Friday, 5 June 2015

The state of the labour market

Andrew Fisher, author of The Failed Experiment ... and how to build an economy that works, analyses the changes in the labour market and finds a worrying picture


Quantity not quality is the story of the UK labour market. The quantity of jobs is at a record high with 73.5% of the working age population in work.

The expected fallout from the 2007/08 crash never hit the jobs market as expected: unemployment never reached the 3 million that many were expecting, but that doesn't mean there hasn't been considerable damage done to the labour market anyway.

While people predicted a downgrade in the quantity of jobs, what has instead happened is a downgrade in quality. This post compares the shape of the UK labour market at the end of 2007 (ONS Labour Market Statistics, Jan 2008), with the its shape today (ONS LMS, May 2015).


The first thing to note is that total employment has increased by over 1.7 million since 2008, but this is due to a similar increase in the working age population (due to demographic change and migration).

This has been a key source of prestige for Cameron and Osborne - their boast of high employment validates there much-vaunted "long-term economic plan". The performance of the private sector is noteworthy in that net additional 2 million jobs have been created there in the last 7 years - an 8.6% increase in private sector jobs.

This is in contrast with the 6.5% reduction in public sector jobs, which has seen the sector reduce by over 370,000 jobs from 19.6% of the labour market to just 17.3%. In mid-May the Financial Times led with a story that an additional 100,000 job cuts would be lost in the civil service alone (currently less than 10% of the total public sector).

The shift in employment is not just from public to private sector, but from full-time to part-time and from employed to self-employed. Both these changes are modest: full-time workers have fallen from 75% to 73% of workers; and the proportion self-employed has increased from 13.1% to 14.5% of workers.

However, both shifts are structurally towards low pay. The percentage increases (in a rising overall pool of labour) show the changes more starkly:
  • full-time worker numbers - up 4%
  • part-time worker numbers - up 11.5%
  • self-employed worker numbers - up 17%
George Osborne has made much of rebalancing the economy both sectorally and regionally (as Luke Thomas has previously pointed out, unsuccessfully). The regional employment figures are even more stark: compared with January 2008, employment is lower in every UK region and nation with the exception of London (though the capital's employment rate is still lower than the UK average).


While employment has increased, unemployment has not - with the unemployment rate marginally higher in May 2015 (5.5%) than it was in January 2008 (5.3%). This translates as an extra 178,000 people unemployed.

While total unemployment is higher, the claimant count is lower - with 8,300 fewer JSA claimants now (even adjusted to include those now migrated onto Universal Credit) than in January 2008. It means JSA claimants represent just under 44% of the total unemployed, compared with 49% in 2008 (though this is a long term declining trend, as we've reported before). The sharp increase in sanctioning is certainly playing a role.

Though overall unemployment is relatively stable - long-term unemployment is up over 50% with 588,000 of the total unemployed having been out of work for over 12 months. This again exposes the failure of the Work Programme - on which you are more likely to find yourself sanctioned than employed.

Among the UK's nations and regions, unemployment is higher now than in 2008 in Northern Ireland, Scotland, Wales, the south west, west midlands, Yorkshire & Humber and in the north east (but lower everywhere else. The sharpest rises in unemployment are in Northern Ireland, Wales and the north east, while the sharpest falls are in the south east, east midlands and London.


The real shift comes when we look at wider underemployment measures: combining the unemployed with those working temporary jobs but wanting permanent work (up 57%), those working part-time who want full-time work (up 91%), and those recorded as 'economically inactive' who want to work (up 10%).

This is a much wider problem than the trebling of the number of workers on zero hours contracts to around 700,000 (which receives great attention). What receives less is the number of workers taking second jobs, which has increased over 100,000 from Jan 2008 to May 2015.

Overall, wider underemployment is up 26% from 4.8 million in January 2008 to over 6 million today.

Underemployment tells the story of the structural problems in the labour market


In much of the period between the crash and today, real pay has declined, with average real wages down almost 10% since 2008 (see our analysis: 'The Pound in your pocket: Pay under Osborne').

Back in January 2008, regular pay was growing at 3.6% a year, compared with just 2.2% today - and that itself is a recent high point after more than two years of uninterrupted economic growth!

We know that the shape of the labour market affects pay - with the best pay rates going to full-time employees.

Despite pay having stagnated over this period, hours worked have gone up (by 0.5% for full-time workers, but by a more significant 5.2% for part-time workers) - an indication of lower pay, but leaving a consequence of lower productivity.

Attacking trade unions

A generation ago over 80% of workers had their wages negotiated by trade unions through collective bargaining agreements. Today it is less than a quarter of workers - and, unsurprisingly the share of the nation's wealth going to workers in pay has declined as trade union power has declined.

TUC research shows that between 2008 and 2013 the proportion of union members accessing regular training went up from 36.8 per cent to 38.9 per cent, while the opposite trend occurred for non-unionised employees (down from 23.4 per cent to 22.9 per cent). 

Investing in staff training not only proves productivity, but is a sign of actually wanting to retain staff - and paying them to do so. Enlightened employers cajoled into being so by watchful trade unions - it was a system that delivered investment, growth, full employment and greater equality. And in unraveling it is generating mostly the opposite.


The question today is who is even considering what sort of labour market the UK needs? The race to the bottom is breeding progressively lower pay, lower skill, lower productivity jobs. There are record number of jobs but a crisis of underemployment.

Without some structural change - a revival of industrial policy, strengthening of trade union rights, a substantial and sustained increase in investment - it is hard to see how the UK labour market will not continue its race to the bottom.

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