National Minimum Wage

Chapter 2: The Impact of the National Minimum Wage
Figure 2.20: Annual Change in Unit Wage and Labour Costs, UK, 1998-2011
Change on a year earlier (per cent)
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1998 Q1
1998 Q3
1999 Q1
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2000 Q3
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2002 Q3
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2004 Q3
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2005 Q3
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2007 Q1
2007 Q3
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2008 Q3
2009 Q1
2009 Q3
2010 Q1
2010 Q3
2011 Q1
2011 Q3
Quarter
Unit wage costs Unit labour costs
Source: ONS, unit wage costs (LOJE) and unit labour costs (DMWN), quarterly, seasonally adjusted, UK, Q1 1998-Q3 2011.
Productivity
2.107 There are a number of ways that firms can increase labour productivity. First, some labour
could be replaced by capital. Second, introducing new technology might increase the quality
of capital. Third, workers could be monitored or motivated to put in extra effort. Fourth, work
organisation could be adjusted to improve the capital:labour mix. Finally, firms could invest in
improving the quality of labour through education and training. Each of these would lead to an
increase in labour productivity.
2.108 As noted in Chapter 1, official data showed productivity (whether measured per hour or per
job) falling throughout the recession as losses in output were greater than the reductions in
hours or employment. Since the start of 2010, the growth in productivity per hour has been
slightly higher across the economy than the growth in productivity per job, with both showing
weak and stuttering growth.
2.109 Figure 2.21 shows that this general weakness in productivity was observed across much of
the economy, but particularly in retail and hospitality, although retail showed some signs of
productivity growth in the third quarter of 2011. Manufacturing productivity markedly
improved over 2010 and 2011, reflected in the strong productivity performance in the food,
drink and tobacco manufacturing sector.
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