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.

Screen Shot 2014-11-04 at 14.13.52

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.

Screen Shot 2014-11-04 at 15.10.36

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.

Posted in Uncategorized | 4 Comments

2026 and All That

There are lots of articles around at the moment about the future of work. They pop up in my timeline frequently, often accompanied by videos of futurologists at conferences outlining their vision of work in the 2020s and beyond. There’s something funny going on, though, because I seem to be hearing two very different stories without much overlap between them.

The story I hear coming out of management conferences and any number of consultants’ websites is all about how technology will revolutionise the workplace, how it will empower us and enable us to have more fulfilled working lives. It will trash hierarchy too, as we’ll all have access to so much more knowledge and information. Technology will force the democratisation and devolution of corporate decision making. Generation Y feature strongly in all of this. After all, they (and even more so, the next lot) won’t stand for hide-bound ideas of status and power. They want purpose in their working lives. And, of course, they have a different idea about what the workplace means. They are happy to work anywhere and want the flexibility to choose when and how they do their work. Unless your organisation gets hip to all of this, daddio, the Millenials won’t want to come and work for you.

In other places, though, I hear something very different. There will be technological change alright but, far from breaking down social barriers, it looks set to create new ones. This is the story of factories without people, of vanishing jobs, of a hollowed out labour market and of workers sliding down the skill ladder as the robots move up it. It is a vision of vast profits with few employees,  falling real incomes for all except a skilled elite and the disappearance of the jobs that used to help people improve their skills and income. Far from democratising and devolving power, this raises the prospect of some people being shut out of it altogether. At worst, the accumulation of advantage over the next couple of generations could entrench inequality. Earlier this year, the UK Commission for Education and Skills published a report on work in 2030. It came up with four scenarios all of which had something in common: for those without skills or accumulated wealth, the outlook is bleak.

Yesterday’s Resolution Foundation report was the latest in a number of recent studies to highlight the ongoing polarisation of the labour market.

Screen Shot 2014-10-30 at 12.26.01

The report comments:

Such trends seem to correspond to structural changes in the UK labour market. These developments involve Britain – along with other advanced economies – experiencing a steady polarisation between high-skilled, white-collar and low-skilled, low paid jobs as a result of new technology replacing repetitive “routine” tasks that were previously fulfilled by middle-wage workers.

There seem to be two very different narratives here. One barely acknowledges the other.

In the shiny future of tablet-touting hipsters chilling out in coffee bars and turning the old fuddy-duddy organisations on their heads, there is very little mention of the displaced downwardly mobile workers. There’s not even an acknowledgement that the tech villages of the future, with their hubs and hangouts, might need security fences to protect them from the aggrieved masses. This isn’t just a question of ideology. The Economist, which is a long way from being a left-wing agit-rag, ran a series of hard-hitting articles earlier this month on the hollowed out labour market. Even the MoD cited rising inequality as a potential cause of instability in its Strategic Trends paper earlier this year:

Unmanned systems are increasingly likely to replace people in the workplace, carrying out tasks with increased effectiveness and efficiency, while reducing risk to humans. This could ultimately lead to mass unemployment and social unrest.

When Generals and Majors are citing the displacement of workers as a potential security risk, it’s probably safe to assume that this is more than just the obsession of a few well-meaning lefties. And yet there are articles, videos and entire conferences on the future of work in which it barely features. It’s almost as though it’s all happening somewhere else. Or, perhaps more importantly, to someone else.

Posted in Uncategorized | 39 Comments

Low pay and the deficit

As ever with the Office for Budget Responsibility’s reports, there is some fascinating stuff in its recently published Welfare Trends paper. The OBR expects the cost of social security to rise as a percentage of GDP after 2018, due mostly to the ageing population

Our long-term projections show total welfare spending rising by 2.5 per cent of GDP between 2018-19 – the end of our medium-term forecast – and 2063-64, with almost all of the rise accounted for by benefits paid to the elderly. This is largely driven by demographic trends, which are partly offset by further expected increases in the state pension age.

If the OBR is right, unless pension entitlements are reduced even further, the next five years will be the last time we see a reduction in the cost of benefits as a percentage of GDP. After that, the cost will gradually inch up every year.

Even the predicted fall over the rest of this decade isn’t looking as good at we might once have assumed though. Working age benefits should come down once the economy picks up, right? As economic growth produces more jobs with higher wages, there’s a double bonus for the public finances. Taxes go up and spending on benefits falls.

