Rise in full-time jobs for private sector employees at last gives noticeable boost to real pay but public sector workers still feeling the squeeze

The Office for National Statistics (ONS) has this morning released the latest set of UK labour market data, mostly covering the three months August to October 2014.

These latest figures at last point toward the kind of jobs recovery most likely to begin to put some oomph into pay as well as employment. The entire 115,000 quarterly net rise in employment (to 30.8 million, 73% of the working age population) is driven by full-time jobs for employees which increased by 174,000, easily offsetting falls of 9,000 in the number of number part-time employees and of 29,000 in the number of people self-employed. Unemployment fell by 63,000 (to 1.96 million) in the quarter on the Labour Force Survey measure and by 26,900 in November when measured by the count of claimants of Jobseeker's Allowance. Long term unemployment (i.e. people jobless and seeking work for more than a year) dropped by 40,000 to 684,000, though by comparison the fall in youth unemployment (16-24 year olds) of just 2,000 to 754,000 is disappointing. Nonetheless the overall good news looks set to continue with the level of job vacancies rising by 10,000 to 690,000, just 6,000 short of the pre-recession peak. This means that there are now 2.8 unemployed people per job vacancy, down from 4.4 this time last year and 5.8 two years ago.

Longer hours jobs combined with falling unemployment has boosted the annual rate of growth of average weekly earnings (excluding bonuses) to 1.6%, higher than the comparable 1.3% CPI inflation rate for the period covered by the latest pay data. The increase in average weekly earnings is relatively strong in the private sector, with average weekly pay rising by 2%, thereby boosting employees’ real pay by 0.7%, though this still modest rate of pay growth remains unlikely to set alarm bells ringing at the Bank of England when it comes to decisions on interest rates. However, there is less seasonal cheer for public sector workers whose numbers fell by a further 7,000 in the latest quarter and whose average earnings are growing at a below inflation rate of just 0.9%. For the latter, the chill wind of austerity is biting as hard as ever.    

Mind your political language

Police constables. Cab drivers. White van men. All have been at the centre of recent controversies surrounding the supposed attitude of the political establishment toward us lesser mortals. Latent condescension has burst out in the form of dismissive language or imagery used in the heat of the moment. Maybe this is because so many of our clucking politicos spend too much time cooped-up in Westminster (yes Ms Mordaunt, we can all resort to fowl based metaphor). Yet when it comes to the language of politics I’m less concerned about the occasional harsh word than the constant use of meaningless phrases that treat us all like idiots.

Top of the list in the next few days, with the Chancellor of the Exchequer due to deliver his Autumn Statement on Wednesday, will be ‘long-term economic plan’. Until fairly recently ‘Plan’ barely featured in British political rhetoric, the soviet era overtones derided by the right and avoided by centre-left social democrats. But Conservative politicians in particular have rehabilitated the word, applying it to almost everything, especially economic policy. Presumably focus groups have been found to like the idea that government has some stated purpose and direction. The trouble, however, is that a while a meaningful plan ought to be clearly articulated at the outset and pursued according to a timetable of deliverable measured objectives, ‘plans’ are nowadays rarely set out in this way.

For example, George Osborne refers to the governments/Conservative’s ‘long-run economic plan’ as though everybody knows what it is and how it is supposed to work. The inference is that a clear course was set in 2010, that evident progress has been made in pursing it, and that changing the plan would be harmful to the economy. The Chancellor has been very successful in establishing this idea in the public mind-set. Indeed, most political commentators rarely question the premise. But there is no long-term economic plan. Mr Osborne has, and is fully entitled to pursue, a series of policy objectives designed to advance his party’s ideological vision but in no sense are these being benchmarked against or delivered according to anything that deserves to be called a plan. As a result, and the ideal convenience for a politician, whatever appears to be going well in the economy is attributed to the plan, while whatever fails is either ignored or attributed to some unexpected event.

Ask for a detailed statement of the long-term economic plan from 2010 and you won’t get one – leastways nothing that would resemble a serious organisational business plan. The closest one gets is the fiscal deficit reduction plan. This was clearly set out in June 2010 with an expected timetable of progress but subsequently altered so as to extend the timetable, which now also looks unlikely to be achieved. Insofar as this is the core of the ‘long-term economic plan’ it thus represents a changing plan that is proving very long-term in being delivered.

The Chancellor can of course look to the economy more generally rather than simply to the public finances, with the return of strong economic growth in the past 18 months and rapidly falling unemployment presented as evidence of the success of his plan. However, while like any Chancellor in his position, Mr Osborne understandably seeks to take a political advantage from this there is little solid evidence that the welcome recovery and jobs outcome has anything to do with a plan implemented since 2010.

The rhetorical hype surrounding the Chancellor’s first Budget almost five years ago implied that getting to grip with the public finances would provide an almost immediate stimulus to economic growth of a kind more balanced toward exports and business investment than household consumption. If Mr Osborne’s 2010 plan envisioned two years of flat economic growth followed by a still mainly consumer-led recovery without improvement in net exports, he didn’t tell us at the time.

As for the jobs boom, this has been most welcome but again not obviously attributable to any long-term economic plan. The Chancellor has benefitted from the fruits of flexible labour market policies implemented by successive governments, Conservative and Labour, since the 1980s. These have turned the UK economy into a mass job creating machine that ensures low productivity workers are priced into work rather than remain long-term unemployed. But what Mr Osborne has failed to do is buttress this kind of flexibility with measures to give a quick boost to productivity and real wage growth. If the Chancellor claims his plan is responsible for the sharp fall in unemployment, which is questionable, he should also tell us if real wage stagnation was also part of the plan and when and why as a consequence of the plan it will start to improve.

The ‘long-term economic plan’ will echo beyond the Autumn Statement through to the Budget and General Election. Doubtless it will be joined by equally simplistic political rhetoric surrounding ‘the cost of living crisis’ and ‘getting tough on immigration.’ I appreciate that such has been the stuff of political discourse since people first started to climb the greasy pole and thus that things will probably never change. But it’s nonetheless important that we take time to shout out that the Emperor hath no clothes, lest the bad language of politics ultimately drown out the voices of reason.                   

Six years of ‘mass underemployment’ takes gloss off UK’s jobs miracle

The Office for National Statistics (ONS) has just published updated figures from the Labour Force Survey (LFS) on the number of UK workers who are underemployed and want to work more hours and the number overemployed who want to work fewer hours for less pay.   

As expected the number of underemployed workers – those who want to work more hours - fell by 116,000 in the year to Q2 2014 but the figure remains staggeringly high at close to 3 million (2.975 million, 9.9% of people in employment). On average each underemployed worker would like to work an extra 11.3 hours per week, though the desire for longer hours is far greater for part-time workers (22% of whom are underemployed) than for full-timers (whose underemployment rate is 5.4%). This in turn is the major reason why women, who are more likely to work part-time, have a higher underemployment rate (around 11%) than men (around 9%). Self-employed people also have a slightly higher underemployment rate (10.1%) than employees (9.4%). Perhaps unsurprisingly the incidence of underemployment is higher for workers in lower paid than higher paid occupations, since the low paid need longer hours to earn a decent weekly wage, and for younger people (around 1 in 5 16-24 year olds are underemployed).       

At the other end of the desire for work spectrum 2.9 million workers would be prepared to cut their hours for less pay (an average overemployment rate of 9.7%, which is roughly similar for both employees and the self-employed)). On average the overemployed would like to work 11.2 fewer hours but in this case its full-timers (with an overemployment rate of 11.4%) rather than part-timers (5.2%) who want to work less, with overemployment rates highest for professional and managerial workers (at around 13%).

The ONS notes that the underemployment rate has been higher than the overemployment rate since 2009 and thus concludes: “this means that there are more hours being desired by workers than hours workers want to work less. Therefore over the years following the recession there has been an increase in slack in the labour market for those in employment, but this has started to decrease since the beginning of 2013.

Despite the recent improvement, however, 2014 is nonetheless the sixth successive year in which the underemployment rate has been at 9.5% or above. Such a prolonged period of mass underemployment demonstrates the extent to which the very good headline employment and unemployment figures of recent years mask a substantial underlying shortage of work, the persistence of which takes some gloss off the UK’s supposed ‘jobs miracle’.

