Winds of Change still blowing

Germany held a big party earlier this month to celebrate the fall of the Berlin Wall. It was 25 years ago but, so far, I still reckon it has been the most important political event of my lifetime.

I remember watching the footage, with a feeling that world events were moving at a pace I’d never seen before. The sense that the Eastern Bloc was about to change had been building up since Gorbachev’s reforms in the late 1980s. When the communist regimes began to fall apart, though, they did so remarkably quickly. At the start of 1989, communist governments still ruled Eastern Europe. By the end of the year, all those outside the Soviet Union had capitulated or been overthrown.

A friend of mine in Germany told me that something was afoot. I thought about just chucking some clothes in a bag and heading over there to see. Perhaps if I had still been a student, I would have. But I was in my twenties by then, just into my second job and things were busy at work. I can’t even remember what was so pressing but at the time it seemed more immediately important than a jolly in Germany. The times I have wondered about that decision since….

It’s perhaps difficult for those who don’t remember the Cold War to know what it was like. As a child, I read Biggles books. By then, the flying ace was no longer shooting down Germans. He was an agent in the fight against the brutal and barbaric communism which was hell-bent on enslaving us all. From Biggles, I progressed to Alistair MacLean, Frederick Forsyth and Len Deighton. I was left in no doubt that Eastern Europe was a dark, cold and sinister place. Listening to Eastern Bloc radio stations, which became a bit of an obsession of mine when I was about 12 or 13, did nothing to dispel that feeling. With their aggressive propaganda and spine chilling interval signals, they combined the menace of Big Brother and the Dark Lord of Mordor.

You may dismiss this as the over-active imagination of a child but this isn’t something I could have made up on my own. The Soviet threat was a regular feature in TV programmes, newspaper articles and the conversations of adults. The question in the 1970s was about how much more of the world would be swallowed up by the communists and whether they would ever grab more of Europe. If you had predicted that, by 1990, the communist regimes in Eastern Europe would be gone, people would have thought you delusional.

My first visit to Berlin in the 1990s was in a cold January. That was ideal because the city looked how I expected it to look. Grey, no leaves on the trees and lots of people in long coats. Just right for a briefcase swap on a park bench or an exchange of captured spies on a bridge. In what had been East Berlin, there were still buildings with bullet holes from where the Russians had fought their way in. Because the East had so little investment, many buildings had not been refurbished, so the evidence of war was still there. I remember sitting in a bar and suddenly it hit me; I’m having a night out on the beer in East Berlin! I never thought I’d do that.

Since then, I’ve been pissed in Plovdiv, sozzled in Sibiu, comatose in Cracow and intoxicated in Irkutsk. The only reason I didn’t get mullered in Moscow was because the beer was so damned expensive.

I have visited many of the old Eastern Bloc cities and even worked in a few. I travelled across the vastness of the old Soviet Empire to Yekaterinburg, Novosibirsk and Vladivostok, names I used to stare at in my history books and which I assumed I’d never see. Ten years after the fall of the Berlin Wall I found myself paying croquet with some Romanian colleagues. They thought it was the craziest game they’d ever seen and couldn’t stop laughing throughout. It was a scene unimaginable a decade earlier. I stood there, mallet in hand, savouring the moment, thinking about how massively things had changed.

Recently, though, some of the optimism of the post Berlin Wall era has faded. There has been talk of a new Cold War. Russia’s willingness to use military force in Georgia and Ukraine and its more aggressive stance towards the West reminds us that there is still some unfinished business. Many in Russia’s elite accepted the post Cold War settlement reluctantly and temporarily. But, as Columbia University’s Robert Legvold said, treating these conflicts as a new Cold War makes it more likely that they will turn into one. Instead, he says, a bit of “damage control” and “anger management” are needed now. For all the sabre-rattling, such a conflict would be as damaging to Russia as it would be to the rest of Europe. Probably more so.  The situation is tense but the comparisons with the 1970s are probably overdone.

In any case, the frontier of a new Cold War would be much further to the east than the old one. Much of what we used to call the Eastern Bloc has moved on. Most are members of NATO and the EU now. As Jackart said, NATO has made them safer and the EU has made them richer. What was once the Iron Curtain is now a cycle path.

There have been some remarkable cultural shifts too. During the World Cup, Polish foreign minister Radek Sikorski told Charles Moore:

When Poles can’t cheer for Poland, they cheer for Germany.

