Tuesday, 2 December 2014

Unbalanced labour market = failed economy


Andrew Fisher on new ONS data on the UK's broken labour market, why it's not paying its way, and how to fix it

In the UK 1 in 10 workers (3 million people) are underemployed - wanting to work more hours than they currently do. In an apparently perfect symmetry there are also around 1 in 10 workers who would like to work fewer hours for less pay - classified as overemployed.

So all we need to do is encourage employers to redistribute those hours and wages and every worker in the UK would be content, right? Wrong! There is a major problem ...

Wage inequality

Overall the number of underemployed workers in 2014 has increased by 50% since 2001 (from 2 million to 3 million), and the number of extra hours people want to work has increased by 57% since 2008.

Those wanting extra hours are unsurprisingly in the lowest earning jobs - "elementary personal service, elementary cleaning and elementary security occupations" as well as "Sales Assistants and Retail Cashiers".


So broadly shit pay in part-time roles means you want to work more hours. And as the column to the right of the bar chart shows underemployment is increasing in the poorest paid roles (probably because the number of these roles has increased).

By contrast overemployment is almost the inverse of the chart above (see below) showing that the highest paid would like to work fewer hours:


All age groups of the workforce report underemployment, but among 16-24 year olds it is nearly three times of workers aged 50-64. So, for example, 48.6% of 16-24 year old sales assistants and retail cashiers reported themselves as underemployed.

Young workers are clearly the most exploited in the labour market - still with an unemployment rate around 3 times the overall rate - and working insufficient hours in low-paying jobs.

Self-employed workers too have been hit as there has been a 50% increase in underemployment among this group since 2008, which correlates with the collapse in the average pay of self-employed workers.

Underemployment is largely correlated with low pay - with those working in elementary occupations, female, young and self-employed workers (all paid less than average) the most likely to report underemployment.

This is bad news for the economy because low paid workers don't pay much, if any, tax. So even now - when employment is increasing - tax revenues don't increase by much and welfare spending doesn't decrease because these low paid, part-time workers also need tax credits and housing benefit to make ends meet and keep a roof over their heads.

International comparison

ONS shows that the UK has higher levels of underemployment than the EU average (25% higher). We find ourselves in the company of other failed economies like Cyprus, Spain, Ireland, Greece and Portugal - which have also, like the UK seen the biggest increases in underemployed workers since 2008.

Solving underemployment

So what are the ways to tackle underemployment? Here's a few suggestions:
  • Make the minimum wage a living wage
  • Strengthen trade union rights to restore collective bargaining
  • Give all workers equal rights at work from day one (as John Smith suggested)
  • Mandatory equality pay audits in large employers
  • Introduce maximum pay ratios for all employers (Will Hutton once suggested 1:20 in the public sector where 1:20 is barely breached, but this would be a start in the private sector)
  • Have an industrial strategy that creates well-paid skilled jobs and the education and training to fit workers to those roles

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