Unemployment didn’t reach the levels feared at the start of the financial crisis but the degree of subsequent pain inflicted on the labour market has been as severe as expected, it’s simply that the pain has been felt differently than in previous recessions. And with almost 3 million people underemployed alongside still almost 2 million unemployed the pain of work shortage and associated pay weakness is likely to continue well into 2015.

Official data confirm big real pay squeeze in year to April 2014, but high earners, women and part-timers are squeezed less hard while ‘job stayers’ in continuous employment a enjoy real pay rise

The Office for National Statistics has just published the provisional findings of the 2014 Annual Survey of Hours and Earnings (ASHE).   

While the latest ASHE findings confirm that the big squeeze on real pay continued between spring 2013 and 2014 the detailed figures show relative winners and losers, with employees who remained in continuous employment over the year enjoying a real pay increase and women seeing a narrowing in the gender pay gap.

Growth in median weekly earnings of 0.6% (to £417.90) for all employees (full-time and part-time) is lower than the corresponding figure of 0.8% pay growth indicated by the ONS’ average weekly earnings statistics and adjusted for consumer price inflation represents an annual reduction in real pay of 1.1%. The median annual pay increase for full-timers (0.1%, to £518 per week, i.e. a reduction in real pay of 1.6%) is lower than at any time since comparable records began in 1997 and well below the increase for part-timers (0.6%, to £161.10 per week). However, the underlying pay situation looks better when one strips out the effect of changes in the mix of employment over the course of the year and focuses solely on the majority of employees who have remained in the same job for at least one year. These ‘job stayers’ enjoyed an annual median pay increase of 4.1%, providing a real terms pay rise of 2.4%.

Full-time women employees saw a bigger pay increase (0.6%, to £461.90 per week) than male full-timers (0.3%, to £557.80 per week), though male part-time employees (with an increase of 1.4% to £151.40) did slightly better than women (1.3% to £166.10). This helped the median gender pay gap to narrow from 10% to 9.4%, the smallest gap between male and female pay since 1997.

There was a slight increase in pay inequality, the weekly pay of the top 10% of earners increasing by more than that of both median earners and the bottom 10% of earners. For full-time employees the top 10% of earners saw pay growth of 0.4% (to £1,024.40 per week) compared with just 0.1% for the bottom 10% (to £287.90 per week). The discrepancy was even larger for part-time employees where the increase for the top 10% of earners (1.2%, to £397 per week) easily outstripped that for the bottom 10% (0.2%, to £50 per week).

Overall, the annual pay snapshot at one level provides a familiar picture of a UK workforce still feeling the squeeze and continuing to become more unequal in terms of pay, but also presents a challenge to some well-worn narratives by showing that ‘job stayers’ are faring relatively while women are making some, albeit slow, progress toward closing the pay gap with men. 

Bank of England signals return to 2% real wage growth next year as more jobs, falling unemployment and vacancies close to pre-recession peak give a boost to pay

The Office for National Statistics (ONS) this morning released the latest set of UK labour market data, mostly covering the three months July to September 2014, while the Bank of England has also published its latest quarterly Inflation Report.

This is the most encouraging set of labour market figures for several months, combining a return to strong employment growth (up 112,000 in the quarter to 30.79 million) with a sharp fall in unemployment (down 115,000 to 1.96 million) and average weekly earnings growth of 1.3% (excluding bonuses), just outpacing the corresponding 1.2% consumer price inflation rate. The count of unemployed people claiming Jobseekers Allowance fell by just over 20,000 in October to 931,700.

On the face of things both the employment rate (73.0%) and the unemployment rate (6.0%) are unchanged from the figures published last month. However, this reflects the 3 month rolling comparison of quarterly estimates from the Labour Force Survey which means change in the latest set of figures for July to September is benchmarked against April to June rather than compared month by month. On the rolling comparison, the employment rate increased by 0.2 percentage points in the latest quarter while the unemployment rate fell by 0.3 percentage points.    

Most significant of all the level of job vacancies (687,000) is now only 9,000 shy of the pre-recession peak, the number of unemployed people per vacancy falling to 2.9. This suggests a tighter jobs market and thus a return to sustained if modest real wage growth in the coming months, though the main beneficiaries will be skilled workers for whom demand is rising faster than supply rather than people in the lower half of the jobs league who will continue to feel the big squeeze. Consequently, higher real wage growth on the average weekly earnings measure may not show up in measures of median earnings.

The prospect of an improved average outlook for pay was reflected by Bank of England Governor Mark Carney in his opening remarks at the Inflation Report press conference. Mr Carney pointed to “encouraging signs in the labour market”, with the Bank now expecting annual real wage growth of around 2% by the end of 2015 as a result of nominal pay growth rising to around 3% against a backdrop of a (well below target) rate of consumer price inflation of around 1% (which also reduces the odds on an early rise in the base interest rate). The boost to nominal pay growth, the Bank reckons, will be due to a combination of unemployment falling further toward the pre-recession rate of just over 5% and a recovery in growth in labour productivity.   

Asked whether this marked the end of the historically long real wage squeeze the Governor, perhaps wisely, commented that “one swallow doesn’t make a summer” and that current economic momentum will have to be sustained.  This is significant given that Mr Carney began the press confidence with the ominous remark “the spectre of economic stagnation” is evident in continental Europe. This explains why the Bank has made a slight downward adjustment to its forecasts for both UK economic growth and inflation. Despite this, however, the Bank reckons the UK economy will grow at an above trend rate in 2014 (3.5%), 2015 (2.9%) and 2016 (2.6%), supported by employment and pay growth, increased business investment and improving consumer confidence. Let’s hope Mr Carney and his colleagues are proved right.  

No wonder free movement of EU labour is a hot topic for UK

I would not describe myself as a Eurosceptic and also think immigration is generally positive for the British economy. However, a decade ago when a group of central and eastern European countries joined the EU I questioned the wisdom of immediately allowing citizens of those countries to enter the UK labour market.

My concern was that free movement of labour within the EU, though correct in principle, had the potential to cause practical difficulties given the very substantial income disparity between existing member states and these former communist bloc newcomers. The sensible course, in my opinion, would have been for the UK to follow the example of most other existing member states at the time and take advantage of scope for transitional restrictions on migration from the new member states while the latter integrated into the EU economy. Instead, the UK adopted an open door policy, resulting in a flow of eastern Europeans across our borders that has proved so large as to alter the complexion of many local communities and, in the process, not only propelled immigration to the top of the political agenda but also placed the issue of the free movement of labour at the centre of debate over the UK’s membership of the EU.

Politics aside, most economists contend that my concern has proved misplaced. My worry was that in an economy oversupplied with less skilled labour, an inflow of labour from low income countries would reduce the employment of less skilled British born people and/or lower their pay levels. As things turned out I was wrong about the employment effect of immigration, mainly because a decade ago I hadn’t quite appreciated how ultra-flexible the UK’s uber deregulated labour market has become. Nowadays it seems as though you can pump as much labour supply into the market as you like and still create lots of low productivity jobs because pay takes the strain and prices people into work, albeit the impact of migration on pay is generally found to be small, in part because the national minimum wage provides a floor to pay at the bottom of the market.

The national minimum wage has proved a policy Godsend in this respect since, despite protestations to the contrary, it’s pretty clear that UK employers have been hiring EU migrants primarily to cut wage costs. This is apparent from a recent study by the Chartered Institute of Personnel and Development (CIPD).  Oddly, while the CIPD is at pains to stress that ‘what the vast majority of employers are not doing is hiring migrants to lower the wage bill’ its key headline is that employers have been turning to EU migrants to fill entry level job vacancies, particularly for lower skilled jobs, because they are more skilled and ‘a bit older and have more work experience’. If hiring migrants with skills and experience into low skilled entry level jobs at low pay isn’t about cutting the wage bill for a given value of output I’d sure as hell like to know what it is.

It’s obvious that bosses, along with migrants themselves, benefit most from immigration. British born people benefit as consumers too, assuming the lower cost of employing migrants feeds through to product and service prices rather than adds to profit. But for British born workers the blessing is mixed, with immigration one of several supply side factors now keeping the lid on growth in pay with millions of people, British born and migrants alike, employed in jobs that pay less than a living wage. No wonder that immigration is a hot political topic. No wonder that free movement of labour within the EU is a matter of debate.  

Rise in number of economically inactive people enables unemployment to fall below 2 million despite slower pace of job creation as self-employment records sharp quarterly fall

The Office for National Statistics (ONS) has this morning released the latest set of UK labour market data, mostly covering the three months June to August 2014.