Pew’s research on European attitudes to other Europeans shows that Poles rated the Germans as both the most and least trustworthy. This probably reflects a generational split  but the fact that even half of Poland trusts the Germans and cheers for them at football is extraordinary when you consider the two countries’ history.

Last week, the Romanians elected a president from the country’s German-speaking minority. After centuries of German and Hungarian domination, Romanians might have cause to resent the German minority (and many probably do) but the election of  Klaus Iohannis is another sign that people are rising above these old enmities. To put this in context, it would be a bit like the Irish electing a member of the English aristocracy.

Younger voters and social media campaigns played a large part in Iohannis’s victory. He is seen by many as a break with the past and a symbol of the old order changing. My friend Perry Timms was in Bucharest last week and told me that there was a buzz and sense of hope about the place. Ana Marica talked about getting her country back!

Blimey! A German helping the Romanians to get their country back…..

You may laugh but I still love the Scorpions’ Wind of Change, released as the old order in Eastern Europe was collapsing. It captured the spirit of the time and it seemed right that Germany’s supergroup should be the ones to make it.

Take me to the magic of the moment
On a glory night
Where the children of tomorrow share their dreams
With you and me
Take me to the magic of the moment
On a glory night
Where the children of tomorrow dream away
in the wind of change

The Children of Tomorrow have finished their education and are in their first or second jobs now. Those born just after the fall of the Eastern Bloc are in their early-to-mid twenties, the same age I was when it all happened. For them, the Cold War is like the Cuban Missile Crisis and the assassination of Kennedy were for me. Something from the distant past which adults still talked about as if it had happened yesterday.

There is still a lot wrong with Europe but, on the whole, things are better now than they were 25 years ago. The threat of war has receded and few these days fear the knock of the secret police. The old East is safer, more prosperous and democratic. In short, it’s starting to look more like the rest of Europe.

During the Romanian election, the Daily Mail ran a piece whinging about Romanians swamping British streets as they queued to vote. In the 1980s, we’d have thought it astonishing that Romanians were allowed to leave their country, let alone that they’d be electing a president, and a German at that.

The Children of Tomorrow are turning their backs on the past. Lets hope that, when they start running the show in the next ten years or so, the winds of change will blow the last of Europe’s old hatreds away.

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Welfare delusions

A report by the IFS earlier this week found that the government’s social security cuts had saved nowhere near the amount it expected. The £19bn it had hoped to save turned out to be only £2.5bn. While the cost of Job Seekers’ Allowance fell, spending on pensioner benefits, housing benefit and tax credits was much higher than the government anticipated. The IFS warned that rising housing benefit and tax credits “means that slow earnings growth now has the potential to push up spending too.”

The government may boast that its welfare reforms have nudged people into work but the impact on public spending (ostensibly the reason for the cuts) has been disappointing to say the least. People might have come off Job Seekers’ Allowance but many still rely on other benefits for support. Falling real wages and rising housing costs have squeezed household incomes to the point where more people need their incomes topped up with tax credits and their housing costs supported through housing benefit.

The Office for Budget Responsibility keeps having to revise up its projections for housing benefit spending. Its recent welfare trends report explained why. With the number of private renters rising and rents increasing faster than wages it’s not surprising that housing benefit costs have risen by so much.

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The housing benefit forecasts of four years ago were based on assumptions that have turned out to be way too optimistic.

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Given the falling level of home ownership, especially among younger people, rising rents are likely to eat into more and more people’s incomes.

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An increase in wages should help but, despite the excitement over pay slightly outstripping inflation for the first time since 2009, growth is likely to be sluggish for the next year or so. As the Resolution Foundation’s Matthew Whittaker said yesterday, real median weekly pay has fallen to where it was in the early 2000s and the road back will be a long one. His colleague Laura Gardiner reminds us that official pay figures don’t include the self-employed, whose pay is, on average, lower than that of employees. Yesterday’s ASHE figures look dismal but even these are flattered by excluding the self-employed.

