The trouble is, the businesses likely to be most affected by the NLW are also the ones least likely to have the wherewithal to improve productivity. For example, the severely affected firms are already less likely to train people.
Chart by Social Market Foundation
As Nida Broughton, the SMF’s chief economist says:
The low stock of skills amongst those affected by the new National Living Wage, and the relative lack of access to in-work training, means that businesses and the Government will have to act to make sure that workplace productivity rises alongside the new regulated wage.
If businesses can increase productivity there is less likely to be a risk of higher unemployment as a result of the introduction of the NLW, and workers will be more likely to benefit.
In its report report on the labour market last year, the UK Commission for Employment and Skills noted that Britain has too few high performance workplaces and a long tail of poorly managed firms. Its recent skills report found that, despite inflation and a larger workforce, training investment is more of less the same as it was two years ago.
That low pay and low training investment go together should come as no surprise. Research by NESTA and the Bank of England found that the UK economy is experiencing the opposite of creative destruction. The more productive firms have disappeared and been replaced by less productive ones. In other words, it looks as though some firms have been set up precisely because labour is cheap. It’s Mike Haynes’s Hand Car Wash Syndrome. There are firms whose entire business model depends on throwing a lot of low paid labour at a problem and not investing in skills or technology.
Figures released by the ONS this week suggest that the recent pick up in productivity has slowed down again.
Rapid productivity improvements across entire sectors are unusual and this is not a country showing any signs of making them.
What, then, might those businesses that are dependent on cheap labour do as the NLW starts to bite? A few might improve productivity, as the SMF urges them to, but many probably won’t. They will either go out of business or find other ways of taking on workers. There is, after all, an army of poorly paid freelancers out there who are not covered by the minimum wage.
Talking of which, the employment figures were also out this week. After falling back from its peak in early 2014, the number of self employed people has risen again in the last few months.
You can date the start of the recent rise in self-employment almost from the announcement of the NLW. Still to early to draw conclusions from this, of course. It could just be coincidence….
Tim Worstall raised this question last summer. When can you say a recession is definitely over? Of course, the official definition is when the economy starts growing again which it did in 2009, albeit very slowly. But for most of us, the effects of a downturn come after the event so it still felt like a recession for some years afterwards. GDP returned to its pre-crash level in 2013 but some of that was simply due to a rising population. Per capita GDP went back to its pre-crisis level in 2014 but even this didn’t necessarily make us feel any better. Per capita Net National Disposable Income (NNDI), the amount of GDP available to UK households after foreign investors have taken their share, was still lagging. Much of that GDP increase was leaving the country.
Eventually, towards end of last year, NNDI caught up as well.
So was that the Great Recession then? Can we at last say that the damage has been repaired and we are finally back to 2008?
Not so fast. Household income measures all households, including pensioners, whose relatively high income gains bump up the figures. When you look at the incomes of working age households and allow for housing costs, things don’t look quite so so good. For pensioners on median incomes, the Great Recession is over. Those of working age might have to wait a little longer.
Some of this is due to the rising cost of housing for the under 35s, largely brought about by the increase in private renting and decline in home ownership. Pensioners, who are more likely to own their own homes, have been less affected by rising housing costs. This subject deserves, and will get at some point, a post all of its own but Section 4 of the report, Living standards and housing – the end of homeownership? is a disturbing read and contains some mind-boggling graphs.
But it is the pay squeeze that has really hammered working-age incomes. Even with record rates of employment, average pay is still below its mid-2000s level and is well short of its pre-recession peak.
The Resolution Foundation reckons this gap will close over the next year or so and that “all measures are estimated to have surpassed their post-crisis peaks by 2017.” By next year, working age household incomes will be back to where they were before the recession.
Even then there are some caveats:
[I]t is likely too that different parts of the country will enjoy faster levels of income growth than others. Generationally, there is little prospect of younger cohorts reclaiming any of the ‘lost income growth’ of recent years.
So for some regions, and the young in general, the aftershock of the recession will continue beyond its ten-year anniversary.
The post-recession income recovery has been much slower than in previous downturns. Only the very oldest among us can remember anything so severe. The financial crash and the recession which followed have had a devastating effect on the UK’s economy and on household incomes.