The fall in unemployment to below 2 million (1.97 million or 6% of the workforce, the lowest rate since late 2008) will grab the headlines but the latest figures suggest an underlying change in the pattern of the labour market recovery. The pace of net employment creation (up just 46,000 in the latest quarter to a total of 30.76 million, with a working age employment rate of 73%) has slowed markedly compared with earlier in the year, due in large part to a sharp quarterly net fall of 76,000 in self-employment. As for employees, continued growth of 107,000 in the quarter was split roughly between full-timers and part-timers (causing another slight fall, to 1.35 million, in the number of people working part-time because unable to find a full-time job). However, unemployment has nonetheless continued to fall sharply because slower employment growth was dwarfed by a big quarterly rise of 113,000 in the number of economically inactive people, almost half of which is accounted for by a rise in the student population. The fact that the latest fall in unemployment has been driven by rising inactivity rather than employment creation also helps explain why the associated fall of 18,600 between August and September in the number of people unemployed and claiming job seekers allowance (JSA) is also much lower than in recent months.

There is slightly better news on the rate of growth in average weekly earnings (unchanged at 0.7% including bonuses and up to 0.9% when bonuses are excluded) though this is still much lower than the accompanying rate of price inflation and there is little sign of an imminent pay surge to end the real wage squeeze.   

Is Mr Farage the answer to our political purgatory?

The BBC, ITV, Channel 4 and Sky News this morning outlined plans for a series of three televised debates between the political party leaders during next year’s General Election campaign. As I write, it’s unclear whether the suggested formats will be acceptable to those invited, and those excluded (the Greens and the Nationalists) from the plans are bound to be unhappy. Much of the difficulty in determining the format stems from the ever rising profile of UKIP and its leader Nigel Farage, who the broadcasters know is the only mainstream politician other than London Mayor Boris Johnson likely nowadays to draw a really big TV audience for such programming.

Mr Farage is popular because he is a populist and conveys an image of having lived a bit that many people clearly relate to. There was a time when more politicians came across this way. Last week marked the 40^th anniversary of the October 1974 General Election and the BBC Parliament Channel re-broadcast the accompanying results programme.  I was a couple of months short of my 17^th birthday at the time but remember watching the journalists quizzing varied pollsters, pundits and politicians as they pondered on what it all meant for the parties.

Looking back, most of those involved 40 years ago are now sadly departed, whether to heaven, hell or (God forbid) some kind of endless purgatory for politicos nobody knows. What struck me most, however, was the contrast between politician and pundit. All of the former (at least in the hour or so I watched the re-broadcast) were of an age to have lived through the Second World War, in most cases as adults. Not only were they wrapped in the aura of experience, their manner and accents reflected the class mix of the vox pop which also punctuated the programme. The pundits, generally somewhat younger, appeared trendier, more sophisticated and socially a bit removed from the general populous, often aided by the occasional drag on a cigarette, the latter anathema by today’s values but then a cool counterpoint to the common person style of Prime Minister Harold Wilson with his pipe and slight northern drawl.

Well over a generation on, and the distinction between politician and pundit has all but disappeared. Most look and sound the same and tend to have had similar education and experience. They are not so much a political establishment as a political class that transcends the ideological views and party labels they display.  Moreover, in the era of multiple think tanks, unelected quangos and digital commentators the members of the political class are increasingly interchangeable, today’s pundit or quangocrat becoming tomorrow’s politician and vice versa.  Rightly or wrongly, to the everyday Janet or John outside this class all that appears to matter at any particular time is whose in and whose out rather than the underlying state of the nation.  The prospect of continued coalition government further exacerbates this feeling, offering the nauseating sight of parties condemning each other’s policies while happy to get into bed together so as to grab a slice of ministerial power.

Continuation of this situation could itself be said to amount to a form of political purgatory for the living, with endless hand wringing about ‘connecting with the people’ combined with perpetual frustration that nothing will ever change. The only means of escape is to replace the political career as we have come to know it with an ethos of political service: opportunity to participate in democratic politics extended through increased devolution to a wider citizenry, combined with greater ongoing influence over the activities of all those – political bodies, public agencies and corporations – who affect our lives.        

I don’t yet know enough about Mr Farage to determine whether he is a genuine outsider seeking to break the prevailing mould or a canny insider who thinks his best chance of rising within the ranks of the political class and advancing his own ideological beliefs is to exploit disenchantment with the economic and social consequences of its stultifying grip on power.  Whatever the configuration of public debate ahead of the General Election this is the fundamental question he and his party need to answer. As for the other parties, they must demonstrate that political change means more than simply rearranging the Whitehall furniture.  

Labour's 'togetherness' agenda: genuinely social democratic but hardly radical

This time last week all eyes were on Scotland for the referendum on independence. Not since the dim distant days when Andy Stewart hosted the annual TV Hogmanay show have so many English people tuned in after midnight to watch events unfold north of the border. As might have been expected it didn’t take long for southern Unionists to drop the saltire and refocus on what the majority No vote meant for England, though the post-referendum hangover was strong enough to turn the Labour Party Conference, which has just finished in Manchester, into an overall rather flat affair.

Ironically, while the efforts of Labour politicians ultimately proved crucial in breaking the momentum of the Yes campaign, Labour finds itself engaged in a struggle to prevent a new constitutional settlement for the UK as a whole from limiting its ability to determine key areas of domestic policy. Labour could find itself unable to form a majority in either the Scottish Assembly or some form of de facto ‘English Parliament’, restricting the executive power of a future Labour government to purely UK matters, notably defence and foreign affairs plus whatever authority remained over fiscal policy within a more devolved Union. This raises the odd possibility of a Labour Government able to decide whether to take Britain to war but unable to fundamentally re-shape the economic and social face of the realm.

Judging by some of the overblown reaction to domestic policy announcements made in Manchester this week there are those who would greet such a prospect with alacrity, though perhaps with a caveat over whether Mr Miliband, whose keynote speech was overshadowed by geo-political events and widespread unfavourable comment on his performance, should be responsible for anything at all. Yet while the detail and possible effects of Labour’s proposals deserve close scrutiny between now and the General Election, it’s hard to see much in what was said this week that could be described as radical in any sensible definition of the word.

Is it radical to propose an £8 per hour National Minimum Wage by 2020? Hardly, I suspect it will be close to that level whoever is in power at the time. Is it radical to propose a Mansion Tax? Surely, the neo-liberal Orange Book Lib Dems support this. Is it radical to propose raising the top rate of income tax to 50p? Only very recently such a rate was considered low and perfectly reasonable.

The truth is that Labour isn’t proposing anything particularly radical at the moment and will fight the General Election on a manifesto which boils down to saying a Miliband Government would pay down the fiscal deficit in a somewhat fairer way than either the current coalition or a majority Conservative government, while prioritising spending on a firmly non-privatised NHS. Labour’s opponents might criticise this 'togetherness' agenda for being wrong or naïve, and will undoubtedly question whether the current Labour leadership is fit to govern. Labour's supporters will present it as a clear and genuine social democratic alternative to the current centre-right offering. But please don’t call it radical.   

pace of jobs recovery slows as real pay squeeze eases

The Office for National Statistics (ONS) has this morning released the latest set of UK labour market data, mostly covering the three months May to July 2014.

Although the UK labour market continues to improve, there are tentative signs in the latest figures that the balance between job creation and pay growth may have started to shift. The increase of 74,000 in the number of people in work (which now totals 30.6 million) is less than half that recorded in the previous quarter and the lowest quarterly increase for a year. Moreover, in contrast with recent quarters almost all the net new jobs (92%) were part-time. Pay meanwhile ticked-up a bit with growth in regular pay (excluding bonuses) rising from 0.6% to 0.7%, the gap between regular pay growth and CPI inflation (the real pay squeeze) narrowing from -1.3% to -0.9%.

Despite the slower pace of job creation, unemployment fell faster than in the previous quarter, in large part because of a sharp, and welcome, fall of 106,000 in youth unemployment. The number of unemployed 16-24 year olds (excluding those in full-time education) is now below half a million (489,000), though the unemployment rate for this group (14.2%) is still more than twice the overall average rate (6.2%, now at a six year low). It therefore appears that the jobless, and especially the young jobless, are doing better in accessing the jobs being created.