At least, that’s what’s supposed to happen but, as we have already seen, the tax take has been anaemic so far because of the number of people in low paid work. For the same reason, the benefits bill is staying stubbornly high. People may be coming off unemployment benefits but if they go into low wage work, they are likely to continue claiming some form of welfare.

Last month’s House of Commons briefing on social security expenditure showed very slight fall in forecast benefit costs between now and 2018, followed by an increase, taking real-terms spending almost back to where it was at its peak in 2012/13.

Screen Shot 2014-10-24 at 15.11.44

Some of this is due to rising pensions but the figures for HMRC tax credits show a rise towards the end of the decade too. This suggests that there will still be lots of people needing some form of state support for their low wages.

Screen Shot 2014-10-24 at 15.14.03

Instead of getting a double bonus, then, the government is getting a double whammy. Not only do low paid people not pay much tax, they keep on claiming benefits too.

The shift to private rented housing hasn’t helped either. As the OBR shows, the proportion of housing benefit claimants in the private rented sector has increased.

Screen Shot 2014-10-24 at 15.33.31

At the same time, rents have risen faster than incomes but markedly so in the private sector.

Screen Shot 2014-10-24 at 15.37.11

As a result, the OBR has to keep revising up its forecast for housing benefit spending.

Screen Shot 2014-10-24 at 15.39.12

None of this helps a government which wants to reduce borrowing without increasing taxes. If the cost of benefits stays high and the tax take stays low, the only thing to be done is to cut public services even further.

All public sector and publicly funded organisations are therefore under pressure to cut costs and to become more efficient. One way to achieve this is to do what lots of other organisations have been doing: automate things. Of course, this means employing a small number of highly paid people to make this happen and to run it afterwards, while getting rid of many middling and lower paid employees.

The civil service, it seems, has been doing some of this. This chart from Jamie Jenkins at the ONS shows the change in civil service employment over the last year, with fewer people at the junior levels and more people in the higher paying grades.

Civil Service employment; entrants and leavers in year to 31 March, 2014

Civil ServiceThe data from previous years indicate that this has been going on for some time. The civil service, then, is hollowing out just like the rest of the workforce. It may be the smallest it has been since the Second World War but it is still taking on the highly skilled and highly paid. I haven’t seen any data for the rest of the public sector (and I’d be interested to hear from anyone who has) but I know some local authorities have been going the same way. Given what we know about the rest of the labour market, I’d be surprised if something similar wasn’t happening in other local councils and the NHS.

The hollowing out process seems set to continue in the large private sector organisations too. Lloyds Bank chairman Lord Blackwell recently told staff that the industry faces more change in the next 10 years than there has been in the past 200. That means more technology and more job losses.

But what makes sense for an individual organisation may make the wider problem worse. A recent report from the CIPD and one from the Resolution Foundation due out this week show that low paid employment is becoming sticky. People made redundant from mid-level jobs rarely re-skill and move up the pay scale. Instead, they tend to accept lower skilled jobs, then find it difficult to get out of low paid work. The middling level jobs in large public and private sector organisations that used to provide skill development and pay progression are disappearing so it is becoming much harder to escape from low pay. As austerity bears down on the public sector, still more of these jobs will go.

At a Resolution Foundation event I went to last week, the LSE’s John Van Reenen said that we shouldn’t be too pessimistic on pay and employment. Eventually, he believes, the recovery will deliver more full-time jobs and improved pay. He may well be right but he also warned that this won’t happen quickly and that the next five years will be difficult for whoever wins the next election. How much of the persistently low pay is due to the recession and how much is due to longer-term structural factors is anybody’s guess. What does seem clear, though, is that, barring an unexpected (and unlikely) leap in economic growth, we are stuck with it for the next few years.

All of which makes the deficit reduction claims of all the main political parties look even less likely. A labour market that can’t produce higher tax revenues and that still has a lot of people dependent on state support is unlikely to do much for a chancellor aiming at an absolute surplus by 2019.

The OBR has said that it will take a long hard look at the labour market before making its budget forecasts in December. So it should. The UK’s fiscal position and its labour market are functions of each other. The figures on pay, employment and social security spending suggest that the deficit reduction plans may be even further into La La Land than we thought.

Posted in Uncategorized | 7 Comments

Lost decade? We used to dream of a lost decade!

