Tuesday, 28 May 2013

Mounting workplace power imbalance harms the economy

Last Thursday (23 May) I had the pleasure of participating in a South West Employment Relations Forum meeting in Bristol, jointly hosted by Acas and the University of the West of England. My contribution was to reflect on the so-called ‘new normal’ for the UK economy and what this might mean for employment relations. But the value of the evening was provided by the assembled managers, trade unionists and academics with first-hand experience of what’s happening in workplaces up and down the land.

The ‘new normal’ has been highlighted by some leading UK economists, notably Andrew Sentance, former member of the Bank of England’s interest rate setting Monetary Policy Committee. However, while it’s easy to agree that the current period of prolonged slow economic growth is in marked contrast to what outgoing Governor of the Bank Sir Mervyn King once described as the ‘nice’ decade from the mid-1990s (i.e. non-inflationary, continued expansion), the underlying nature of our current malaise remains a matter of debate.

If stagnation, high unemployment and falling real wages is purely symptomatic of weak demand, today’s new normal will eventually give way to better times akin to the pre-financial crisis state of affairs. We might have to tough things out, perhaps even suffering a ‘lost decade’ of austerity, but prosperity will be restored. But what if the economy has changed for good – might hard times be with us for the foreseeable future? If so, the ‘new normal’ becomes shorthand for an economic wake-up call, announcing an extended period of at best only limited improvement in living standards and highlighting the need for fairly radical structural reform in order that the good times roll once again.

From the workplace perspective this new normal debate plays out in a contrast between those who reckon the current squeeze on average real earnings reflects the efforts of workers to price themselves into jobs in a weak economy or is instead symptomatic of the emergence of a permanently lower wage/lower productivity economy. For the time being the jury is out on this question, though it is possible to draw a link between structural developments in the labour market and workplaces which in their interaction lead to an unpalatable outcome.

The typical British workplace is now devoid of collective strength. According to the most recent Workplace Employment Relations Survey only 35% of workplaces now have any structure for employment relations – down from 45% a decade ago, driven in particular by growth in smaller private sector workplaces. At the same time, the pool of labour available to employers is growing. The proportion of people long-term unemployed is much lower than in previous recessions, the number of economically inactive people is falling, and work related immigration remains at a historically elevated level.

The underlying power of employed ‘insiders’ to preserve their real standard of pay, let alone push for more, is arguably back to where it was in the early years of the 20th century. Admittedly, individual workers with particular skills or talent may be able to earn more, while those at the bottom of the pay scale are protected by the national minimum wage. But the average Jack or Jill – the squeezed middle at work - is increasingly impotent when it comes for asking for a pay rise and ever more fearful of what might happen if they do.

Although heightened job insecurity understandably grabbed the headlines last week when the initial findings of the large scale 2012 Skills and Employment Survey were published, what was most shocking was evidence of a longer term increase in the percentage of employees anxious about arbitrary dismissal or victimisation by management. Moreover, there has been a decline in perceived employee influence over wider organisational decision making. In other words, whether one looks at pay or what happens at work, bosses increasingly have the upper hand.

Despite being bad news for workers, this power imbalance might be considered acceptable if it had some clear benefit for the economy. But fear is not a recipe for employee engagement while a slump in real pay is a disincentive to capital investment, which ultimately determines growth in productivity and the potential for higher pay.

In light of this some participants at the South West Employment Relations Forum meeting argued that stronger trade unions offered the best way of restoring power to workers. I’m not so sure, though largely because it’s difficult to see where the political momentum for this would come from. But I am convinced of the need for a much higher profile public debate on this matter. Current discourse is imbued with the false perception that workers have too many employment rights and that this is harmful to productivity, jobs and economic growth. The reality is the complete opposite, an understanding of which ought to be central to discussion of the kind of ‘new normal’ our economy needs.    

Thursday, 16 May 2013

Mounting recruitment difficulties?

As a keen watcher of the welter of comment on the employment scene, in recent months I have been particularly intrigued by the number of press releases and media reports signalling an increase in skills or talent shortages leading to mounting recruitment difficulties, and warning of the emergence of a so-called ‘two-speed’ jobs market in the UK.

