Wednesday 17 April 2013

A sombre reality check for the UK jobs market

Baroness Thatcher’s funeral meant that fewer eyes than usual were directed at this month’s official labour market statistics. Sadly, they haven’t done anything to lift the funereal mood.

After a period of remarkably strong job growth 2013 was always likely to be a tougher year for the UK labour market, and today’s triple whammy of bad news delivers the inevitable reality check. Job growth has stalled, the number of people in work having fallen slightly by 2,000 in the December-February quarter compared to the previous quarter. Unemployment on the headline survey measure has risen sharply (by 70,000, though the number of people on Jobseeker’s Allowance fell by 7,000 in March). Meanwhile, people in work are not only suffering a real wage squeeze but also seeing barely any improvement in the cash value of their earnings. The rate of growth in total pay has fallen from 1.2% to 0.8% (from 1.3% to 1% for regular pay i.e. excluding bonuses) compared with Consumer Price Inflation at 2.8%. We haven’t seen such weak nominal pay growth in more than a decade of comparable data.

This rash of bad news doesn’t necessarily mean we are facing a further ongoing surge in joblessness. While the unemployment rate has increased to 7.9% most forecasters expect a peak of around 8.2% later this year.  But what looks like the end of the jobs boom does demonstrate that simply relying on people to price themselves into work cannot guarantee continued employment growth in an economy still experiencing a serious lack of demand.

The net fall in employment is due mainly to fewer unpaid family workers and those employed on government schemes. By contrast the number of employees grew by 22,000. Moreover, the rise in unemployment is driven by an increase of 68,000 in the size of the total workforce. Even so what’s clear from the latest figures is that sectors dependent on discretionary consumer spending or public subsidy – notably hospitality, the arts and entertainment – are beginning to shed jobs, while the impact of public sector downsizing has cut the number of admin and support jobs and jobs in education.  In a reverse of the pattern seen in 2012, it also looks as though the jobs market has taken a particular turn for the worse in England, with London experiencing a marked reverse following the Olympic jobs boost. Scotland and Wales saw falls in unemployment.

Overall, today’s figures are in line with what I expected at the turn of the year. They are bad, especially relative to the surprisingly good news of last year, but maybe economic policy debate will benefit from this dose of sombre reality.   

Monday 15 April 2013

What's been happening to public sector jobs?

The surprising strength of private sector jobs growth has deflected attention away from what’s been happening to public sectors jobs, so here is a brief recap. A fuller account with tables is available at

At the end of 2012 5.72 million people were employed in the UK public sector, comprising 5.24 million in ‘general government’ (i.e. central and local government) and 0.48 million in public corporations. This total is 640,000 lower than the peak in q3 2009 and 600,000 lower than q1 2010, the final full quarter before the Coalition Government was formed.

Part of the total fall in public sector employment is due to a statistical reclassification of people employed in English Further Education (FE) Colleges and Sixth Form Colleges from the public to the private sectors. Adjusting for this the underlying reduction in public sector employment between q1 2010 and q4 2012 is 410,000 (6.5%). This is a better indicator of the net impact of public sector job cuts on the overall labour market.

The Office for Budget Responsibility (OBR) projections for public sector jobs relate only to general government employment. Adjusting for statistical reclassification there was an underlying fall in general government employment of 340,000 (-5.9%) between q1 2010 and q4 2012, slightly less than half the total  underlying fall of 700,000 (-12.1%) the OBR projection implies for q1 2010 to q1 2015. Given the current quarterly rate of decline in general government employment the OBR projection points to a further total reduction of 340,000 between q1 2013 and q1 2015.

If the OBR projection proves correct the total fall in general government employment of 700,000 between 2010 and 2015 will match the rise in general government employment from its previous trough in q2 1999 to the previous peak in q4 2009. Consequently the Coalition will in five years cut as many general government jobs as the former Labour Government created in the decade to the end of 2009.

As a point of comparison, during the most recent previous period of UK public sector downsizing in the 1990s, general government employment fell by a total of 590,000 (10.8%) with an average reduction of 75,000 per year. The annual average projected fall in general government employment between 2010 and 2015 is 140,000. On the current OBR projection the Coalition Government is therefore cutting general government employment at almost double the annual amount achieved in the 1990s.

The projected average reduction in general government of almost 43,000 per quarter between now and the General Election due in 2015 is considerably higher than the average reduction of 30,000 per quarter since the 2010 General Election.  However, although this points to a quickening in the pace of public sector downsizing, the actual underlying reduction in general government employment has slowed to around 20,000 per quarter since mid-2012.

If the OBR is right, almost half the pain of public sector jobs cuts expected in the current five year Parliament is still to be felt.  This will almost certainly further exacerbate tension between the government and public sector trade unions at a time when talk of a general strike is in the air. But an important caveat should be applied here.  

As I have continually pointed out over the past couple of years, the OBR methodology for projecting public sector employment takes no account of what’s happening on the ground in public sector workplaces. This raises the possibility that the OBR, which in 2010 greatly underestimated the scale of public sector job cuts in 2011 and 2012, may now be overestimating the scale of future cuts. If the current actual quarterly rate of reduction were to persist, the fall in general government employment between now and 2015 would be 160,000, limiting the total fall between 2010 and 2015 to 520,000. If so, the worst of the public sector job cuts in this Parliament are already behind us.  