This chart from the IFS Green Budget, published last week, illustrates the underlying problem. Usually, after a recession, we have a few years of very high growth which repairs the damage and gets incomes and living standards back to where they were fairly quickly. This time, we have had a huge crash and mediocre growth since. All this talk about getting back to normal levels of growth ignores the fact that we didn’t make up for the lost years, as we have done in previous postwar recessions.
At the beginning of this month, the Bank of England’s monetary policy committee voted unanimously to keep interest rates at 0.5 percent, citing a slowdown in wage growth and downgrading its GDP forecasts. It is unlikely that we will see a return to interest rates we used to think of as normal much before the end of the decade. The recovery, then, is still fragile and the UK economy is still struggling to make up lost ground. Gradually, one-by-one, the indicators of recovery are turning positive but they have taken a long time. Britain may finally crawl out coughing and spluttering from the aftermath of the Great Recession just in time for the next one.
Attitudes to refugees have hardened since last September, said a BBC report yesterday. It found an increase in the number of people who think the UK has taken in too many refugees and should now be taking fewer. This is another manifestation of the growing concern about immigration noted by Gallup and Mori polls last month.
But the UK has only taken 1,000 Syrian refugees and only grants a few thousand asylum claims each year. Even if Britain took no refugees at all it would make very little difference to the immigration figures.
While it is true that immigration to the UK is at a record high, this has almost nothing to do with refugees and asylum seekers. As this chart from Migration Observatory shows, there was a time, back in the early 1990s when asylum seekers accounted for most of Britain’s immigration but that was a long time ago when immigration was fairly low. There was a spike in asylum claims in the early 2000s but even then it was not the main component of migration. As a proportion of overall immigration, asylum has been very low for the last decade.
When compared to other countries in Europe, the level of asylum applications in the UK is not particularly high. It has remained fairly steady over the past few years even as it has increased for some of our neighbours.
When you adjust these figures for population, the UK is nowhere. Compared to most of the richer EU countries, the UK has very few asylum applications.
The UK may have the second highest level of immigration in the EU (although when you adjust for population size, it is somewhere in the middle of the pack) but unlike some other European countries, asylum barely features in the numbers.
Britain has a labour market and job opportunities that draw workers from across the EU. It contains by far EU’s biggest city and world famous universities which attract ambitious young people from all over the world. Thanks to the legacy of its empire it has communities from many different countries who maintain contacts with their friends and relatives. Consequently there is a flow of people coming here to do business and to join family members who have already settled. London is the favoured location for corporations’ European HQs. It’s hardly surprising, therefore, that US citizens accounted for the largest proportion of UK temporary residence visas in 2014.
There are, then, all sorts of reasons for Britain’s record levels of immigration. Mostly people come to work, to study or to join other family members. You may think it’s a good thing, you may not. Let’s be clear about one thing though; it has nothing to do with people crossing the Mediterranean in leaky boats.
When I was growing up I thought rock ‘n’ roll started in 1955. That is probably because everybody on the radio and TV at the time told me it did. By the 1970s, the radio stations were being run by people who had been teenagers in the 1950s. Every generation likes to think it broke new ground. Being one of that first wave of rockers and the first British teenagers to be called teenagers must have felt exhilarating. No wonder there was a year zero feel about it. 1955 was the year when rock ‘n’ roll, teenagers, youth culture, street fashion and everything went with it began. Programmes like 25 Years of Rock and an entire cohort of early boomers told us so.
But, as the saying goes, nothing comes from nowhere. The idea that a new form of music would suddenly burst out of the Deep South was never plausible. It had roots in what had gone before and had been gathering steam for some years before it attracted the attention of radio stations.
True to its mission to fill in rock ‘n’ roll’s missing evolutionary links, Trash Can Radio has been running a fascinating series called The Juke in the Back, every Thursday evening. As its presenter, Matt the Cat, explains:
At the end of the Second World War, economics forced the big bands to trim their once great size and thus, the Jump Blues combo was born. Between 1946-1954, rhythm and blues laid the tracks for what was to become Rock n’ Roll. So how come, nearly 60 years later, this vibrant and influential music is still so unknown to so many?
Matt The Cat is going to change that with the radio program, “Juke In The Back.” These were the records that you couldn’t hear on the jukebox in the front of the establishment. To hear all this great 1950s rhythm & blues, you had to go to “Juke In The Back.”