Rising benefit costs, then, are not just a fiscal problem. Cutting rates and entitlements in an attempt to force people back to work doesn’t necessarily lead to big reductions in benefit spending. As the IFS showed, while the cuts cause distress for those on the receiving end, the amount saved has been relatively small. That’s a lot of pain for not very much gain. To get people off benefits isn’t just a case of getting them back to work. They need to be in jobs that pay enough to cover their housing costs and feed their families. Otherwise, people simply shift from one benefit to another.Poor wage growth and rising rents mean that the number of people needing benefit support probably won’t fall by much over the next couple of years. Any further attempts to drastically reduce the cost of benefits will fall most heavily on those hardworking families the government keeps telling us about. All of which makes George Osborne’s “£12 billion of further welfare cuts in the first two years of next Parliament” look like a deluded fantasy. 

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Come the glorious day, someone else will pay

Last week, the FT ran a series of articles on public spending cuts. Its summary:

Half way through 9 years of planned austerity, the FT has uncovered that more than half of government cuts are still to come. And they will be twice as large as David Cameron’s £25bn figure.

I had a busy week so still haven’t finished reading all of it. If you have time, it’s well worth working through.

The FT’s main finding, after crunching the numbers on the government’s forecasts, is that a further £48bn of spending cuts will be needed in the next parliament if an absolute surplus is to be achieved by 2019. This is £10bn higher than the figures calculated by the IFS and the Resolution Foundation  (see previous post). There are (as I read it) two reasons for this. Firstly, it includes the cuts for 2015-16. These budgets will already have been set by the time of the next general election though most of the year they apply to will fall into the next parliament.

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Secondly, the FT has also included “the effect on departmental spending of rising numbers of pensioners and increases in pension payments” in its analysis. Look at the ‘Social security’ column; the FT reckons spending will continue to rise, while the government’s forecasts show it falling, albeit very slowly, over the next four years. (Given what the IFS said yesterday about pensioner benefits, housing benefit and tax credits combining to thwart the government’s attempts to cut welfare costs, the FT’s take may well turn out to be right.) To meet the deficit reduction target, any increase in social security spending has to be found from cuts to public services.

According to these calculations, then, the austerity programme is only half-way through and, in terms of cuts to spending on day-to-day public services, not even that.

As Chris Giles says:

So far, the public sector has coped better than many expected. But with employees more restless about slow wage growth and the easier cuts already achieved, many experts think taxes are more likely to rise than fall after the next election to protect public services and keep the deficit falling.

A week or so before the FT articles, Deloitte published its State of the State report. Its tone is broadly in support of the government’s deficit reduction plans, which makes some of its caveats all the more interesting.

The fiscal consolidation programme can be viewed in two distinct halves, divided by the 2015 General Election. The spending cuts in each half will drive different cost reduction activities in the public sector. The first half has seen cuts to public services and administration that were typically managed through pay freezes, contract renegotiations, savings realised through shared service arrangements and workforce reductions. At least 95 per cent of English councils, for example, are now involved in some form of shared service arrangements.

The second half of the programme will be substantially more challenging. As the cuts reduce budgets, public sector organisations will not be able to cope in the same ways. Those faced with particularly deep budget reductions will need to rethink how they operate, the services they provide and the outcomes they can deliver. In local government for example, councils are likely to focus on services targeted towards people in particular need and move away from the services they are not legally required to provide such as leisure facilities.

While the first half of the consolidation period has seen public sector organisations cut costs and deliver tactical improvements, the second half will see many redefine themselves and move to lower-cost models in order to cope with the next wave of budget reductions.

In other words, all the obvious savings have been made, a point not lost on the public sector managers interviewed for the report.

While the executives we interviewed were generally upbeat about their change management and resilience over the past five years, most were less optimistic about the next five. Some told us about a sense of fatigue and many expressed a real worry that their organisation or its wider sector would not be able to cope with continued austerity beyond the next UK General Election.

Most recognised that the cuts to come would be more challenging than those already achieved. They told us that the ‘low hanging fruit’ has been exhausted and that their approaches to cost reduction in the past five years will not be sufficient for the next five. The changes they expect to make to cope with further funding reductions will have increasingly profound implications for their organisations and the services they deliver.

Public sector organisations have frozen pay, cut back office functions, merged departments, shared services with others organisations, removed layers of management and re-worked their processes. They have also hammered their suppliers, sacked their contractors, slashed their training budgets, eaten into reserves and quietly cut services they think people won’t notice, at least, for a while. Some of this has led to real efficiency savings, maintaining services while reducing their costs. In other cases, organisations have simply taken out costs which will damage services in the longer term or which will appear somewhere else.

In addition to budget cuts, many interviewees spoke about increased demand for their services created by cuts in other areas of the public sector including welfare reform.

