It is often referred to as the ‘productivity puzzle’, yet there are some obvious reasons why NI underperforms against competitors when it comes to economic performance and output per person. The whole of the UK, in fact, has underperformed in terms of productivity in the period of recovery since the Great Recession of 2008/9.
Brexit is clearly one factor. The UK economy had become reliant on labour and skills from other EU nations, compensating for significant domestic skills shortages. The failure to prepare for the Brexit impact on the labour market through additional investment in skills training has had dire consequences.
Today there are substantial Brexit-related labour and skills shortages in NI and GB, which are felt across the hospitality and construction sectors and perhaps most especially in the NHS. Although Covid is a major factor in the NHS crisis, this affects all nations and not specifically the UK.
The crisis within the NHS is felt not just in the overloading of accident and emergency rooms, but also in the waiting lists. Those waiting lists themselves are a factor in NI’s weak productivity.
Even prior to Covid, NHS waiting lists and waiting times were a very serious problem in NI. Waiting lists – adjusted for population size – were 30 times longer in NI than in England and contributed to the number of working age adults unable to work. The result can be seen in the economic inactivity figures, the rate of which is above 28% in NI, compared to 21% in the UK as a whole. Ill health and disability is a more common cause of economic inactivity in NI than other parts of the UK.
Another frequent cause of economic inactivity is caring responsibility. This suggests that NI needs to invest substantially more in childcare, enabling more parents to enter the labour market. The NI Fiscal Council has advised that NI spends less on childcare than do other parts of the UK.
None of this, though, should divert us from the need to increase the NI skills base. A recent report from Ireland’s Economic and Social Research Institute pointed to two significant factors in the North’s productivity weakness compared to both GB and, even more, RoI.
One factor is the large number of pupils and students who drop out of the education system here at a young age. The school leaving age in NI is 16, whereas in England teenagers must be involved in full time or part time education or skills training until 18. Moreover, too many NI pupils switch off from school even before the age of 16, particularly those from poorer family backgrounds. Several reports highlight the need to improve careers advice, which can assist with pupil motivation as well as encourage more students into practical and technical education at FE colleges.
Another serious failing of our education system is the shortage of undergraduate places at our universities. We lose about a third of full time university students to GB and most do not return. This contributes to various skills shortages, including in the NHS, but also in private sector middle management and product development and research. These roles are vital if we want to improve productivity.
Regional disparities must also be addressed. Productivity is much higher in and around Belfast than it is in the West, particularly the North West. Transport infrastructure weaknesses clearly impede logistical efficiency in the West, while the shortage of undergraduate places is most severely felt in Derry. Several high technology businesses in the city are unable to expand because of the shortage of graduates.
It is these high technology firms that are particularly helpful in driving productivity. A significant factor in NI’s underperformance compared to RoI is that the North has a greater reliance on low productivity sectors, while the South’s economy is dominated by high technology, high productivity, businesses. This reflects IDA Ireland’s focus on attracting inward investment that created well paid jobs in firms with high productivity and which generate clusters of related, high productivity, businesses.
By contract, as the North recovered from the Troubles the focus was more narrowly on job creation and not always on the quality of jobs and the impact on productivity. We still suffer from that overhang and arguably also from that mindset.
Improving productivity is a complex challenge. It requires investment and refocusing across a range of activities and government departments. Most of these require political decisions at a time when we have no ministers, Executive or Assembly. That vacuum will deter the most valuable types of inward investment, much of which requires reassurance about the Protocol being here to stay.
Political instability has negative impacts across our society – not least in supporting investment in the most productive businesses that our society desperately needs in order to create jobs and good incomes.