Publication Social security 18 April, 2016

Solving the productivity crisis: the role of employee wellbeing

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This transcript reflects the discussion, led by the Rt Hon Lord Freud, Minister of State for Welfare Reform, that took place at a Reform roundtable, held in partnership with Bupa UK, on 9 February 2016.

Reform comment

The Conservative Government has made productivity a key priority, calling it the “challenge of our time”. They have done so with good reason: the UK productivity rate is currently second lowest in the G7 and output per worker is almost 20 per cent lower than the G7 average.

One lever for increasing productivity is employee wellbeing. A Department for Business, Innovation and Skills report in 2014 found “a clear, positive, statistically significant relationship between the average level of job satisfaction among employees at the workplace and workplace performance.” As a Work Foundation paper argued in 2010, employee health andwellbeing is a “hard, economic ‘factor of production’”.

At the sharp end of poor employee wellbeing is sickness absence. In 2013, 131 million days – or 4.4 days per worker – were lost to sickness. The Confederation of British Industry have estimated that this comes with a £14 billion cost to the economy. Dame Carol Black and David Frost reported a £9 billion annual cost to employers in their 2011 review of sickness absence. Out-of-work sickness and disability benefits cost around £14 billion a year. On top of this the Exchequer will incur health service costs. These levels of sickness absence are particularly worrying given that, for most people, work is good for their health and wellbeing, and being out of work is detrimental.

It is also important to recognise that, as noted in the Sickness Absence Review, much absence and inactivity is due to “comparatively mild illness”. Previous analysis has suggested that two thirds of people are suffering mild to moderate conditions.

Reform, in partnership with Bupa, convened a diverse group of experts to explore how best to tackle sickness absence and the role of employee wellbeing within this. Lord Freud, Minister of State for Welfare Reform, delivered the opening remarks at the February 2016 seminar, emphasising the importance the Government is placing on addressing the issue. Within his comments, he highlighted the need to better understand what works in preventing people falling out of work and supporting them back into it, particularly for those with mental health (which accounts for almost half sickness benefit claims) and the need to improve the journey from employer support to State support.

Several key themes emerged from the discussion. Firstly, prevention means a focus on wellbeing – focusing on health is too narrow and too late. This means establishing a supportive workplace culture, raising awareness amongst line managers of the early signs of stress or anxiety, and providing easy access to support for employees. It also means understanding the negative impact some work practices may have on people’s (particularly mental) health.

Secondly, early intervention when issues do arise is essential. Evidence clearly shows that the longer someone is out of work, the more detached from the labour market they become. Once on incapacity-related benefits, they are very unlikely to ever get back to work. Effective early intervention is flexible with low barriers to entry. It also looks at what an individual can do and recognises that a binary ‘fit’ or ‘not fit’ for work is unhelpful.

Thirdly, insurance has a role to play – particularly for middle earners for whom replacement rates from benefits are inadequate – but its treatment in the tax and benefits system needs consideration. Insurance schemes may also increase the availability of rehabilitative provision as there are sharp incentives to ensure early recovery and return to work. Several attendees observed that in other countries employers have much stronger incentives to help employees return to work – they bear significantly greater sick pay costs.

Finally, greater understanding is needed of the business case for employers of providing wellness and rehabilitative services, and government needs to consider what financial incentives might be appropriate to encourage greater provision. Increased employee wellbeing and health can contribute to the productivity gains the Government seeks. It will require concerted action by employers and the State on prevention, early intervention and re-integration. The benefits to individuals, businesses, the Exchequer and wider economy of getting this right are potentially great.

Charlotte Pickles, Deputy Director and Head of Research, Reform