Last week’s employment statistics showed that the UK has finally closed its jobs gap. There are now as many people in work, as a percentage of 16-64 year olds, as there were before the recession. As Laura Gardiner said, though, the headline obscures some regional differences. The recovery is still weak in the West Midlands, Wales and Northern Ireland and even the South East outside London still hasn’t recovered its pre-recession employment rate.

There are other differences between now and before the recession. Two thirds of the job increase has come from self-employment and there are still fewer full-time employees than there were in mid-2008.


Chart via Thomas Brooks and Kayley Hignell at CAB.

Pay remains in the doldrums. E&Y predicted a lost decade last week, with real-terms wages failing to get back to pre-recession levels before 2017. Even this depends on how you measure it, as Gavin Kelly and Matthew Whittaker said earlier this year. Measure the mean wage against the Consumer Price Index and we get a recovery by 2018. If we look at the median wage, which is not pulled up by the high earners at the top, the recovery looks a lot weaker. Measure it against versions of the Retail Price Index, which includes housing costs, and it doesn’t recover at all.


Lost decade? We used to dream of a lost decade!

In the Observer at the weekend, Tony Dolphin wrote of the relentless slide towards a low-pay Britain.

Clearly something very unusual is happening in the labour market and it is not just a post-recession phenomenon. The recession has merely exacerbated a trend that has been in place for the past three decades: a polarisation of the labour market.

Employment growth has been strongest in the high-skilled and low-skilled occupations, but the number of jobs requiring mid-skilled workers – skilled tradespeople, machine operatives and administrative and secretarial workers – is shrinking.

The Economist ran a series of articles a couple of weeks ago on the polarisation of the labour market. Ten years ago, they weren’t at all convinced about it. Now, they reckon it’s been happening, to varying degrees, across the developed economies.

Screen Shot 2014-10-21 at 18.11.04Until now, it’s the jobs of mid-skill manual workers that have been hardest hit but, as technology advances, it is starting to replace middle-class jobs too.

[T]he rise of machine intelligence means more workers will see their jobs threatened. The effects will be felt further up the skill ladder, as auditors, radiologists and researchers of all sorts begin competing with machines. Technology will enable some doctors or professors to be much more productive, leaving others redundant.

And so far, new technology does not seem to be replacing old jobs with that many new ones.

[W]ealth creation in the digital era has so far generated little employment. Entrepreneurs can turn their ideas into firms with huge valuations and hardly any staff. Oculus VR, a maker of virtual-reality headsets with 75 employees, was bought by Facebook earlier this year for $2 billion. With fewer than 50,000 workers each, the giants of the modern tech economy such as Google and Facebook are a small fraction of the size of the 20th century’s industrial behemoths.

It is possible to build a global behemoth now with a workforce not much larger than that of a county council, as Shane Granger shows on this chart.


Shane spotted something else too.

The extraordinary data-point that I found from looking at the data is that the combined market capitalisation of the Wealth without Workers companies is $1.541-trillion but only employs 558-thousand people (a VtER of $2.76-million). Again to give those figures some context if this were a country they would be invited to the G20, have a GDP just $20-million under Australia (the 12th largest global economy in 2013 figures) yet the population would only equate to the Gold Coast (in Australia), less than Bristol (in the UK) or Albuquerque (in the USA).

That’s half-a-million people sharing a hell of a lot of money. Not equally, of course, but even the relatively junior ones are getting a big wedge compared to most of the rest of the world.

Between now and 2022, the UK Commission for education and Skills (UKCES) forecasts an increase in the number of high skilled jobs and in those service areas such as caring which, so far, have been relatively immune to automation.

The hourglass labour market: occupational projections, 2012-2022

Screen Shot 2014-10-14 at 11.02.53


What will happen to the displaced mid-skill workers? Will they re-skill and move in to the higher skill jobs?

So far, not much of that seems to be happening. Here’s Tony Dolphin again.

Mid-skilled workers who lose their jobs initially try to find a comparable job that makes full use of their talents. Some succeed but, because of the shrinking number of mid-skilled jobs, many do not. They do not have the qualifications to move up the skills ladder, so eventually they are forced to move down it and compete for low-skilled jobs. Employers faced with many applicants for every low-skilled vacancy are therefore under no pressure to increase wages. At the same time, increasing numbers of people who cannot find the type of work they want are opting for self-employment, even though it means earning less than they formerly did.

So as the machines move up the skills ladder, most of the workers move down it.