This is a particular problem in areas like social work, housing and, of course, A&E. If the charities that used to look after the distressed, the alcoholic and the drug-damaged have their grants withdrawn, the people they used to help will eventually turn up at the local hospital or council offices. All of which puts extra pressure on services.

Then there’s this:

Public sector chief executives believe that national politicians could do more to lead a national debate in what citizens should expect from the public services and local politicians could do more to engage citizens in what they should expect locally. At present, there is a perception that both national and local politicians often criticise public services but rarely help citizens appreciate that spending reductions may lead to reduced levels of service.

The result is that citizens may have unrealistic expectations about state provision at a time when citizens are expected to take more responsibility for themselves.

To sum up, then, making a further £48bn of spending cuts means that the state will have to stop doing some things. The Deloitte report mentions leisure facilities but flogging off or closing parks and sports centres won’t get us anywhere near the savings needed. Those charged with making the cuts know that this means a rapid descoping of public services. 

No-one has explained this to the voters though. Citizens have unrealistic expectations because politicians have allowed them to think that the axe will fall on someone else. Depending on party ideology, those bearing the brunt of the cuts will be lazy welfare claimants, migrant benefit tourists, underworked public servants, over-bonused bankers or the rich. No-one is telling Mr and Mrs Middle-Income that they are going to have to pay more tax and/or see much more drastic public spending cuts.

The FT editorial which accompanied its Britain and the Cuts report was scathing:

[T]his is not the impression anyone would receive from listening to recent political rhetoric. In a recent conference speech, David Cameron, the prime minister, misleadingly claimed that the government was four-fifths of the way to its goal of achieving fiscal balance, leaving scope for a costly middle class tax cut. Financial Times analysis, alongside that of think-tanks such as the Institute for Fiscal Studies, suggests instead that Britain is less than half way towards Mr Cameron’s fiscal surplus.

It had sharp words for Labour too:

The prime minister is able to get away with this obfuscation because of disarray in the opposition Labour party. Asked to explain how he would deal with the budget squeeze, Ed Balls, the shadow chancellor, offered up savings of just £100m on child benefit – barely a thousandth of what is needed. UK voters face the prospect of an election where the overriding political issue is either ducked or fudged.

It’s more than just Labour disarray though. The party is colluding in the fiscal muddying. This weekend it was shouting about taxing millionaires and bankers’ bonuses. However you decide to define banks, bankers and bonuses, none of this will raise very much money. Labour’s Mansion Tax is simply Land Value Tax Lite, a property tax but only for those with very big houses. A tiny number of people would pay it and it would make very little difference to the property market or to tax revenues. Labour’s message is just the flip side of the government’s. Don’t worry, someone else will pay.

The FT concludes:

Fiscal credibility should mean setting out plans that are realistic and believable. None of the major parties has come close to setting out an answer to Britain’s fiscal dilemma. At the very least, they should come clean with voters about the nature of the questions that need answering.

If they don’t, then a lot of people will be in for some surprises over the next five years.

Ah, did we forget to mention the 8p rise in income tax?

Of course we’ll eliminate the deficit by the end of the decade. It will be gone by 2030!

Well I know abolishing social services wasn’t in our manifesto but….

After the election, whoever has won will have to move out of La La Land and make some hard choices about what happens next. At least one of the three pillars in the 2015 dilemma will have to give. My bet is that all of them will; higher taxes, more borrowing and some spending cuts. Yet here we are, 6 months before a general election, with politicians still trying to kid us that someone else will pick up the tab.

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Remembering the long war

It so happens that Remembrance Sunday in the First World War centenary year coincides with the 25th anniversary of the fall of the Berlin Wall. Eric Hobsbawm called the period between the two The Short Twentieth Century, the century having been defined by the period of total war and extremism between 1914 and 1991. In his introduction to the book, published in 1994, he said:

There can be no serious doubt that in the late 1980s and early 1990s an era in world history ended and a new one began.

Over the years, I’ve come across war memorials in a number of different countries. It’s interesting to note the dates. We sometimes forget that other countries’ wars didn’t always start on the same dates as Britain’s. In Italy, for example, the start date of the First World War wasn’t until 1915. In the USA, not until 1917.