On the Juke in the Back you will hear stuff you have never heard before. Some of the very early tracks are on 78s, as the 45 single didn’t appear until 1949. This is where rock ‘n’ roll really began.
One of the most astonishing artists from that period is Rosetta Tharpe. (See Episode 292) I say astonishing because in the 1940s she was doing a lot of things most of us assume happened a lot later. A woman fronting a band, playing rock n roll on an electric guitar, before Suzi Quatro was born. Rosetta Tharpe’s popularity faded during the 1950s but a revival of interest in the early 1960s led to her visiting Europe, where she told the Daily Mirror:
All this new stuff they call rock ’n’ roll, why, I’ve been playing that for years now.
Most of the footage of her dates from this revival period but take a look at these:
She might not be your typical rock n roll star but it’s rock n roll alright.
How many more forgotten groundbreaking artists are there? There are even entire genres that barely rate a mention, known only to aficionados. 1960s Garage Rock, for example, is another of those missing evolutionary links. Once you hear some of it, you start to understand how rock n roll went from Be Bop A Lula to Paranoid in little more than a decade.
This is where Trash Can Radio comes in. These guys are not just running a radio station, they are providing an educational service. They mine the obscure seams of rock ‘n’ roll’s history to bring you stuff you have never heard before but which was crucial to the development of the stuff you’ve been listening to for years. I know I have banged on about Trash Can Radio before but really, if you find this sort of stuff interesting, or if you just want to hear a different take on rock ‘n’ roll, then give them a listen. If you are in London they are on DAB. Outside London you’ll have to rely on the interweb.
Unless, of course, Trash Can Radio can raise enough funds to get a national licence. At the moment, the guys behind it are running it on a shoestring against competition from much larger and better funded organisations. If you, or anyone you know, would like to advertise with them it would help to give them a boost. If not, just join their army of listeners and buy a t-shirt or two. It’s all in a very good cause.
In case you missed it, OBR chairman Robert Chote was in fine form last week when giving evidence to the Scottish Parliament’s Finance Committee. Remember that money the OBR found behind the sofa at the end of last year?
Following the Autumn Statement, lots of people latched onto the £27 billion that we had apparently found down the back of the sofa over the next five years.
Unfortunately, says Mr Chote, changes to the forecast for GDP and tax revenues could quite easily wipe it all out.
[T]he underlying changes we have made to our budget deficit forecasts between previous March Budgets and Autumn Statements were deteriorations of around 11⁄2 per cent of GDP in 2011 and 11⁄4 per cent in 2012, an improvement of 3⁄4 per cent in 2013 and a deterioration of 1⁄4 per cent in 2014. The lesson is that what the sofa gives, the sofa can easily take away.
That could be a bit of a problem because:
The tax increases and welfare cuts build up gradually – and less quickly than the Chancellor said he would aim for ahead of the election. So he has also decided to borrow more over the next three years to help reduce the severest squeeze on public services spending during the middle years of this Parliament. Then he aims for a slightly bigger budget surplus in the medium term as the mounting tax increases and welfare cuts eventually outweigh what are by then smaller increases in public services spending.
Helped by the modest improvement in our underlying forecast, this leaves the Chancellor on course to achieve his new target of delivering a budget surplus in 2019-20 (and beyond) with a margin of around £10 billion in that year. Past forecast errors suggest that this implies a roughly 55 per cent chance of delivering a surplus in that year on current policy, so by no means a done deal.
The trouble is, during the last parliament, most of the fiscal consolidation was done by cutting public service spending. Over this parliament, though, welfare cuts and (presumed) increased tax revenues do a lot more of the work.
If welfare costs don’t come down and tax revenue doesn’t increase by as much as the chancellor planned then he must either raise taxes, cut public services even further or abandon his deficit target.
But uncertainties abound in the underlying forecast, not least the outlook for productivity and real wage growth and its implications for tax revenues. And our forecasts are also based on current policies, while other forecasters might expect those policies to change. Some will look at the public services cuts that remain and ask if they can be delivered. And some will look at the projected savings from welfare, but worry about the Government’s ability to deliver reforms logistically and cuts politically. And if they expect disappointment on either of those fronts, or from the underlying forecast, some may expect the Government to opt for more tax increases or to think again about its goal of sustained budget surpluses. Fortunately, these musings lie beyond our remit.
Some might think that. We couldn’t possibly comment.