As UKCES says, it’s fine if you get a good start but it’s becoming much more difficult to move up the ladder later in life.

The projected changes are likely to result in significant differences in the labour market profile, occupational structures and career routes available, as while some intermediate roles would emerge, their overall volume would be reduced. This could result in a labour market with great prospects for those able to demonstrate talent early, but with fewer pathways for those who need to progress to higher skilled occupations through career development in work.

You don’t need much imagination to see the implications for social mobility (or lack of it), the accumulation of advantage over the next generation and increased inequality. It also doesn’t bode well for the public finances. Wealth without workers has a habit of leaving the country for offshore tax havens.

It may be that some of these forecasts are unduly pessimistic. After all, the fear of machines putting people out of work is nothing new. Looking at the recent trends, though, there is a shift taking place in the demand for labour which, added to the effects of an almighty recession and government spending cuts, is hitting employment and wages for all but the most highly skilled. So far, economic growth hasn’t done much for wages, steady full-time employment or tax revenues. There’s not a lot to suggest this will change much over the next five years.

Posted in Uncategorized | 5 Comments

Public finances: From La La Land to Dipsy Land

I managed to be out of the country for most of the party conferences so much of what I would probably have said has already been covered elsewhere. But just for the record….

The Conservatives’ statements on public finances were all over the place. Not only did Dave and George forget to mention an extra £13bn of public spending cuts, they also said they were going to offer tax cuts as well. Whether or not this will happen before the deficit is eliminated is unclear. The Prime Minister seems to have changed his mind on that since last Christmas. The IFS calculated that these tax promises would cost an extra £7.2bn. This would leave a 2015 Conservative government with £45bn a year (at least) to find from extra spending cuts, tax increases or borrowing.

Jonathan Portes asked me if I was going to update my 2015 dilemma chart again but I’m not altogether sure how to show it on a diagram.

Public Spending Venn 2015-2

I suppose tax cuts could be a subset of the No Tax Increases circle and the bit overlapping in the middle would then be a subset of La La Land; something like Dipsy Land perhaps.

It is very unlikely that the next government, whoever is running it, will eliminate the deficit and run an absolute surplus by 2019. Not unless we get a quantum leap in economic growth, which delivers a bounty of unforeseen tax revenue, or the government increases tax rates by quite a lot. The scope for welfare cuts is very small so all the deficit reduction, plus any new spending commitments, has to come by cutting public services, as the Office for Budget Responsibility showed in it’s report last month.

As the Resolution Foundation commented (my emphasis):

[S]uch DEL cuts would produce reductions to some departments that to many will sound highly implausible. By 2018-19, budgets would need to be cut relative to 2010-11 by two-fifths in Defence and BIS, by half in the Home Office and by two-thirds in the FCO. Correcting for population growth would make the impact on public services appear starker still. It seems very unlikely that any of the parties will rely exclusively on DEL cuts to achieve their version of balance.

That’s about as close as you can get in polite, measured think-tank speak to saying Big Chinny Reckon.

You only have to look at the OBR’s projections to see how unlikely this is. Based on the government’s plans, the OBR expects public service spending to have fallen from 21.2 percent of GDP in 2013-14 to 16.3 percent of GDP by 2018-19. (There’s more discussion of the reasons why public services will bear the brunt of the spending cuts here and here.)

Now look at the OBR’s projections for health, long-term care and education for the same year.

Screen Shot 2014-10-17 at 11.17.35

That’s a total of 11.9 percent. Now add 0.7 percent pledged for foreign aid and 2 percent on defence to keep within NATO guidelines. That makes 14.6 percent, which leaves only 1.7 percent of GDP for everything else.

Now add in over £7 billion worth of tax-cuts.

It’s just not going to happen. Much of the rest of the state would have to be shut down.

There are one or two state-shrinking fanatics who think that the state could still run effectively with large parts of it hacked away but they are in a minority even in the Conservative Party.When public services start disappearing, Conservative voters are just as likely as anyone else to start kicking up a fuss and government ministers know it.

This is one area where the Conservatives are not being outflanked on the right either. Despite what some commentators have said, UKIP isn’t Britain’s Tea Party. Many of its voters are relatively left-wing on a lot of economic issues. In some respects, they are to the left of the Labour leadership. Much of what they want, including tougher immigration controls, implies higher public spending. If anything, UKIP supporters want more state, not less. These voters will not be won back by a slash and burn attack on public services.

