Performance pay for the public sector?

In December last year The Work Foundation released a comprehensive review of performance-related pay in the public sector:

PRP schemes can be effective in improving outcomes across the three public services for which evidence is available (health, education and the civil service), although the central conclusion is that the outcomes from PRP are mixed, which much dependent upon organisational and occupational context and scheme design and implementation. Where positive effects have been found, effect sizes are sometimes small and may also be short-lived. As well as evidence gaps across much of the public services, the weight of evidence also varies, with the more robust evidence coming from education and health rather than the civil service. Cost-effectiveness data to assess the value for money of PRP interventions is also rare.

The implication is that performance-related pay isn’t a quick fix: it requires careful development to fit it to the context, and organisations might take a while to adapt to it and see benefits. Without more examples in the public sector it isn’t possible to say whether it will prove cost-effective.

Productivity in an international context

On the 8th of December this year Martin Weale, of the Bank of England’s Monetary Policy Committee, highlighted concerns with the UK’s recent productivity growth. In the UK total output per worker is now no higher that it was 6 years ago. The UK is not the only country experiencing weak productivity growth. Many OECD countries have experienced slower productivity growth (GDP per hour worked) from 2010 to 2013 than before the Great Recession. Indeed, of the 34 OECD countries only Australia, Chile and Spain experienced faster productivity growth from 2010 to 2013 than from 2000 to 2007.
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Productivity in the UK and NZ

I see that Patrick Nolan has an article in Public Finance talking about UK and New Zealand productivity.  Go read it, but come back here to comment as they don’t seem to have a comment system.

As we are a NZ audience, I’ll quote this bit:

While New Zealand faces different challenges, its experience can throw light on the UK’s situation. OECD research recently published by the New Zealand Productivity Commission has shown that the country has good resources – investment in physical capital and average years of schooling are broadly consistent with other countries – and policy settings. It is one of the easiest countries in the world in which to set up a business and its tax and regulation regimes are often seen as world class.

Indeed, the OECD estimates that New Zealand should have GDP per capita 20% above the OECD average. But its productivity performance means it is 20% below. In short, New Zealand poses a real challenge for standard prescriptions for what countries should do to lift their productivity performance.

– See more at:

Productivity Commission on NZ vs Aussie productivity

Recently I’ve been talking a bundle about inequality in incomes, and fitting it within an idea of “equity”.  However, as we’ve chatted about, policy choices often involve conceptualising an equity vs efficiency trade-off.  A fundamental part of how we understand where we are in relation to this trade-off, especially with reference to “efficiency”, comes from thinking about productivity.

With this in mind, the Productivity Commission has been thinking about New Zealand’s productivity performance.  And given that along many characteristics New Zealand and Australia are similar they have decided that looking into the productivity gap between these countries helps us to understand this issue.  This led them to release a working paper titled “Investigating New Zealand-Australia productivity differences:  New comparisons at industry level” on their main site (links can be found here).

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Low productivity isn’t lazy

Good post on the Productivity Commission blog, Prod Blog.

When it comes to labour productivity, or productivity more generally many people in society assume that an economist saying “productivity is low” is the same as saying “people are lazy”.  But this is far from the case.  Lisa Meehan clears that up for us:

Poor labour productivity doesn’t mean that Kiwi workers are lazy.  Labour productivity measures how much output is produced per hour worked; it doesn’t tell us anything about how hard we’re working.  In fact, as we discuss in our paper, New Zealanders work long hours compared with the OECD average.  The problem is that despite these long hours, NZ has low GDP per capita – that is, the problem stems from poor labour productivity.

Put another way, ‘labour productivity’ is a convenient (and useful) metric to think keep tabs on our wider productivity performance.  But, by itself, the catch-all labour productivity measure tells us little about the performance of workers alone.

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