequity but a responsive system.
There are certainly lessons that can be learned from all health care systems and living in a developed country, we should certainly consider ourselves lucky. There are many countries where access to even the most basic health care is a luxury that most cannot afford. So, where does have the best health care system? I’ll leave that to you.
Video and article
How much do women around the world pay to give birth? BBC News, Mariko Oi (13/2/15)
Report
Research for Universal Health Coverage, World Health Report 2013 World Health Organisation August 2013
Health Systems Financing: The Path to Universal Coverage, World Health Report 2010 World Health Organisation August 2010
Questions
- Using a demand and supply diagram, explain why there may be a trade-off between efficiency and equity.
- If there is over-consumption of a service such as health care, does this suggest that the market fails?
- What are the main market failures that exist in health care?
- Is the concept of opportunity cost relevant to mothers in labour? Think about the country in question.
- How would you go about ranking health care systems if you worked for an organisation such as the OECD or WHO?
- Pick a country whose health care system you are familiar with. What changes have occurred to the way in which health care is organised and financed in this country? How has it affected the key objectives that formed part of your answer to question 5?
When an industry produces positive externalities, there is an argument for granting subsidies. To achieve the socially efficient output in an otherwise competitive market, the marginal subsidy should be equal to the marginal externality. This is the main argument for subsidising wind power. It helps in the switch to renewable energy away from fossil fuels. There is also the secondary argument that subsidies help encourage the development of technologies that would be too uncertain to fund at market rates.
If subsidies are to be granted, it is important that they are carefully designed. Not only does their rate need to reflect the size of the positive externalities, but also they should not entail any perverse incentive effects. But this is the claim about subsidies given to wind turbines: that they create an undesirable side effect.
Small-scale operators are encouraged to build small turbines by offering them a higher subsidy per kilowatt generated (through higher ‘feed-in’ tariffs). But according to a report by the Institute for Public Policy Research (IPPR), this is encouraging builders and operators of large turbines to ‘derate’ them. This involves operating them below capacity in order to get the higher tariff. As the IPPR overview states:
The scheme is designed to support small-scale providers, but the practice of under-reporting or ‘derating’ turbines’ generating capacity to earn a higher subsidy is costing the taxpayer dearly and undermining the competitiveness of Britain’s clean energy sector.
The loophole sees developers installing ‘derated’ turbines – that is, turbines which are ‘capped’ so that they generate less energy. Turbines are derated in this way so that developers and investors are able to qualify for the more generous subsidy offered to lower-capacity turbines, generating 100–500kW. 
By installing derated turbines, developers are making larger profits off a feature of the scheme that was designed to support small-scale projects. Currently, the rating of a turbine is declared by the manufacturer and installer, resulting in a lack of external scrutiny of the system.
The subsidies are funded by consumers through higher electricity prices. As much as £400 million could be paid in excess subsidies. The lack of scrutiny means that operators could be receiving as much as £100 000 per year per turbine in excess subsidies.
However, as the articles below make clear, the facts are disputed by the wind industry body, RenewableUK. Nevertheless, the report is likely to stimulate debate and hopefully a closing of the loophole.
Video
Turbine power: the cost of wind power to taxpayers Channel 4 News, Tom Clarke (10/2/15)
Articles
Wind subsidy loophole boosts spread of bigger turbines Financial Times, Pilita Clark (10/2/15)
Call to Close Wind Power ‘Loophole’ Herald Scotland, Emily Beament (10/2/15)
Wind farm developers hit back at ‘excessive subsidy’ claims Business Green, Will Nichols (10/2/15)
The £400million feed-in frenzy: Green energy firms accused of making wind turbines LESS efficient so they appear weak enough to win small business fund Mail Online, Ben Spencer (10/2/15)
Wind power subsidy ‘loophole’ identified by new report Engineering Technology Magazine, Jonathan Wilson (11/2/15)
Report
Feed-in Frenzy Institute for Public Policy Research, Joss Garman and Charles Ogilvie (February 2015)
Questions
- Draw a diagram to demonstrate the optimum marginal rate of a subsidy and the effect of the subsidy on output.
- Who should pay for subsidies: consumers, the government (i.e. taxpayers generally), electricity companies through taxes on profits made from electricity generation using fossil fuels, some other source? Explain your thinking.
- What is the argument for giving a higher subsidy to operators of small wind turbines?
- If wind power is to be subsidised, is it better to subsidise each unit of output of electricity, or the construction of wind turbines or both? Explain.
- What could Ofgem do (or the government require Ofgem to do) to improve the regulation of the wind turbine industry?
With Christmas approaching, sales will once again begin to rise and cards will be written. Mail services will be at their busiest as we post millions of cards and parcels every day. But, the question is: will they arrive? Workers in the supply chain at Royal Mail have voted to strike over pay.