There is very little appetite among voters for a major reduction in the size of the state. The British Social Attitudes Survey shows that public opinion on taxation and spending has shifted over-time from favouring more spending to keeping things the same. Keeping things the same is a long way from what the Conservatives are proposing though. Those in favour of the sort of reduction in public service spending implied by the government’s plans have never registered above 10 percent. There is no support for public service cuts on this scale.

key_findings_figure_0.3_499x317.jpgGiven recent developments, it might be that the cuts would have to be even deeper than the OBR estimates, as Frances said last week:

[T]he fiscal consolidation of 2010-12 is widely believed to have delayed the UK’s recovery. The UK is now growing, but the recovery is by no means established: inflation is below target, wage growth is even lower and households are still highly indebted. The UK faces headwinds from slowing global growth, the chronic Eurozone crisis and the prospect of Gulf War Three. It is distinctly possible that another sharp fiscal consolidation would squash this recovery too. Repeating what has been done before may not be wise.

She concludes:

The fact is that the Conservatives’ fiscal plans have a hole the size of a small planet. Mind you, Labour’s aren’t much better: Miliband’s promises were clearly driven by worries about losing Scottish Labour voters to the SNP, while Balls was equally clearly driven by worries about losing votes to the Conservatives. Two scared parties, abandoning common sense and good economic management for the sake of winning an election. Fiscal rectitude has been sacrificed on the altar of realpolitik.

She’s spot on, apart from the ‘real’ bit. There’s nothing real about this at all. It’s Dipsy Land Politik - even further into fairyland than before.

Posted in Uncategorized | 10 Comments

The taxless recovery

This is no ordinary recovery. Not only has it taken a hell of a long time to do not very much, it’s seen collapsing productivity and very little wage growth, even for those who appear to be highly skilled. As a result of all this, even though the economy grew at over 3 percent, the tax revenues didn’t increase at the same rate.

As Sarah O’Connor reported in the FT:

[T]ax receipts have grown just 2 per cent so far this year, compared with the 5 per cent growth the Office for Budget Responsibility forecast in March.

As Ben Chu’s chart shows, most of the rise in tax revenue since the recession is due to VAT.


Record numbers of people in employment, it seems, hasn’t led to record levels of income tax.

When you break out the figures for income tax, as Michael O’Connor did earlier this week, there is a marked difference between receipts from those on PAYE and those on self-assessment.


Falling self-assessment receipts are, for the most part, a symptom of falling self-employment incomes. Around three-quarters of the employment growth since the recession has come from self employment yet between them, the self-employed are still delivering a lot less tax. We won’t see the final 2013 HMRC figures for self-employment incomes until January but these charts suggest that the spectacular fall in self-employment earnings between 2008 and 2012 hasn’t improved by much. Probably the closest estimate we have for self-employed pay since 2012 is by Laura Gardiner at the Resolution Foundation. The low tax receipts indicate that self-employed earnings may have continued to fall or are, at best, stagnating.

Screen Shot 2014-07-10 at 16.43.58

Things might be about to get worse for some of the self-employed. As Ben Dellot explains, the new Universal Credit system could leave many of them worse off. According to the RSA’s calculations, 37 percent of the self-employed earn less than the minimum income floor, which is set at around the full-time minimum wage. (That sounds about right. A study by the IFS found that 40 percent of the self-employed earn less than the minimum wage.) Not all the self-employed currently claim tax credits but those who do, and who fall below the income floor under the new system, will find their benefits cut. The self-employed now account for almost a fifth of tax credit claimants so this is likely to affect a lot of people.

It is yet another symptom of the uncertain situation in which many people find themselves. The low tax take and stubbornly high social security costs are two sides of the same story. The number of people in employment might have increased but a lot of that employment is insecure and doesn’t pay very well.

Income tax, VAT and National Insurance are three of the state’s biggest sources of revenue. If any one of them fails to deliver as promised, the government is in a financial hole. People whose employment status and earnings are precarious don’t deliver much in tax. This isn’t a normal recovery. Along with the other epithets being used to describe it – low-wage, slowest-for-a-century, low-productivity and so on – we can now add another; taxless!

Posted in Uncategorized | 8 Comments

A high-skill, low-wage recovery

“Labour economics used to be easy,” lamented David Blanchflower in Monday’s Independent. He continued:

All you had to do was watch the unemployment rate and that told you most of everything. As it went up things were bad and pay weakened. When the unemployment rate fell that meant the economy was getting better and that meant pay rises. Low unemployment meant big pay rises. High unemployment meant smaller rises. Simple.