In the melee of the run up to Christmas, a couple of items in the ONS employment stats release passed without much comment. Firstly there was a rise in the number of self-employed people. As expected, self-employment fell once the recovery in employee jobs got underway. At least, it did for a while but it has been creeping up again recently. It’s now just short of its mid-2014 peak.
It is too early to say whether this has anything to do with the impending rise in the National Living Wage but there is certainly a lot of nervousness about the NLW among employers. The Engineering Employers Federation said this week that a fifth of the firms it surveyed were expecting job losses as a result. A recent report by the Resolution Foundation found that the NLW could affect a quarter of workers in some cities by the end of the decade.
As if that isn’t enough, as Jolyon Maugham pointed out earlier this week, for every £100 a company pays and employee it costs £26 less in national insurance to pay the same amount to a freelancer. These days, the freelancer probably doesn’t earn as much in the first place. Not being covered by the NLW, the gap between self-employed and employee pay is likely to get wider. It would be surprising, therefore, if some employers were not thinking of ways they could replace their NLW employees with cheaper freelancers.
Then there’s the zeitgeist thing, of course. Self-employment is fashionable at the moment. Lots of people think it sounds great and they would be really good at it. That, too, may be helping to keep the numbers up.
Whatever the reasons behind the recent rise, it is reasonable to assume that self-employment will stay high for the next few years, even as the number of employee jobs increases.
Released on the same day were figures showing public sector employment at its lowest since the ONS started counting at the end of the 1990s.
Ben Dellot reckons the self-employed will outnumber those working in the public sector sometime towards the end of the decade. I had a bet with him because I still don’t think they will. Now that the chancellor has downgraded his public service cuts from utterly insane to might just be doable, the job losses in the public sector will probably be less severe than we once thought.
Either way it will be a near thing though. If the lines on this graph don’t meet or cross over, they will come very close. Over the next five years, public sector employment will continue to fall and self-employment, while it might not rise by much, it probably won’t fall by much either. A high level of self-employment, by historical standards, seems to have become a feature of the 2010s labour market.
Source: ONS
This is a significant shift in the make up of the UK’s workforce over a relatively short time. Fewer people with reasonable job security, final salary pensions, employer funded training and, for the most part, stable earnings. More people with irregular work, inadequate pensions, low levels of training and falling incomes. Aside from the economic implications, there may also be a political shift. If the self-employed are as big a constituency as public sector workers, how might that change our politics? Will we see a more individualistic and less collectively minded culture or might the self-employed start to act collectively to prevent their pay rates being hammered down? Might they start calling for government action to make their lives more liveable?
It is unlikely that either of these trends will reverse in the next few years. By the end of the decade the self-employed will make up a roughly similar proportion of the workforce to those employed in the public sector. If it’s a little bit more I will be buying the beer, if it’s a little bit less, Ben will. Whichever of us is up at the bar, though, the balance of the UK’s workforce will have changed, probably for the long-term.
Update:Michael O’Connor wonders whether changes to in-work benefits might reduce the number of people in self-employment. Less generous terms may discourage some from starting up, while others may find that they simply can’t afford to be in business any longer.
There are about half a dozen bands I have seen more times than I can remember. One of those is Motorhead. I remember them appearing in the late 1970s at a time when a lot of heavy rock had disappeared up its own backside with long tracks and concept albums. Motorhead stripped it all back to a guitar, drums and a distinctive driving bass, a raw sound with an energy and urgency that outpunked the punk bands. In doing so they set the scene for the 1980s when bands got louder and faster until it was impossible to tell what was punk and what was heavy metal any more.
The first time I saw them I was fifteen. It was a school night so getting to the gig involved complex preparations. No-one wants to go and see Motorhead in school uniform so we had to take stuff to change into and stash our school clothes overnight. There was then a tedious bus journey and what seemed like hours hanging around in the cold before getting into the venue. Although we were among the younger members of the audience we managed to get and hold a position at the front. It was incredible. The noise was like nothing I had heard before. The band, all in black as usual, looked like the baddies from a cowboy film. I wouldn’t have used the term stage presence back then but they had it in spades. Though my ears were ringing for days afterwards I knew I had to see them again and nine months or so later, this time during a school summer holiday, I did my second Motorhead gig. There were many more, the last probably being in the late 80s or early 90s. For me it was never quite the same after Eddie Clarke left but they were still unique among rock bands even then.