For Turkey, the First World War didn’t end until 1923, when they defeated a Greek invasion and finally made peace with the allied powers. The Chinese might argue that, for them, the Second World War started with the Japanese invasion of Manchuria in 1931. The space between the end of the set of conflicts that made up the First World War and those that became the Second is only eight years. With the Italian expansionism in the 1930s and the Spanish Civil War starting in 1936, there is some justification for seeing both world wars as a single conflict with an eight year ceasefire.

Some might say it was even longer than that. A couple of Czechs I chatted to in a Prague beer garden told me that, as far as they were concerned, the Second World War started in 1938 and ended in December 1989 when Václav Havel took office as president. As they said, in 1945, they just went from occupation by one foreign dictatorship to another. Their war lasted 41 years. For the Baltic states, occupied in 1940, Russian recognition of their independence did not come until 1991. That gives us the end date for Hobsbawm’s Short Twentieth Century, 1914-1991.

Even then, some could say that their war went on even longer. The First World War was preceded by a series of wars in the Balkans. After the fall of the Eastern Bloc, the Balkans flared up again. From a Serbian perspective, you might make a case for 1912-1999.

When you add all these different perspectives together, then, you could say that 1914-1991 (or thereabouts) was a long war. At the very least, it was a long period linked conflicts, mostly in Europe but affecting much of the rest of the world too.

Whatever dates we choose for the bookends of the wars that characterised the last century, 1914 and 1989 are as good as any. Tomorrow, then, we will remember both the start and end of the long war, or the Short Twentieth Century.

I will be in church. It’s one of the few times in the year when I can be relied upon to go. My faith in God varies from weak to non-existent but, for me, there is something about turning up on Remembrance Sunday, rather than watching it on the telly. All over the country, from great cities to tiny villages, people will gather around war memorials, keeping the silence and listening as Laurence Binyon’s words are read. Being there and being seen to be there helps to make sure that the tradition goes on, even as the number of those alive who fought gets fewer.

The Short Twentieth Century took a lot of lives, not just by bombs and bullets but by the prison camps, famine and disease that went with them. Tomorrow, I shall sit in church and say a prayer, as I do every year, for all the people killed, maimed, tortured, exiled, orphaned and dispossessed by wars around the world. After that, I shall say another one, thanking God that Europe’s long war is over and praying that it never happens again.

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Why 2014 wasn’t the year of the pay-rise

Despite upbeat predictions from employers, 2014 didn’t turn out to be the year of the pay rise after all. Research from the Resolution Foundation published today shows that surveys of employers tended to overstate the level of pay increases in the economy as a whole.

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The reason for this:

All of these measures are partial and take no account of compositional changes.

Or, to put it more crudely, they have surveyed the posher end of the job market, which isn’t where most of the job growth has been.

Although there has been an increase in the number of full-time employed jobs over the last year, many of these have been in low-paying sectors and occupations, while the number of jobs in some of the higher paying sectors has fallen.

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This is consistent with what we’ve seen in the news recently. Banks and the public sector are laying off staff and automation is creeping into the retail sector. The big employment increase has come in the hotels and restaurants which are among some of the lowest paid.

Another interesting finding is a sharp drop in the number of employees in management roles, reversing the trend of recent years. (See previous post.)

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Overall employment in management occupations looks high because many of those classed as managers in ONS surveys are self-employed. Strip those out and the number falls. At the same time, there has been an increase at the other end of the hourglass, again, mostly in the lower-paid occupations. It’s too early to say whether this fall in managerial jobs is a blip or a symptom of automation working its way up the skill ladder but it’s certainly one to watch.

Even though 2014 saw the return of the full-time employee job, almost, but not quite, to pre-recession levels, a number of other factors combined to keep pay levels down.

Matthew Whittaker, the Resolution Foundation’s chief economist, is cautiously optimistic for next year:

Many people predicted that 2014 would be the year of the pay rise. In fact, earnings growth reached a record low earlier this year and is not set to overtake inflation until 2015. This stubbornness of pay falls is a worry to all of us.

We are beginning to get a clearer picture of what underpins these terrible wage figures. Some factors are more benign, while others are a cause for concern. The speed up in the entry of younger and less experienced employees into the workforce, who are invariably lower paid than average, has been an important drag on wages. This downward pressure on wage growth should dissipate next year and hopefully open the way for a long overdue return to positive wage growth.

What’s more worrying however is how the mix of occupations – particularly the decline in managerial roles and the rise of low-skilled occupations – is dragging down wage growth. It’s not yet clear whether this is a temporary blip or the start of a new shift in patterns of UK employment.