Since the part privatisation of Royal Mail, many criticisms have emerged, ranging from the price at which shares were sold, the efficiency of the Royal Mail, suggestions of varying prices for delivery depending on location, and now over pay. As with any labour market, there is a demand and a supply of workers and the intersection of these curves creates our equilibrium wage. If the wage is forced up above the equilibrium wage by the actions of trade unions, then there is the potential for unemployment to be created.
The Communications Workers Union (CWU) feels that their pay is insufficient. Dave Ward, Deputy General Secretary of CWU said:
“Thanks entirely to the unreasonable attitude of Post Office management, a pre-Christmas national strike is looking inevitable…The workforce has made a major contribution to the company’s success and have every right to their fair share.”
However, the head of the supply chain at Royal Mail has responded to the threats of strike, referring to the 5% pay rise promised to its workers over the next three years, saying:
“We are undertaking the biggest modernisation programme in UK retail history to ensure we become commercially viable and reduce our reliance on public money…We urge the CWU to reconsider their unrealistic demands and discuss an affordable pay deal rather than call strike action which can only cost our people money.”
The row over pay is not the only way that job losses could emerge. A major criticism levelled at the Royal Mail is its lack of efficiency, especially in terms of cost reductions and work flexibility. 
The Royal Mail has become increasingly concerned by competition, especially as its low-cost competitors can choose to whom they deliver. Those living in built up areas receive mail, but for those living in more rural areas, some of Royal Mail’s competitors will not deliver there, because of the higher costs. Royal Mail does not have this luxury and hence must deliver to loss-making places. Royal Mail says that this is creating unfair pressure to its business and is calling for these competitors to be forced to deliver to rural areas and small businesses. However, one such company, Whistl, has said that the figures from Royal Mail suggest that ‘productivity is not a sufficiently high enough management priority.
If the strike does go ahead in the build up to Christmas, then the management priorities of Royal Mail will certainly be under scrutiny. The following articles consider the current situation.
Articles
Questions
- If there is strike action in a labour market, what can we conclude about the market in question in terms of how competitive it is?
- Is strike action completely pointless?
- What actions could workers take, other than strike action, to achieve a resolution of their grievances? Discuss what employers could offer in an attempt to resolve the situation?
- What are the arguments for making Royal Mail’s competitors deliver to all places, just as the Royal Mail must do?
- The efficiency of the Royal Mail has been called into question. If efficiency improved, would this mean that pay rises were more or less feasible?
Getting around London is pretty easy to do. Transport, though often criticized, is very effective in and around London – at least when the Underground is running uninterrupted. However, since 9pm on Tuesday 4th February until the morning of 7th February, the underground will be operating well below full capacity, as strike action affects many workers.
Transport for London has plans to cut many jobs, in particular through the closure of ticket office at all stations. Modernisation to the network is said to be essential, not just to improve the existing system, but also as it is predicted to save £50 million per year. Data suggests that only 3% of transactions involve people using ticket offices and thus the argument is that having offices manned is a waste of money and these workers would be better allocated to manning stations. David Cameron said:
I unreservedly condemn this strike. There is absolutely no justification for a strike. We need a modernised tube line working for the millions of Londoners who use it every day.
Workers on London Underground are naturally concerned about the impact this will have, in particular on their jobs, despite assurances that there will be no compulsory redundancies.
The impact of these strikes on workers in London is clearly evident by any pictures you look at. Buses were over-crowded, despite more than 100 extra being provided, pavements were packed with pedestrians and the roads were full of cyclists. At least the strike action has led to a little more exercise for many people! The disruption to business in London is likely to be relatively large and the loss in revenue due to the action will also be high, estimated by Business leaders to be tens of millions of pounds. It is perhaps for this reason that there is discussion as to whether the underground should be declared an ‘essential service’ as a means of minimising future disruptions.
Discussions have been ongoing between both sides to try to prevent this action and talks are likely to continue in the future. Boris Johnson has declared the strikes as ‘completely pointless’ and both sides have argued that the other has been unwilling to negotiate and discuss the ticket office closures. Boris Johnson said:
A deal is there to be done. I am more than happy to talk to Bob Crow if he calls off the pointless and unnecessary strike.
The impact on London and the economy will only be fully known after the strike action is over, but there are plans for further strikes next week. The greater the disruption the bigger the calls for further strikes on key services, such as the tube, to be prevented. In particular, this may mean new powers to curtail the rights of unions in these types of areas, which will require a minimum service to be provided. The following articles consider the strike action on the London Underground.
Articles
Questions
- If there is strike action in a labour market, what can we conclude about the market in question in terms of how competitive it is?
- If only 3% of transactions take place via ticket offices, is it an efficient use of resources to maintain the presence of ticket offices at every station?
- Is industrial action ‘completely pointless’?
- What other solutions are there besides strike action to problems of industrial dispute?
- What is the role of ACAS in negotiations?
- What is the economic impact of the strike on the London Underground? Think about the impact on businesses, revenues, sales and both micro and macro consequences.
- Should the tube be seen as an essential service such that strike action by its workers would be restricted?