It was with sadness, then, that I heard that Lemmy, the man who created Motorhead, died on Monday, four days after his seventieth birthday and two days after having been told he had an aggressive form of cancer. The first time I saw the band, Lemmy would have been in his early thirties, less than half the age he was when he died. Yet, in may ways, he looked very similar. His face was already old by his thirties. As he wrote in Capricorn, “When I was young I was already old.”
Talking of Lemmy’s face brings to mind one of the occasions when I met the man in the flesh. He used to be a regular at a downstairs after-hours bar in Soho. I was in there one night when Lemmy was playing on the fruit machines, as, apparently, he did quite often. An argument started among some of the people I was with about whether or not that bloke playing the bandits really was Lemmy. Eventually one of my friends decided to settle the dispute by going up and asking him. “Excuse me,” he said to the bewhiskered rocker, “Would you mind telling these idiots who you are?” To which, the great man replied, “With a face like this I couldn’t be anyone else.”
That was part of Lemmy’s appeal. He barely changed his appearance from the 1970s onwards. If you were to ask a group of people to describe the archetypal rocker the result would look very much like Lemmy. The long hair, the leathers, the black clothes and the massive collection of custom-made boots all harked back to the classic period of youth rebellion from the 1950s to the 1980s. He has been described as one of the last true rock stars and with good reason because rock stars don’t look like that any more. Come to think of it, neither does anyone else. Even the Hells Angels have shorter hair and trimmer beards these days and they stopped wearing Nazi regalia in the 1980s.* Lemmy didn’t though. He carried on wearing it to the bitter end, even after being threatened with arrest in Germany a few years ago. His defence was simply that, throughout history, the bad guys always had the best clobber.
The same could be said for Motorhead’s music. Like Lemmy’s face, there really was no mistaking it for anything else. Their tracks had a distinctive sound and you could identify a new song as theirs even if you were hearing it for the first time.
Lemmy grew up during a time when rock n roll and the youth culture that went with it set out to shock. It doesn’t do that any more. It hasn’t really done so for the last two decades. Rock stars don’t do outrageous these days and even when they do it’s usually a pale imitation of what has gone before. The iconic leather biker jacket has been recycled as a mass fashion item in the last couple of years, now with women’s side fastening which they never had back in the day, and you can buy t-shirts with a Motorhead logo from Topshop. New and distinctive sounds are rare too. There is no 2010s equivalent of the ‘what the hell was that’ moment you had when first hearing Lemmy’s bass, Johnny Rotten’s voice or the Prodigy’s strange noises. In that sense, Lemmy really was one of the last rockers. A larger-than-life representation of when rock n roll meant lots of noise, drinking to excess, an outrageous appearance and, if not always violence, at least a constant air of menace and the sense that things might kick off at any moment.
Of all the great songs Lemmy wrote, Capricorn was my favourite. It was the one I used to shout for at gigs. There is something appropriate about Lemmy having been born at the darkest time of the year. The last verse goes:
I always knew, the only way,
Is never live, beyond today,
They proved me right,
They proved me wrong,
But they could never last this long,
My life, my heart, black night, dark star, Capricorn.
In the end, though, nobody is fast enough to out-run the Grim Reaper. Lemmy’s lifestyle caught up with him and the Cancer got the Capricorn.
He was indeed a true rock star and one of the last of a breed. I would say Rest In Peace Lemmy but somehow that doesn’t sound right. If there really is an afterlife, I hope his will be as raucous as the one he lived.
* It may sound odd these days but wearing swastikas, death’s heads and iron crosses was once a symbol of youth rebellion. They were part of rock n roll iconography from the 1950s to the 1980s. One theory is that many early bikers were former soldiers who had brought Nazi regalia home as war trophies and who then started wearing it while riding their bikes. From a 2010s perspective, it looks odd that such symbols seem to cause more offence now than they did so soon after the second world war, when there were a lot more people around who had experienced what the Nazis did. When asked about it at the time, most rockers insisted that there was no political meaning behind the Nazi badges and that they just wore them to annoy people. There is probably a sociology PhD in there somewhere. The Hells Angels stopped wearing Nazi symbols when the club’s first charters were awarded to motorcycle clubs in Germany. Out of respect for their new German members the entire membership worldwide renounced the use of Nazi regalia in the 1980s.
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