This strikes me as most odd in an economy with an unemployment rate close to 8% and a slowing nominal rate of growth in average weekly earnings (now down to just 0.8%, and a paltry 0.4% including the effect of bonus payments). A poorly functioning jobs market with lots of structural problems might encounter a serious mismatch between the supply of and demand for skills even when unemployment is still very high, though it’s widely accepted that the UK’s flexible jobs market functions very well. But in any case, if the labour market was suffering a high rate of structural unemployment and experiencing widespread recruitment difficulties this would normally be expected to trigger an increase in wage pressure rather than the ongoing pay slump at present being experienced.

This casts considerable doubt on all the recent hype about recruitment difficulties which has doubtless been due to some employers facing some greater difficulty in hiring staff compared with the depth of the recession in 2008-09, the perception further exacerbated by the surprising jobs boom of 2012 which meant that businesses suddenly became excited about taking more workers on. I have tried in vain to pour cold water on the hype and was therefore encouraged by the sober analysis of the Bank of England’s latest quarterly Inflation Report, published yesterday, which concludes:

“Survey indicators of companies’ recruitment difficulties have risen, and are closer to, but still below, historical averages. The (Bank) Agents’ contacts, however, suggest that difficulties in recruiting suitable staff for available roles are limited to only a few niche sectors, and are rarely a significant constraint on capacity.”

This conclusion is far more in keeping with the broader labour market and macroeconomic indicators, albeit less likely to grab the headlines.

In a sense of course we always have a two speed, or perhaps more appropriately a multi-speed labour market, as evidenced by different unemployment rates for different groups and associated pay relativities. Similarly, there will be times when demand for certain types of occupational skills increases and vice versa. However, there is little to suggest any significant recent change in the structural make-up of the jobs market, whereas there is a lot of evidence that the jobs market as a whole is suffering from a serious shortfall in demand stemming from prolonged weakness in the macro economy.

Moreover, insofar as there are signs of greater two-speed activity in the jobs market this is due not to any generalised increased shortage of supply of skill or talent but instead to an increasing excess supply of less skilled people, driven in part by the government’s welfare to work measures which are pushing more lower productivity individuals into economic activity. No wonder therefore that the CIPD earlier this week were reporting that 45 people are currently competing for every available unskilled job which, as the pay slump further indicates, makes jobseekers reduce their wage demands and workers ever more fearful of asking for a raise in the knowledge that their employer is well aware that so many idle hands are waiting at the door.   

Wednesday, 15 May 2013

Deeper chill returns to UK jobs market

As I write, the Governor of the Bank of England, Sir Mervyn King, is still taking questions at what is his last Inflation Report press conference. The Bank’s overall message is slightly more optimistic than it has been of late – it reckons the economy will grow a little faster this year than previously forecast, up from 0.9% to 1.0%, while Consumer Price inflation will be a little lower, albeit still well above the rate the Bank targets. However, in his opening remarks at the conference Sir Mervyn also stressed that “this is no time to be complacent – we must press on to ensure a recovery and bring down unemployment”, a further stark reminder of which was given by the latest Office for National Statistics labour market figures, also published this morning. 

The UK jobs market clearly took a turn for the worse in the first quarter of the year. The number of people in work fell by 43,000 and unemployment increased by 15,000 to 2.52 million (7.8%). Men and people on temporary contracts or working as self-employed contractors are being hit hardest by this latest bout of weakness, suggesting that employers are primarily making adjustments to the flexible component of the workforce in the face economic uncertainty. This helps explain the apparent paradox of a corresponding fall in redundancies, the number of which will generally rise only when employers are cutting their core permanent staff.

Young people aged 16-24 have also suffered a fall in employment in the latest quarter (down 46,000) but this has not shown up in higher youth unemployment, which has actually also fallen by 17,000 because a large number of those in full-time education have stopped looking for part-time jobs to supplement their student income.

The English regions have fared particularly poorly in 2013 so far. Most have registered a rise in unemployment in the first quarter, with the notable exception of the North West which managed a sharp fall in unemployment (down 18,000) only because a large number of people responded to an equally sharp contraction in jobs by exiting the labour market. By contrast, Wales and Scotland have enjoyed both decent employment growth and falling unemployment, signalling an end to the ‘Celtic jobs drought’ of 2012.

Ironically for the English regions, while 2012 saw strong employment growth and falling unemployment in a flat lining economy, the slightly better GDP growth registered in the early months of 2013 has thus been accompanied by falling employment and a renewed rise in joblessness. With average weekly earnings now increasing at a paltry rate of just 0.4% – which means a real cut of 2.4% relative to Consumer Price Inflation – 2013 is shaping up to be the ‘hard slog’ year for UK workers I anticipated in my annual forecast last December. Indeed, combining these latest pay and jobs data, the Jobs Economist Labour Market Temperature Index (LMTI) shows that the UK jobs market is now as cold as it was two years ago in the spring of 2011.