We shouldn’t forget that underlying pay growth within different sectors and groups of workers remains very subdued, despite the reports of strong growth in some firms. Ultimately the prospects for pay rest on employers’ willingness and ability to reintroduce above-inflation pay increases. If the recent minimum wage rise of three per cent can set a benchmark, then there are reasons to be optimistic that 2015 could finally be the year of the pay rise.

That’s good news but, as Matthew said earlier this year, even if pay starts to rise next year, we are unlikely to see the real mean wage get back to pre-recession levels much before 2018 and by the time you allow for rising housing costs, not even then. Six years after the collapse of Lehman Brothers, most of the country is still waiting to feel the recovery. Lets’ hope next years is finally the year of the pay rise but it’s been a hell of a long time coming.

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Devo and the North

The ONS published its North is Buggered report yesterday. Well, OK, it wasn’t really called that but the North of England Economic Indicators contained a series of scary stats and charts highlighting the northern regions’ decline. (The North is defined as the three most northerly English regions, the North East, the North-West and Yorkshire and The Humber.)

The first, and most widely reported graph, shows the North’s share of the population peaking in 1911, then falling back almost to pre-industrial levels.

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This isn’t saying the population of the North is actually falling. It’s just saying that of the rest of the country, notably the South Eastern corner, has risen faster.

It isn’t helped by the fact that the young tend to leave the North. Even the net gain from teenagers going north for university is cancelled out when most students leave the North as soon as they have graduated.

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A quick look at the regions’ economic measures makes it clear why people leave.

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While the drain of skilled people and economic activity from the North has been going on for decades, the recession has made things worse. A Resolution Foundation report earlier this year looked at the data from two surveys, one of households, the other of businesses, and found that almost all the increase in employed jobs since the recession came from London.

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Most of the employment increase outside London was due to self-employment.

There has been some pick up in employment in the North over this year but, as Michael O’Connor said, the claim that “the North East is basking in the status of Britain’s job-creation hot spot” is a little overstated.

According to projections made by the UK Commission for Education and Skills (UKCES), the imbalance between London and the North isn’t going to get any better over the next decade or so. UKCES forecasts that, as the economy grows, there will be job growth everywhere but that growth will be greatest in London and the regions around it.

Employment change projection

Is this just a problem for northern England though? The economic indicators for the rest of the country don’t look much better. The two midland regions fare little better than their northern neighbours and on some measures Wales looks even worse.

Most parts of the country show below average GVA (the grey and white areas) with the picture hardly changing since the beginning of the century.

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Source: ONS

The solution of the moment seems to be devolution. If we just handed power to the cities and regions, they would be able to do their own thing and their economies would take off. To do this, we’d have to decide what we mean by regions and where the boundaries would be. Another option would be to devolve powers further to individual cities. Or perhaps to city-regions. Politicians from all sides are a bit vague on all of this. Giving Greater Manchester a mayor seems to be part of a piecemeal drift towards some sort of devolution that might take different forms in different places. Whatever it is, it’s a long way short of a strategy.

But even if there were a coherent devolution strategy, I’m not convinced it would do much to revitalise the North. A decade or so of devolved government may have given Cardiff a boost but it hasn’t done much for the rest of Wales. OK, maybe it’s unfair to expect dramatic results in such a short-time but that only shows how slowly the economic effects of devolution (if there are any) might be elsewhere. Scotland’s economic indicators hold up reasonably well against the South East but this has more to do with its long-established oil and financial services sectors than to devolved government.

Then there’s the simple maths of devolution. If devolved regions get to keep more of their taxes, that means the southern regions will keep more of theirs too. Surely that will reduce the geographical distribution of wealth even further. There is also the danger of beggar-thy-neigbour tax competition between regions.

Much is made of the civic pride in Victorian cities. If Joseph Chamberlain could transform Birmingham in the nineteenth century, shouldn’t high-profile mayors be able to do something similar now? But look at the graph at the top of the page. The golden age of northern municipalism happened at a time when the industries in these cities were growing and their populations rising. The great northern cities were a product of this industrial growth. Well-run cities helped it along but the industry and wealth came first. With declining industries and wealth ever more concentrated in the south, even a reincarnation of Joe Chamberlain would struggle to reverse the trend.