The latest labour market data thus add to the quandary facing the Bank of England over when to start to raise interest rates. The unemployment and pay data point to tighter conditions but the jobs data suggest an easing in the pace of the jobs recovery, which might suggest improved prospects for labour productivity. Overall, therefore, these data do not suggest any immediate need for an interest rate rise.    

Is the UK becoming a graduate economy or are we a nation of menial workers?

A report published earlier this week by the Organisation for Economic Cooperation and Development concludes that the UK is becoming a ‘graduate economy’, with more people now likely to have a degree than to have only reached school-level qualifications. Yet the TUC, at its annual gathering, this year held in Liverpool, warned that the UK is becoming an increasingly low productivity, low wage economy. Can both these differing perspectives be reconciled? The answer is yes, as a look at our Byzantine occupational structure demonstrates.  

Although up to around half of all people employed in the UK today might be described as so-called ‘knowledge workers’ with professional or managerial skills, according to the Office for National Statistics the top 5 largest single occupational groupings at present (Q2 2014) include 1.1 million sales and retail assistants (a figure which excludes a further 223,000 people in the separate occupational category of retail cashiers and check-out operators), 600,000 cleaners and domestics, and 450,000 kitchen and catering assistants (which excludes a similar number split between the separate categories of waiters and waitresses and bar staff). The top 5 also includes 792,000 adult care workers, providing general rather than specialist or medical care services to the elderly, and 590,000 nurses (the latter the only occupation in the top 5 list for which formal entry level qualifications are necessarily required).

Moreover, while many of the occupations which have registered the most net expansion during the recent jobs recovery - such as taxation experts (up 88% between Q2 2011 and Q2 2014, to a total of 34,000), advertising accounts managers (up 75% to 33,000), psychologists (up 52% to 39,000) and town planning officers (up 55% to 24,000) - require professional or technical qualifications, high on the list also come window cleaners(up 73%, to 47,000), often unskilled odd jobbers, around 1 in 8 of whom are self-employed. Similarly, the 10 occupations which have contracted most in the past few years encompass skilled professionals – insurance underwriters (down 45% to 20,000 since 2011) and social scientists (down 42% to 10,000) – and skilled manual occupations – television engineers (down 46% to 6%), tillers (down 39% to 25,000) and sheet metal workers (down 33% to 13,000) – but do not include any unskilled jobs.

No wonder therefore that our complex and fluid occupational structure gives rise to so many conflicting views on how the British way of work is changing. From one perspective it’s clear that so-called ‘knowledge work’ is firmly on the rise, requiring a high level of professional and technical skill and offering decent pay prospects. Yet equally apparent is a substantial bedrock of low skill, low wage service work which accounts for the UK’s relatively high incidence of low pay, with around 1 in 5 (5 million) employees earning less than the commonly used low pay threshold for developed economies. While with considerable justification we like to portray ourselves as a nation of increasingly skilled professionals, we could also reasonably be described as a nation of shop assistants, cleaners and restaurant or café washer-uppers.

Women taking an even tighter grip on expanding UK HR profession

Last month the Office for National Statistics (ONS) published its annual snapshot of the UK’s occupational profile, as obtained from the Labour Force Survey (LFS) in the second quarter (April-June) this year. I’ve been comparing the numbers employed in each occupational category back to 2011 (reliable comparison with earlier data is not possible because of changes to way in which occupations are classified), including those performing HR management and development roles.

According to the LFS as of Q2 2014 there were in the UK 124,000 people employed as HR managers and directors, 150,000 as HR officers, 154,000 as vocational and industrial trainers or instructors and 46,000 as HR administrators. The total HR workforce of 474,000 is 18,000 higher than in Q2 2013 (a year on year increase of 3.9%) and 30,000 (6.9%) higher than in Q2 2011. The HR workforce has therefore been expanding at a faster rate than total employment in the UK, which registered a net increase of around 5% between Q2 2011 and Q2 2014.  

However, people in HR management or admin roles have overall fared better than those in HR development roles. Net employment growth in the profession since 2011 has been confined to HR managers and directors (up 11,000, 9.3%), HR officers (up 21,000, +16.1%) and HR administrators (up 14,000, 42.2%).  By contrast HR development has taken a hit – down 5,000, -2.8% - though most of the decline occurred between 2011 and 2013, employment in training related roles having rebounded in the past year, growing by 8,000 (5.7%) between 2013 and 2014. The past few years have also been quite topsy-turvy for HR managers and directors. Their numbers increased relatively quickly between 2011 and 2012, stabilised in 2013 and then fell back sharply (by 14,000 or -9.7%) between 2013 and 2014. As a result the share of HR managers and directors in the total HR and development workforce, which rose above 30% in 2012, has returned to the figure of just over 26% recorded in 2011.    

HR remains a strongly feminised sector, and in general appears to be becoming increasingly feminised. More than 6 in 10 people working in HRD are women. The proportion of women is highest amongst HR administrators (80%) followed by HR officers (68%) and HR managers and directors (62%). The gender balance is more even in training and development where just over half (52%) of people employed are women.

While there are signs of a shift in the gender balance amongst HR administrators (where the proportion of women has fallen from 87% to 80% in the past three years) this is not evident in other parts of the HR workforce. The gender balance amongst HR officers has remained stable since 2011, moved slightly in favour of women in training and development roles, and moved substantially in favour of women in HR manager and director roles where the proportion of women has increased from 57% to 62%. As a result the share of women in the HR and development profession as a whole has increased from 60% to close to 63%. If as is often said more is being done to attract men into HR there is little sign of this having yet had any significant impact. 

‘Paymageddon’ shows it’s not yet time for higher interest rates

The Office for National Statistics (ONS) this morning released the latest set of UK labour market data, mostly covering the three months April to June 2014, while the Bank of England has also published its latest quarterly Inflation Report.

The ONS figures reinforce the conclusion that the ongoing labour market recovery will serve to re-write the economic textbook: a record number of people in work (up 167,000 in the latest quarter, mostly due to more full-time employees, to a total of 30.56 million) unemployment falling at an even faster pace of decline (down 132,000 to just over 2 million, a rate of 6.4%), yet all this combined with ever lower pay pressure (average weekly earnings including bonuses shrinking by 0.2% in the year to June). In other words the jobs data indicate a boom but a fall in the cash value of total average weekly earnings signal ‘Paymageddon’.  

What’s good news for the jobless is thus being offset by ever slimmer pickings for those already in work, giving the UK labour market a distinctly bitter-sweet flavour. No wonder then that Bank of England Governor Mark Carney, in his remarks at the Inflation Report press conference, commented at length on the consequences of what he and other members of the Monetary Policy Committee conclude has been a ‘labour supply shock’ to the UK economy.

Carney’s comments, which broadly reflect my own analytical perspective, is that a structural increase in the supply of people active in the labour market has dampened underlying wage pressure. This will in turn eventually enable the economy to sustain a higher rate of employment and lower rate of unemployment than was attainable prior to the recession but in the interim an abundance of relatively cheap labour has caused the UK to become a more labour intensive, low productivity economy. However, while this is currently very painful to people in work, at some point the large amount of slack currently still available in the labour market will be absorbed, putting upward pressure on pay and pushing businesses to raise productivity in order to counter rising unit wage costs.

What nobody knows, the Bank included, is precisely how long this process will take and thus also at which point stronger pay pressure might warrant a rise in interest rates since this will also be affected by what happens to productivity. The Bank’s position is that it bases its judgement on interest rate decisions on an assessment of the trend in all the available data, which obviously keeps us guessing. But judging by the latest ONS data the UK labour market doesn’t look as though it needs an interest rate rise to cool things down but, on the contrary, further strong sustained expansion to help workers desperate for a pay rise.

Latest UK jobs market data: employment rate equals record high, cash pay rises at record low, real wage squeeze bites harder

The Office for National Statistics (ONS) has released the latest set of UK labour market data, mostly covering the three months March to May 2014.

The state of Britain’s jobs market gets more puzzling by the month. The number of people in work has increased by a further 254,000 to 30.64 million and the employment rate – the proportion of the working age population in work – has reached a record equalling 73.1%, higher than the pre-recession peak, while the unemployment rate has fallen to 6.5% (2.12 million) even though more people are entering the market to look for work. Full-time employees account for the bulk of the latest increase. Underemployment (i.e. part-timers who want a full-time job), though still very high, fell by 61,000 to 1.360 million. As well as the overall fall in unemployment, the number of jobless 16-24 year olds has fallen by 64,000, long-term unemployment is down 33,000, and the count of jobless people in receipt of Jobseeker’s Allowance fell by just over 36,000 in May. Meanwhile the level of job vacancies continues to rise and is now only 48,000 lower than the pre-recession high.