The LMTI  is constructed from official data on unemployment, (CPI) price inflation, nominal pay increases and changes in average hours worked per person. A zero reading represents the economy’s potentially attainable combination of unemployment and real pay growth, as obtained from Office for Budget Responsibility estimates.   A reading above zero indicates excess demand for labour, a reading below zero (i.e. the chill factor) indicates deficient demand. An increase in the reading indicates that the labour market is heating up (conditions improving), a decrease in the reading indicates that the labour market is cooling down (conditions deteriorating). 

The labour market was at its coldest at the depth of the recession in February 2009, at which time the LMTI reading fell to minus 13. The reading then increased and broadly stabilized through the remainder of 2009 and 2010 before moving back onto a decreasing trend through to the end of 2011. A combination of strong growth in employment, falling unemployment and moderation in the real pay squeeze saw the LMTI reading rise to minus 5 by autumn 2012. However, since then rising unemployment and a bigger pay squeeze has again lowered the LMTI reading, taking it back to where it was in spring 2011.

The UK labour market has proved remarkably good at creating jobs in the past two years but only because people have been desperate to price themselves into work. As the LMTI shows the prevailing combination of high unemployment and falling real pay indicates a significant ongoing shortfall in demand. People in work and jobseekers alike have now experienced five years of severe labour market chill. And with the somewhat warmer conditions of summer 2012 having given way to a much colder 2013, life in our deep chilled jobs market looks set to continue for some considerable time yet.    

Monday, 13 May 2013

A fond farewell to Fergie

I’ve been away, but got back in time to hear Sir Alex Ferguson bid farewell to the Old Trafford faithful yesterday. It was the first time for a while that football has brought a tear to my eye. No matter what happens to Manchester United from now on, things will never be quite the same again.

Having supported the club since 1965, then an enthusiastic 8 year old, I recall the immediate post-Busby era of decline and relegation. Tommy Doc and Big Ron brought back excitement and hope in the decade to the mid-1980s. But periodic Cup triumphs never translated into the consistency of performance necessary to win League Championships. Fergie not only eventually managed to achieve this but also instilled a belief that success would follow success, regardless of the strength of increasingly powerful opponents. Rarely in the past 20 years has failure in any one season been by a large margin or persistent, with despair soon followed by renewed triumph. Time will tell if this era of resilience is over but I fear that it might be. Manchester United have more than enough financial resource to remain a top four Premier League club for the foreseeable future. But somehow I don’t expect the season climaxing months of April and May to be as adrenaline inducing as they have been throughout the Ferguson era.

I see from the media that quite a lot has been written and said about Sir Alex’s leadership and management qualities, some of it an excuse for the kind of management speak guff that one regularly hears. My view is that if there are wider lessons to be drawn from Fergie’s success they stem not so much from his ability to nurture and orchestrate talented individual players into winning teams but rather from a number of key personal values that underpinned his approach to management. Aside from the obvious need for hard work, the values that time and again crop up whenever Sir Alex is mentioned are those of ambition, honesty and, especially, loyalty.

The thing that has shocked me most in organisational life is the number of people who are satisfied with mediocrity, either because they prefer to drag colleagues down to their own level or because they can’t be bothered to make the effort to excel. Such are the enemies of success. Honesty in the face of such limited ambition or effort is equally important – being honest with oneself and others, even if as in Fergie’s case this means occasional use of the metaphorical hairdryer treatment.

Most important of all is loyalty, both to the cause any organisation sets for itself and to one another within the organisation. Success cannot be built on lack of trust or betrayal of colleagues in order to satisfy some personal ambition or objective. No single individual should think of themselves as being bigger than the team – the disloyalty this breeds is corrosive to all. Hence Sir Alex’s evident disappointment over the years in players prepared to leave Manchester United, be it for money or, even worse, in the belief that they might achieve greater success elsewhere.

Ambition, honesty and loyalty are personal qualities of great men and women. These are not ‘management skills’ that can be acquired, though they can be used to influence the behaviour and performance of us lesser mortals. Sir Alex Ferguson is such a great man. It is that which made him a great football manager and would doubtless have enabled him to succeed in another walk of life had the rebuilding of Manchester United not been his ‘impossible dream’.