Tuesday 9 April 2013

Jobs and HRM in the Thatcher years

Last year I prepared a historical timeline looking at trends in work, human resource management and the related political context during the past century. In the light of yesterday's news of the death of Baroness Thatcher, here is my brief account of what happened during the Thatcher era.

Margaret Thatcher entered Downing Street in 1979 as Britain’s first woman prime minister. The Thatcher government broke the post-war political consensus by prioritising low and stable inflation, achieved by controlling the supply of money, rather than full employment as the principal objective of macroeconomic policy. Raising economic growth and cutting unemployment were instead the target of structural or supply side policies, such as de-regulating markets, privatising state run enterprises, switching more of the burden of taxation from incomes to VAT, abolition of the Wages Councils, and curbing the power of trade unions to affect pay bargaining or prevent managers from changing work practices.

The initial combination of tight monetary policy, tight fiscal policy and economic restructuring was a major recession, lasting from 1979 to 1981 and soaring unemployment. Unemployment rose above 3 million (close to 12%), higher than at any time since the 1930s Depression, and remained at around that level until 1986. Manufacturing bore the brunt of job losses, partly because tight monetary policy caused the value of the pound to rise which priced UK goods out of global markets, and partly because the recession coincided with greater use of advanced robot technology and increased competition from emerging economies. Society became imbued with a strong sense of economic insecurity and it was commonly said that people could ‘no longer expect a job for life.’

The efforts of unions to counter the impact of global competition and technology on jobs clashed with the Thatcher government’s aim to fully embrace market forces by weakening union resistance. That resistance was broken most visibly and violently in the Miners’ Strike of 1984-85 and the Wapping newspaper dispute of 1986. Broader social unrest was in turn witnessed in a series of inner city riots, often involving conflict between the police and disadvantaged ethnic minority communities. Trade union membership, which had peaked at around 12.2 million in 1980, entered what was to prove the start of a period of continual long run decline (the number falling to less than 6 million by 2011).

As in the 1930s, the 1980s witnessed a widening north-south divide. Recession, increased competition and technology hit manufacturing and heavy industries, concentrated in the north of Britain particularly hard. By contrast economic recovery, boosted by reductions in interest rates, a boom in house prices and a surge in spending on consumer services, favoured the south. The growing economic power of London and the south east plus the shift from an manufacturing to finance based economy was symbolised by The Big Bang financial deregulation of 1986 and fictionalised by Harry Enfield’s comedy creation Loadsamoney, an employed brash southerner who delighted in flashing his wad of banknotes at poor, jobless, northerners.

Once the economic recovery gathered pace more generally, resulting in a sharp fall in unemployment from 1986 onward, personnel managers in the private sector schooled in the strife ridden post-war era of collective industrial relations and pay bargaining, made full use of the structural and legislative changes taking place.

There was a clear strategic decision to depart from traditional collective procedures and instead focus on employees as individuals. British managers also started to adopt the new US fashion for calling personnel management Human Resources management (HR or HRM). This combined the concept of treating employees as a resource with investment potential with that of treating employees as people who needed to be nurtured and motivated. More and more HR professionals started to specialise, focusing on specific roles in training, reward or diversity. The development of the European Community plus the emergence of multi-national corporations operating in different countries in turn set in train a shift toward what would later be labelled ‘global HR.’ 

HR managers led HR departments and started to introduce individual performance appraisal, individual performance-related pay conditioned by market forces rather than national or sectoral collective agreements, and direct communications between front-line managers and their employees. Organisations also started to be influenced by the management practices of overseas businesses, especially in the car industry, that started to invest in the UK. Increased attention was paid to the quality movement inspired by management writers like William Edwards Deming whose 1982 study Out of the crisis drew on his post-war experience of Japanese management practice. Concepts like lean production and just-in-time systems entered the management lexicon.

British employers and HR gurus started to talk in terms of ‘flexible firms’ comprising a core of workers on permanent contracts working alongside armies of temporary staff and self-employed contractors. Charles Handy published his study on The Future of Work in 1984, forecasting that fewer people would have a single employer but instead be ‘portfolio workers’ performing jobs for a number of different employers. The shift of employment from manufacturing to services also shifted the gender and hours balance of the workplace, with women taking advantage of the greater opportunity to work part-time and workers in general more likely to be employed to work flexible hours rather than on a traditional ‘9 to 5’ basis. Labour market flexibility in turn helped price more low skilled people into jobs, eventually enabling the UK to achieve a lower rate of structural unemployment than seen in the still strongly regulated economies of continental Europe, albeit at the cost of a return to early 20th century style wage inequality.

Government and employers claimed that greater labour market flexibility explained why unemployment started to fall rapidly from 1986 onward once strong demand returned to the economy, though part of this improvement was due to shifting some people receiving unemployment benefits onto incapacity benefits which disguised the true extent of joblessness and welfare dependency. Unfortunately, however, as the decade drew to an end, economic recovery once again turned into an unsustainable inflationary boom (nicknamed the Lawson boom after the then Chancellor of the Exchequer Nigel Lawson). And as usual a bust was soon to follow.  Unemployment began to rise again and was soon on its way back to 3 million.

Without an incomes policy to combat rising prices the Thatcher government instead in 1990 decided to fix the value of the pound and set interest rates at a relatively high level within the constraints of the European Exchange Rate mechanism (ERM). The result was a depression of demand which resulted in recession. Alongside political turmoil caused by the government’s plan to replace the household rates system of local taxation with a poll tax, this marked the end of Mrs Thatcher’s 11 and a half year premiership.