A failure by law firms and other professional services businesses to improve their output per worker since the 2008 crisis is a major cause of the national ‘productivity problem’, research by a national newspaper concludes today.
Lack of productivity growth despite the recovery is emerging as an election issue, with Labour citing it as the country’s ‘biggest economic challenge’.
According to the Financial Times, professional services, which played a large part in boosting national productivity before the downturn, is one of four sectors to have ‘lost their sparkle in productivity growth’.
Business productivity has been flat across the UK since 2008. This is in sharp contrast to the previous decade, where productivity grew by 1.75% a year per worker, driven largely by professional services’ growth of 3.8%. Before the crash, professional services generated 15% of the UK’s productivity growth while accounting for only 6% of output.
The apparent stagnation has puzzled economists who would normally expect output per head to grow as businesses that have cut headcounts during the recession expand with the economic cycle. However, according to the Financial Times, productivity in professional services ‘has since stalled for many reasons including corporate reluctance to fire staff and subsequent new hires taking time to become more productive’.
A leading legal sector analyst, Tony Williams (pictured), principal at Jomati Consultants, said that many firms seem to be hiring in anticipation of growth which has yet to filter through to the bottom line.
‘It does seem odd that firms are continuing to recruit while their chargeable hours don’t seem to be up to those previous to the downturn,’ he told the Gazette.
Anecdotal evidence suggests that firms’ billable hours have yet to recover to pre-downturn levels, Williams said. ‘Many firms seem to be achieving chargeable hours in the 1,200 to 1,250 range whereas previously they achieved 1,400-plus and in some firms up to 1,750,’ he said.