If we are serious about rebalancing the country away from London, it will take some very bold measures and a lot of investment. A higgledy-piggledy devolution of who-knows-what to God-knows-where will produce a few shiny buildings in Leeds, Manchester and other regional capitals but probably not a lot else.

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Job polarisation: Cocktail glass or hourglass?

This job polarisation thing, does it really look like an hourglass or is it more of a cocktail glass, or even a beer glass?

It’s a question I’ve been asked a lot recently. No, really…

Both images have been around for a while now. The hourglass shape suggests that the middle of the labour market is being squeezed while the top and bottom are growing. The cocktail glass shape implies that most of the increase is at the top end. Of course, this depends on how you define the top, the middle and the end.

If we use the ONS occupational classifications, we can see the cocktail glass effect quite clearly over the last two decades. The UK Commission for Employment and Skills (UKCES) Working Futures report contains projections to 2022 which show the trend continuing.

I’ve plotted their figures using the same horizontal axis on all three charts so we can see the extent of the changes and the overall size of the workforce more clearly.

Employment by occupation 1992
Employment by occupation 2012
Employment by occupation 2022

Based on the occupational classification, then, the current shape of the labour market does look something like a cocktail glass. The number of people in elementary occupations has stayed more or less the same, though falling as a proportion of the workforce. Big falls in the number of people in skilled trades, process and administrative jobs have been offset by big rises in the top three categories, notably the professional occupations. There has also been a big increase in caring and other service jobs. The UKCES forecast suggests that these trends will continue over the next decade.

The ONS categories don’t tell us the whole story though.

The Resolution Foundation’s report on job polarisation looked at the shift in jobs based on wage distribution. Rather than grouping jobs by a skill classification, they ranked them on the basis of mean hourly pay at the start of the period, then mapped the change over time.

This gives something that looks a bit more hourglassy, with growth at the bottom and the top. The change since the recession (on the second chart) is almost a perfect hourglass.

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Screen Shot 2014-11-04 at 14.16.15LSE’s Alan Manning, who came up with the term ‘job polarisation‘, noted this rise in the highest and lowest paid occupations, and the corresponding fall of those in the middle, in 2007.  This chart from his CentrePiece paper last year shows this trend continuing during the last decade.

Screen Shot 2014-11-04 at 14.20.04When we look at skill categories, then, the big increase has come at the top (the cocktail glass) but when we look at pay distribution, there are increases at both top and bottom and a fall in the middle (the hourglass).

At one time we might have assumed that an increase in the number of professional jobs would have meant an increase in pay levels but these findings suggest that isn’t necessarily so. As I noted recently, in recent years we have seen an increase in high skill jobs at the same time as real earnings have collapsed.

This Resolution Foundation paper by Craig Holmes and Ken Mayhew offers some explanations

[M]any of these apparently good jobs continue to earn middle wages despite higher status job titles. We find evidence that there has been a growth in lower paid jobs within a category of jobs generally considered to be well-paid. For example, in the retail and wholesale sector, where managerial jobs increased between 2000 and 2008, the proportion of these jobs earning below £400 per week – adjusting for inflation – increased from 37 per cent to 58 per cent in this time period.

In other words, some of the new professional and managerial jobs don’t pay very well and certainly don’t pay as much, relatively, as jobs with those tags would have paid twenty years ago.

Furthermore, there is a polarisation taking place at the top as the very well paid pull away from everyone else.

The consequence of the highest paid moving away from the rest of workers earning above-average wages is that work in the upper half of the distribution has itself become more polarised. A number of relatively ‘good’ jobs begin to look a lot more like mid-wage jobs.

Within managerial and professional occupations, the largest change in wage differentials seems to be at the top of the distribution. One interpretation of this is that there is a widening of earnings within the good non-routine occupations, which suggests many of these apparently good jobs are less-well paying than has been previously suggested.

For example, as this pay distribution chart for retail managers shows, a greater proportion were in the low-to-middling pay bands in 2008 than in 1993.

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I suspect that something similar is happening in a lot of professional and managerial jobs. I’m reminded of Mark Easton’s story of the youth worker made redundant and going freelance, earning a third of her former salary.

While the change in the skills profile might suggest that a lot more of us are in posh jobs these days, the pay data suggest something different is going on. We can have both a high skill and a low wage recovery because a lot of the new jobs in the high skill categories are not particularly well paid. The labour market might look like a cocktail glass but, when it comes to pay, a lot of people are sliding slowly down the stem.

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