However, whereas one would normally expect all this good news on jobs to be reflected in bigger pay increases as the labour market tightens, the annual rate of growth of total pay for employees in cash terms is still running at only 0.3%, while regular pay (stripping out the effect of bonus payments) is rising by just 0.7% per year, the slowest annual rate of growth since comparable records began in 2001, resulting in an even tougher bite on real earnings and living standards (the CPI inflation rate was 1.5% at the time the latest pay data were compiled in May, though the rate increased to 1.9% in June).

The British jobs market is therefore at present something of an oddity: a record equalling employment rate, yet with cash pay rises at a record low and a real wage squeeze that is still biting hard. We should be celebrating an economy clearly on the fast track back to full employment. But full employment without stronger growth in pay and productivity is not the kind of full employment to hang out the bunting for.

Extended flexible work law could prove costly to UK workplace relations

Next Monday (30 June) Liberal Democrat MP Jo Swinson returns to her job as minister for employment relations in the Department for Business, Innovation and Skills (BIS) following a period of maternity leave. The timing is either fortuitous or an example of neat political calculation because Ms Swinson will be back on the very day one of the Lib Dem policy cause celebres, extension of the right of employees to request flexible working, which employers have a duty to consider in a ‘reasonable manner’, comes into effect .

From next week the right covers all employees after 26 weeks in their job, rather than only those with children under the age of 17 (18 if the child is disabled) and certain carers, albeit a qualifying employee cannot make more than one request in a year.  The right to request regulation as limited to employees with young children was initially introduced in 2003 by the then Labour Government and is generally considered to have been a success because employers have in most cases responded positively to requests. The extension to more employees is thus seen as fair and likely to further encourage employers to operate flexible work practices, which the government believes has the positive effect of both improving workplace well-being and business performance. 

Supporters of this kind of soft ‘nudge’ legislation reckon that employers who wouldn’t otherwise offer flexible work options to the majority of staff will see the light and decide to do so if requests cause them to review their ways of working.  It’s thus assumed that although requests, once reasonably considered, can be refused on one or more of eight business grounds (including additional cost and any detrimental impact on the quality or performance of the business) they will in most cases be accepted.  However, especially with regard to the extended right, this may prove to be a mistaken assumption.

Other than a plethora of individual case studies of how individual organisations have benefited from their own use of flexible working detailed research evidence is far more equivocal about the business case for flexible working than advocates of such working arrangements generally suggest. The most comprehensive published review concludes that available evidence ‘fails to demonstrate a business case for flexible working’ (de Menezes and Kelliher 2011). Similarly, analysis of the 2011 Workplace Industrial Relations Survey (WERS) finds that after allowing for the effect of organisational size and sector the number of flexible working arrangements available in an organisation is not significantly related to either better or worse than average financial performance. In other words there isn’t a business case for, or for that matter against, flexible working (Chanfreau, 2013).

The reason for this is that the benefits from flexible working accrue mainly to employees in the form of improved work life balance, job satisfaction, increased commitment and reduced absenteeism but there is no guarantee that this ultimately improves the business bottom line. The key factor appears to be the specific organisational situations in which flexible working practices operate and the fact that ‘flexible working’ is a catch-all term for a variety of practices - encompassing part-time working (the most common form), flexi-time, temporary reduced hours, regular working from home, compressed working week, annualised hours, job sharing and term-time working etc. – not all of which will be suitable for every business.

This explains why most employers’ bodies, while in general lauding flexible working as a means of helping organisations to recruit and retain staff and to increase staff satisfaction, believe that the decision to offer employees flexible work, and precisely which contractual arrangements to use, should be determined solely by organisations themselves without any regulatory push or nudge.  The reluctance of some employers to voluntarily introduce flexible working, especially among small and medium sized enterprises, revolves around organisational difficulties, inability to cover for or substitute some employee skills, and managerial complexity. Given this the business lobby argues that the right to request could prove costly in terms of time and money if employees challenge refusals, and might also disrupt otherwise harmonious workplace relations if some requests are accepted while others are refused.  

Advocates of flexible working nonetheless argue that success of the right to request law in the past decade – the introduction and gradual extension of which raised similar fears – suggests that most employers will respond positively, and next Monday will doubtless see many high profile bosses sitting alongside Miss Swinson to support the change. As someone who generally supports any move to improve the quality of working life I hope they are proved correct in this expectation. But we need to recognise that a right that was targeted at a particular segment of the workforce may not operate in the same way when applied more widely. The initial policy of giving parents and carers the right to request flexible working proved successful because it was pushing on an open door, with ever more employers seeking to attract mothers in particular into flexible work roles in fast expanding service sectors. There is no guarantee that the same business imperative will apply to employees across the board, raising the prospect that the extended law could indeed prove costly to business and disrupt workplace relations. The wisdom of this particular cause celebre is about to be put to the test.

De Menezes, L and Kelliher, C (2011) Flexible working and performance: a systematic review of the evidence for a business case, International Journal of Management Relations. Vol 13, issue 4, December 2011.

Chanfreau, J (2013) Is there a business case for flexible working? National Centre for Social Research (NatCen), July

         

A jobs recovery like never before

The Office for National Statistics (ONS) has released the latest set of UK labour market data, mostly covering the three months February to April 2014.

Britain’s jobs market is booming everywhere apart from in most people’s pay packets. The number of people in work increased by 345,000 (1.1%) to 30.54 million in the latest quarter on the household Labour Force Survey measure, with full-time employees accounting for almost two-thirds of the increase, altering the recent trend which has seen self-employment as the main driver of rising employment. Employment increased in every nation and region of the UK except Wales, which registered a fall of 17,000. The ONS’s alternative quarterly Workforce Jobs measure – based mainly on a survey of employers and covering the period January to March – shows a similar pattern, with the total number of jobs increasing by 380,000 (1.2%) to just over 33 million in the quarter.

Adjusting for changes to statistical classification, private sector employment increased by 355,000 (1.4%) in the quarter, dwarfing a relatively modest fall of 11,000 (-0.2%) in public sector employment. The latter fall suggests a slower pace of public sector employment downsizing compared to recent years, in part accounted for by a quarterly rise of 10,000 (0.2%) in NHS employment. Within the private sector there was a notable quarterly increase in employment of 43,000 (4.7%) in ‘arts, entertainment and recreation’.     

Total unemployment on the LFS measure is also down sharply (by 161,000 to a rate of 6.6%), while long-term unemployment has fallen below 800,000 and youth unemployment (down 59,000 to 853,000) is now clearly on a sharp downward path.  Total unemployment in the quarter fell in every region and nation of the UK except the North East which registered an increase of 6,000. The count of people unemployed on Jobseeker’s Allowance meanwhile fell by 27,000 in May. Underemployment as measured by the number of part-timers unable to find a full-time job has fallen by 39,000 though remains high at 1.4 million.

Yet despite all this very good news the rate of growth of average earnings has slowed, and not just because of the statistical effect arising from the unusual pattern of last year’s spring bonus payments. Although growth in total pay has fallen from 1.7% to 0.7% between April and May, growth in regular pay excluding bonuses has fallen too, down from 1.3% to 0.9%, which means the underlying squeeze in average real earnings has resumed (the comparable CPI rate of price inflation is 1.8%). This is therefore a jobs recovery like never before, loads more work but no greater reward, an economy that looks much healthier but feels little better in the workplace.

Blow the whistle on control freak management and enjoy the World Cup

There are so many ‘occasions’ nowadays I find it increasingly difficult to get excited by the prospect of any particular event. But the boy in me still thinks of the World Cup as something special. 1966 was the first tournament I can properly remember, my nine year old self never doubting an England victory, though 1970 and the brilliance of the Pele generation of Brazilians remains my internal default setting for what the World Cup is, or at least should be, all about. Personally speaking, the adrenaline level has dropped in recent years simply because globalised televised sport means we regularly see all the top players, eliminating the surprise factor that competitive international matches once brought. Nonetheless, I anticipate a month of late nights and bleary eyed mornings as events in Brazil unfold.

