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.