But, over the past few years, falling unemployment hasn’t led to higher wages in the UK or the US. If anything, wages have continued to fall as employment has picked up.

The picture is even stranger when you look at skills. Employers have been talking about skills shortages for some time now. Earlier this week, the UK Commission for Education and Skills (UKCES) published a paper saying that Britain is already facing a skills challenge and that the country will need 2 million more highly skilled workers by 2022.

UKCES expects the skills profile of the workforce to polarise over the course of this decade, as there is an increased demand for jobs at the high and low skill end while demand falls in the middle.

Screen Shot 2014-09-23 at 18.40.51

That’s not what seems to have happened since the recession though. The ONS data on skills indicate that the employment recovery has been largely a highly skilled one. This chart in the Bank of England’s inflation report shows that, while a lot of the very recent job growth has been in lower skilled occupations, most of it since 2010 has been among the higher skilled. (Definitions are based on the Labour Force Survey categories.)

Screen Shot 2014-09-18 at 18.18.57

I wondered how much of that might be due to the self-employed bigging themselves up in the Labour Force Survey. As the ONS said:

The nature of self-employment is such that many people manage their business and are therefore likely to state they are in a managerial role despite the level of responsibility they may have.

Using at the ONS data and applying the definitions the Bank used, I broke the same period down between employed and self-employed.

Skills1 2010-14

Among the employees, even more of the increase is accounted for by those in the highest skill groups, so bang goes that theory.

Take the figures over a longer period, since the start of the recession, though, and things look even more skewed.

Skills1 2008-14

Almost all the increase in employment since the recession has been among the more highly skilled groups. There are still fewer medium and low skill employee jobs than there were six years ago.

There’s something else funny going on here, though. We’ve just had the longest decline in wages for half a century. It looks even worse if you include the self-employed.

Screen Shot 2014-07-10 at 16.43.58

Since the recession, pay has fallen by about 12 percent yet, over the same period, almost all the net gain in employment has been among the most highly skilled occupational groups. So we have a more highly skilled workforce earning a lot less.

Some of this may be due to the hours people are working, or not working. All the net increase in employment since the recession has come from self-employment or part-time jobs. Last week’s figures showed a slight fall in the number of employed full-time jobs for the second month running. There are still fewer people in full-time employment than there were in 2008.

That said, hourly pay rates have fallen too. The reduction in earnings isn’t just because people have gone part-time and not done as much work. The amount they are paid per hour has also fallen. In recent years, the drop has been particularly steep at the top end.

Screen Shot 2014-09-23 at 18.12.43

This suggests that, while Britain’s workforce may be more highly skilled, employers either don’t have enough work or are not paying a premium for those skills.

Of course, some of this might be due to the zeitgeist. It may be that people are becoming more inclined to talk themselves up when they answer the Labour Force Survey. A decade of programmes like the Apprentice may have convinced us that we are all managers and professionals now. Somehow I doubt it though. The increase in jobs is skewed so far towards the high skilled that an increased tendency to talk up our jobs couldn’t explain all of it.

Could it be that the distribution of skills is wrong? Perhaps people are skilled but not in the things that employers are prepared to pay a high premium for. There has been a lot in the media about skills shortages but a UKCES paper earlier this year found that only 4 percent of employers said they couldn’t fill vacancies because they couldn’t find people with the right skills. More common was the problem of insufficient skills within the existing workforce. 15 percent of employers reported having staff in jobs whose skills did not fully meet the job requirement. 13 percent said that the skills of their employees were either not relevant to their jobs or there was little opportunity to use them. This suggests that some highly skilled people may have been taking lower-skilled jobs.

Whatever the explanation, none seems entirely satisfactory. If the UK has skill shortage it is a very strange one if it is not bidding up wages. It is very odd that pay has fallen so spectacularly at the same time as highly skilled employment has risen. We hear a lot about the UK becoming a low wage, low-skill economy but, if these figures are a true reflection of what’s going on, it looks more like a low-wage high-skill recovery.

It reminds me of a question one of my lecturers tossed out to the class many years ago: Is a skill still a skill if nobody is prepared to pay for it?

I don’t think we ever came up with an answer to that one.

Posted in Uncategorized | 17 Comments