Judging from the usual welter of ‘how to manage staff through the World Cup’ reports in recent weeks, British bosses expect many of their employees will be similarly footie focused between now and July 13^th. The general tenor of this stuff is apocalyptic: without effective management, absence rates will soar while lateness, hangovers and time spent at work checking out news on the latest England injury scare will hit productivity. But is this really likely, or leastways is it really worth worrying about? I doubt it.

For one thing, people nowadays are used to combining work with increasingly active social lives which are jam packed with the enjoyment of entertainment of various kinds. Most behave sensibly, which is why employers don’t have to develop policies to manage staff through the Glyndebourne season or Glastonbury week. But more importantly, indulgence in a bit of collective interest not directly focused on the daily grind may well make staff more, not less, engaged and productive in their jobs.

Casual empiricism has always suggested that sporting achievement or excitement lifts the mood in both the nation and the workplace. Evidence for this in the form of an economic dividend is less apparent (for example, whatever the legacy of the 2012 London Olympics it clearly didn’t do anything to boost the UK’s dire labour productivity performance). However, the good workplace is not measured by short-term financial indicators alone but also by the immediate and long-term wellbeing of the workforce.  Far sighted employers will recognise this and offer a bit of slack to staff to live a little and enjoy the World Cup with family, friends and work colleagues. The short-sighted will instead issue memos on proper behaviour and conduct of the type that have turned so many UK workplaces into rules driven target obsessed fiefdoms that inspire control freak managers but turn staff into disengaged stress victims.  Society should blow the whistle on this type of management and kick-off toward a new way of working for the UK.  

Talent ain't what it used to be

I don’t routinely watch ITV’s Britain’s Got Talent but caught the end of this year’s Final on Saturday having switched on ahead of England’s World Cup warm up match with Honduras. As it turned out, the Simon Cowell franchise show was more entertaining than the weather interrupted goalless draw in Miami, though what struck me most was just how old fashioned the basic format was. To all intents and purposes BGT is Opportunity Knocks with chirpy Geordie duo Ant and Dec instead of Hughie Green, plus Botox, a bit more cleavage and audience telephone voting rather than the once famed ‘clapometer’.  Also interesting was the underlying assumption of the show  that ‘talent’ is a plentiful resource that exists throughout the land and simply waiting to be tapped. This notion of a ‘talent pool’ is nowadays widespread throughout society, shared by politicians and business people as well as those in entertainment and sport, yet it differs from how we thought about talent in the past and raises some intriguing issues.

Traditionally, talent referred to a person’s innate ability at performing a given task or tasks.  A talent might be used for personal profit or the common good but – as, for example, espoused in the New Testament ‘parable of the talents’ - there was a clear moral imperative to use it wisely. Every person was deemed to have some talent or other. Some talents were fairly widely spread throughout the populous, others relatively rare. Exceptional talent might bring fame and fortune though it was not necessarily marketable (we’ve all heard of Pavarotti, the planet’s greatest yodeller is less well known). However, it was generally accepted that while a talent could be honed it could not be acquired. Each individual had a well of aptitude from which to draw. All the individual could do was identify their particular talents, develop them and make the most of them – ideally with a helping hand from parents, teachers, and employers. But attempts to conjure up silk purses from sows’ ears were generally seen as futile.

However, this traditional concept has gradually been diluted by a growing tendency to confuse the availability of talent with the supply of acquired skills. When government ministers and business leaders talk of ‘unlocking talent’ they more often than not mean providing people with education and training that offers a qualification as a route to a job or better pay. In some cases this can indeed help develop and validate people’s innate aptitudes. There is undoubtedly a waste of potential in our society, especially amongst the most disadvantaged young people who deserve greater opportunity to show what they’re capable of. But increasing skill acquisition is not the same as giving vent to genuine talent. Public policy and business practice can raise the supply of useable skills and, if effective, add to the flow of observable talent into the market – it can’t easily, if at all, boost the underlying reservoir of talent. 

Ironically, the more we try to unlock talent in this rather crude way the harder it becomes to identify and properly manage talent.  As more people acquire academic or vocational qualifications the proportion whose acquired skill fits a genuine natural aptitude tends to fall. One can detect this from the observation that the pay gap between higher and lower earners is getting wider within skilled occupations as well as between occupations. This might to some extent be explained by the superior soft skill (itself usually a personality trait) some people display in their jobs but it also suggests that people whose acquired skills are most attuned to their aptitude enjoy a wage premium (particularly in economies such as the UK and the United States where pay rates are more likely to be matched to individual performance). But in a labour market awash with qualifications the genuinely talented are becoming harder to pinpoint by means of a simple scan of those with a given formal skill set – which is why recruiters and managers are eager to develop more acutely attuned talent spotting antennae.  

Organisations must take care, however, that in the rush to share in the understandable vogue for talent acquisition and talent management they don’t fall into a related trap. A common error is to simply attach the talent label to existing recruitment and development practice. At best this treats talent as if synonymous with skill and at worst merely uses talent management as a sexier alternative to people management. This may be good for book sales – count the number of bog standard HR publications in the past decade with talent in the title to add a bit a gloss – but ultimately causes confusion. The successful organisation, by contrast, will be that which knows what genuine talent is and what it isn’t and is able to identify pearls of talent within the increasing mediocrity of formal skill.

Sense of perspective needed on trend toward working from home

The Office for National Statistics this morning published its latest analysis of the incidence of people working at home, which shows a substantial rise since the late 1990s. In my experience, the tendency of many commentators will be to leap on these figures as evidence of a revolution in the British way of work. However, while there is certainly a clear trend toward homeworking, the phenomenon needs to be viewed with a sense of perspective.   

Although home working in the UK has risen to a record high of 4.2 million (up from 2.9 million in 1998) the share of home working in total employment (13.9%, up from 11.1% in 1998) has yet to grow by as much as ‘future of work’ gurus have commonly predicted, with many suggesting that the home working rate might one day exceed 50%.

The key factors behind the increase are digital technologies which allow people to work at home or to use home as a base while regularly on the move between various work locations (the latter group of nomadic home based workers accounting for two-thirds of all home workers), the rise of self-employment with people establishing offices at home, and an ageing population with more older people seeking to avoid the daily commute and the stresses of office life (the home working rate for the over 65s, 38.3%, is almost three times higher than the overall rate). All these factors are likely to further increase home working in the coming decades but one should be wary of forecasts suggesting that the vast majority of people will in the future be mainly working at home.  While home working is set to be a far more common feature of the UK’s flexible employment landscape, work in the office, at the factory or on the service front line will remain the norm for the vast majority of people.

Job growth fuelled by continued surge in self-employed takes the steam out of pay growth for UK employees

The Office for National Statistics (ONS) has released the latest set of UK labour market data, mostly covering the three months January to March 2014.

The number of people in work in the UK continues to rise at a remarkable rate (up 283000 or 0.9%, to 30.43 million, in the first quarter of the year). This has helped to cut total unemployment by 133,000 to 2.21 million (6.8%) against a backdrop of rising economic activity (the number of economically inactive people of working age falling by a further 85,000 to 8.84million).

All the available wider quarterly headline employment, unemployment and underemployment figures show signs of improvement. Full-time employment accounts for more than 60% of the total rise in employment, while the number of part-timers who want a full time job, while still very high at 1.42 million, has fallen slightly by 7,000. Long-term unemployment has fallen by 33,000 (to 813,000), youth unemployment has fallen by 48,000 (to 868,000) and the JSA claimant count has fallen by 25,100 (in April 2014, to 1.16 million). Employment in the first quarter increased in every nation and region of the UK except Wales (where the number in work dropped by 18,000) and unemployment fell in every nation and region except the North East (where the number unemployed and looking for work increased by 5,000).

Once again, however, the self-employed account for the vast majority (183,000, almost exactly two-thirds) of total employment growth in the first quarter of this year and 52% of the 722,000 increase in the year to the first quarter. The precise reasons for this continuing surge in self-employment at the present time remain a subject of debate. But either way a jobs boom driven by the fast swelling ranks of the self-employed is not being matched by a corresponding boost to employee pay, the recent improvement in which appears for the time being to have run out of steam.  

While the latest Average Weekly Earnings figures show the rate of growth of total pay unchanged at 1.7% - a whisker above the CPI inflation rate of 1.6% - growth in regular pay (excluding bonuses) has dropped from 1.4% to 1.3%, with the easing of regular pay growth more marked in the private sector.

The good news from the latest jobs and pay figures is that they suggest UK unemployment can probably fall much further and much faster without triggering wage inflation. No wonder then that the Governor of the Bank of England, Mark Carney, noted this morning in his opening remarks to the Bank’s quarterly Inflation Report press conference that “significant slack remains in the labour market” and that the “unemployment rate of 6.8% remains significantly above our (the Bank’s) estimate of its current equilibrium.” Consequently, Mr Carney stated, the Bank reckons that the labour market currently accounts for the bulk of slack in the UK economy as a whole at present (estimated at 1-1.5% of GDP). Although, as Mr Carney also notes, there is considerable uncertainty around this estimate of slack, the Bank’s current estimate does not therefore suggest a near term interest rate rise. The bad news is that ‘significant labour market slack’ also means there is probably a very long way to go before workers notice any significant improvement in their real standard of living.   

Adult care on the cheap is real slap in the face for Britain’s elderly

Last night’s BBC Panorama programme is the latest to expose abuse in some of Britain’s residential care homes for the elderly.  Sadly, despite acknowledgement of the need for ever tougher regulation and inspection, it’s unlikely to be the last such horror story from a sector where the availability of low-skilled workers and public sector financial constraints combine to create an incentive for providers not to improve employee pay, conditions, working practices and care quality.

I draw this pessimistic conclusion from a study of Britain’s low wage economy, including a focus on the adult care sector, which I recently undertook for the Joseph Rowntree Foundation (JRF). A report based on the study was published yesterday.

As the JRF report finds, adult care (which employs approaching 2 million people to serve our ageing population) is by no means the lowest paying sector in the UK but offers a particularly arduous combination of low pay, demanding work, often anti-social hours, and uncertain contractual arrangements (the use of zero-hours contracts is endemic). This in part reflects the fact that although care work requires a considerable amount of ‘soft’ personal skill the workforce lacks the kind of ‘hard’ formal skill that offers a decent return in the labour market.

Care staff need the technical ability to assist those they serve properly and safely (sometimes including an element of medical care) plus basic admin skills but for employees in direct caring roles soft skill is generally more prevalent than formal qualifications. Despite some improvement in attainment over the past decade almost 40% of direct carers have no qualifications whatsoever, the remainder split roughly equally between employees with NVQ level 2 qualifications (equivalent to five or more GCSEs at A-C grade) and qualifications at level 3 (equivalent to 2 or more A levels) or above. This outcome is not as worrying as it might at first appear given that the personal ability of employees to treat customers with sensitivity, due respect and to display a marked degree of empathy are likely to be at least as important as formal skills in the care sector. Yet what’s also clear is that far too many cash strapped employers in the sector have become reliant on poorly trained staff that can be hired on the cheap, which at best has proved detrimental to the general standard of care quality and at worst  resulted in the serious abuse scandals.  

The labour market dimension of the poor care quality story emerges because care work provides opportunities for individuals who have strong personal skills but sometimes lack even basic literacy and numeracy skills. The difficulty workers with few qualifications or hard skills face in gaining entry to higher paid employment sectors means that those with soft skills crowd into service sectors where this kind of skill is particularly important. But this ‘crowding’ effect creates a buyers’ market for people with solely or mainly soft skills, allowing employers to recruit them on very low rates of pay.  Where, as in the care sector, these recruits are predominantly women looking for part-time work or flexible shifts close to their own homes - which further limits the number of alternative jobs effectively open to them - the impact of labour crowding on pay can be marked.

However, while almost everybody is aware of the potentially adverse consequences on care quality of maintaining a predominantly low paid, poorly qualified and low status workforce, even the best of employers struggle to respond to calls to improve pay, staff training and other workplace practices because of the severe funding constraints they face. In comparison with the NHS, and regardless of hand wringing over cases of abuse, adult social care remains a Cinderella service in terms both of status and government spending. Cost cutting has been the principal rationale for the UK’s shift to a commissioning and contracting out model of adult care provision in the past two decades, with the underlying funding situation exacerbated by a 20% real terms reduction in overall local authority adult care budgets since 2010 .

The juxtaposition of the current contracting out model with a deregulated labour market and plentiful supplies of low skilled/low wage labour makes the maintenance of low-cost business models in Britain’s care sector almost inevitable. This is in marked contrast with the situation in Scandinavian countries, notably Sweden, where subcontracting of care services to non-state providers is more limited and the government actively requires good minimum standards of entry level qualifications to the sector. Compared to other countries Sweden requires the highest levels of education among caregivers and pays the highest wages. The objective of care policy is to improve employment and working conditions in order to recruit and retain a stable care workforce and enhance the status of care work. Moreover, countries such as Sweden which impose higher training standards on care workers also operate sector-wide pay regulations, often based on collective bargaining. This is clearly a very different institutional context, both in terms of funding of care and labour market regulation, from that which currently prevails in the UK. 

 

Ultimately, therefore, any serious drive to improve pay, working conditions and service quality in the adult care sector may require acceptance at the very least of a higher level of funding for the sector, probably a reassessment of the current contracting systems, and a new way of thinking about the downsides of the UK’s ultra-flexible labour market model.   

All eyes on the UK pay figures but it’s the jobs figures that are truly remarkable

The Office for National Statistics (ONS) has released the latest set of UK labour market data, mostly covering the three months December 2013 to February 2014.

All eyes today are on the latest average weekly earnings figures which show that the UK’s prolonged real pay squeeze is over, with average total nominal pay growth of 1.7% in February 2014 matching that month’s CPI inflation rate. Bonus pay accounts for the end of the squeeze – regular pay rises are still running at a sub-inflation rate of 1.4% – although workers in the private sector on average enjoyed a small real wage increase in February whether one looks at nominal growth in pay including bonus payments (which increased by 2%) or excluding bonus payments (which increased by 1.8%). Either way, with pay set to keep rising against a backdrop of modest price inflation, which the ONS told us yesterday fell to 1.6% on the CPI measure in March,  average real weekly earnings are now on the up again for the first time since 2010 even though still well below the pre-recession level.

However, while the pay figures grab our attention one should not overlook how truly remarkable the latest jobs figures are. Not only is employment up by 239,000 in the latest quarter on the Labour Force Survey (LFS) measure, helping to cut the unemployment rate to 6.9% (2.24 million), but the ONS’s quarterly Workforce Jobs (WJ) survey data show that the UK economy added almost a million (993,000) net new jobs in 2013 as a whole, almost half a million in the final quarter alone.

Note that the LFS is a household survey, which provides us with an estimate of the number of people in employment, while the WJ is mainly a survey of employers asking them how many jobs they provide. The LFS estimates that there are 30.3 million people in employment, the WJ that there are 32.7 million jobs (the estimates differ primarily because of differences in coverage and methodology but in part also because some people in employment do more than one job). Both measures tend to move in line over time, although they sometimes suggest different rates of employment growth. The ONS prefers to use the LFS to provide its headline employment measure – the LFS providing more timely estimates and forming part of an overall framework of labour market statistics which also provides estimates of unemployment and economic inactivity – but prefers the WJ to estimate the distribution of jobs across industrial sectors because respondents to the LFS might not always be fully aware of which sector they work in.   

Either way the latest WJ figures indicate annual UK job growth of 3.1% in the year to the final quarter of 2013, making the latter one of the best years for UK jobs in decades, the kind of performance one might expect during an economic boom rather than a gradual economic recovery. While it’s clear that many of these net new jobs are linked to the recovery in the housing market – construction added 92,000 jobs in 2013 (an increase of 4.5%), real estate activity 83,000 (an increase of 16.3%) – jobs are being added across the economy, including in manufacturing which added 45,000 jobs (an increase on 1.8%). Moreover, according to the WJ well over two-thirds (707,000) of these net new jobs are for employees, so the ‘jobs boom’ can’t be explained solely by the big surge in self-employment recorded by the LFS in recent years.

Given all this, along with good news of rising job vacancies (up by more than 100,000 in the year to the first quarter of 2014), falling youth unemployment (down 38,000 in the latest quarter), fewer people claiming Jobseeker’s Allowance (down 30,400 in March) and fewer part-timers unable to find a full-time job (still high at 1.42 million but down 17,000 in the latest quarter), it’s clear that the UK labour market is now in a far healthier state than 12 months ago. What remains to be seen now is what happens to this remarkably strong jobs growth as real pay growth increases and employers set their sights on increasing productivity to counter rising labour costs. Watch this space.

A full employment target is no longer enough

The political economy of full employment has been my principal professional interest – some might say obsession – for the past 30 years. For much of that time the concept has remained dormant, having been placed in deep freeze in the late 1970s. But every now and then a politician decides to revive the idea, suitably reframed for a new audience, as the UK Chancellor of the Exchequer, George Osborne, did earlier today.  

Even though politicians on the left long ago abandoned the Keynesian-style policy mechanisms associated with full employment in its post war heyday, they have generally been more comfortable about promoting it as an objective. Conservatives, by contrast, have to skirt round the unhelpful fact that Mrs Thatcher disliked the idea (the former prime minister claimed to always carry a copy of the 1944 employment policy white paper in her handbag, but presumably only as a reminder never to back-slide on her neo-liberal principles). Tory Chancellors, such as Ken Clark in 1994 and now George Osborne, instead evoke Churchill as an advocate of full-employment, while at the same time applying the concept to an entirely different frame of economic reference.

Mr Osborne’s task is to suggest that his current, and presumably future, agenda of tax cuts and welfare reforms is needed to propel the UK to top spot in the G7 when it comes to the employment rate (i.e. the proportion of the population in work). To Mr Osborne’s credit this is a specific full employment target – most of his predecessors have aimed more loosely at ‘a high and stable’ level of employment. However, although this is a moving target – since employment rates in other G7 countries will be changing too - it isn’t particularly stretching, and on current Office for Budget Responsibility projections will probably be met within five years without any changes to policy.

And here’s the rub. A generation ago full-employment was hard to achieve in the UK because an inflexible labour market meant wage inflation proved to be a serious problem even when the unemployment rate was close to 10%. But after 30 years of supply side reform, Mr Osborne has the good fortune to have inherited an economy with a labour market so flexible it can churn out jobs without triggering inflation until unemployment is close to, or perhaps even below, 5%. In other words, the Chancellor knows that in looking forward to full employment he is on to a winner. All he need do is sit back and wait for the economic recovery to create jobs, raise the employment rate to 75% and cut unemployment from around 2.3 million to around 1.5 million.

In aiming for full employment as he defines it, Mr Osborne has therefore chosen too easy a target. Although cyclical unemployment remains far too high, the UK’s key policy challenge today is not how to increase the number or proportion of people in jobs but rather how to increase productivity in the jobs we are creating, and hence the living standards of those doing them. So while I remain a firm advocate of jobs for all, I am increasingly of the view that full employment is no longer enough. Our stretching target must now be ‘full employment plus’.      

Combination of rising job vacancies and falling unemployment at last breathing life into pay

The Office for National Statistics (ONS) has released the latest set of UK labour market data, mostly covering the three months November 2013 to January 2014.

The employment figures continue to be strong, up by a net 105,000 in the latest quarter, though a big rise in self-employment (which increased by 211,000) masked a surprising fall of 60,000 in the number of employees in employment. The latter figure appears odd when set against the broader range of data and should therefore be treated with caution, especially since the entire fall is due to fewer employees working part-time, which was partly offset by an increase in the number of employees working full-time. Moreover, the level of job vacancies increased by 23,000 on the quarter and at 588,000 is 92,000 higher than a year earlier and getting ever close to the pre-recession level.  

Total unemployment on the headline ILO measure fell by 63,000 in the quarter, the unemployment rate falling from 7.4% to 7.2%. The unemployment trend thus remains downward albeit because the ONS calculates change in unemployment on the basis of a quarterly rather than monthly comparison the headline unemployment rate is the same as that published in February. Youth unemployment (16-24 year olds) fell by 29,000 and long-term unemployment (people unemployed for more than a year) fell by 38,000. The administrative count of people unemployed and in receipt of Jobseeker’s Allowance fell by 34,000 between January and February.

Perhaps the most significant news from the latest labour market statistics is that we are at last seeing signs that the economic recovery is breathing life into the pay figures. The combination of job vacancies rising back toward the pre-recession level and falling unemployment has lifted pay growth to within sight of price inflation, especially in the private sector where the real pay squeeze eased markedly around the turn of the year. Regular pay (excluding bonuses) in the private sector is now increasing at an annual rate of 1.6%, not too far off the corresponding 1.9% rate of consumer price inflation. In the public sector regular pay is growing much more slowly (averaging 0.6%), though the figure is higher (1.1%) when financial services organisations are excluded. It is therefore now very likely that the average real pay squeeze will end in the coming months, with private sector workers set to enjoy real pay rises for the first time since 2009.

The better news on pay reflects the changing balance of employment growth. Adjusting for statistical reclassification, the private sector added 118,000 jobs in the final quarter of 2013 while the public sector shed 13,000 jobs. The immediate labour market outlook is thus one of much better news on jobs and pay for private sector workers but continued job cuts and an ongoing severe real pay cut for public sector workers.  

The UK’s jobs rich recovery – how many cheers for the Chancellor?

On Wednesday the UK Chancellor of the Exchequer, George Osborne, will present his fifth Budget to Parliament. Informed media speculation ahead of the event has been relatively silent on what Mr Osborne might say about jobs – though fresh measures targeted at youth unemployment are likely - but his preamble will almost certainly refer to the strength of employment growth since he entered HM Treasury in May 2010.

At the end of 2013 the number of people in work in the UK stood at 30.14 million - 1.34 million (4.7%) higher than in the first quarter of 2010. Full-time employment accounts for three quarters of the net increase and full-time employees for more than half (54%) of the increase. Of the additional employees in employment (full-time and part-time) more than 8 in 10 were employed on permanent contracts. During the same period there was a net reduction of 170,000 in the total number of people unemployed and looking for work, including a net reduction in youth unemployment (16-24 year olds) of 27,000, although the total number of people long-term unemployed (jobless for a year or more) increased by 80,000.

Despite this broadly positive story the level of unemployment remains high at 2.34 million (an unemployment rate of 7.2%), youth unemployment is still close to 1 million and long-term unemployment above 800,000. However, the outcome is much better than I expected in 2010, and I dare say the same goes for most economists. Following Mr Osborne’s first Budget I forecast that unemployment would at first rise and then fall to around 2.5 million by the spring of 2015 (the date of the next UK General Election). Based on this forecast it was my view that anything less than 2.5 million unemployed in 2015 could be considered a significant achievement for the coalition government and, were that to be the outcome, I would be the first to congratulate the Chancellor and his colleagues. With unemployment falling rapidly and now likely to be closer to 2 million than 2.5 million by the time of the General Election, I am happy to fulfill my pledge.

Yet while I congratulate Mr Osborne, I remain uncertain as to how many cheers he deserves. The economy has not performed better than I expected in 2010. On the contrary, whereas I expected a return to growth in 2012 and a return to the pre-recession level of GDP by the end of 2013, the recovery took far longer to emerge. Similarly, it is not that fiscal austerity has been less harmful to jobs than I had expected, the Office for Budget Responsibility at present projecting a net reduction in public sector employment of more than 700,000 between 2010 and 2015. What I failed to anticipate is the prolonged weakness of labour productivity and pay since 2010 which has enabled a struggling economy to sustain a far higher level of employment.

It is hard to attribute this ‘jobs rich/pay poor’ economic trajectory to anything the Chancellor or anyone else in the coalition government has done. The outcome is instead the consequence of three decades of labour market reforms implemented by successive Conservative and Labour governments. The underlying rationale for this reform process was to weaken the ability of workers to preserve the relative and real value of pay in the context of either structural or cyclical shocks to the economy. The erosion of relative wage resistance became apparent in the 1980s and 1990s before being stemmed to some degree by the introduction of the National Minimum Wage which has proved to be the only serious exception to the rule of labour market deregulation in a generation. The erosion of real wage resistance took longer to notice and thus came as a surprise with the sharp, prolonged and at present still ongoing fall in real wages since 2009.

When Mr Osborne address the House of Commons and the nation on Wednesday he would therefore be wise not to take credit for the UK’s recent jobs performance but instead acknowledge it as part of his neo-liberal inheritance. I don’t expect him to do so of course, not least because the implications of a labour market model designed to churn out jobs at any price may not bring him as many cheers as a look at the headline jobless figures might suggest.