I’m slightly surprised by the lack of discussion, in the media or online, about the Future of Work report from the UK Commission for Employment and Skills. There was a flurry of interest in the idea of the 4 Generation workforce (see Tuesday’s post) but not much about any of the report’s other findings.
Anyone interested in the labour market and the future of work ought to read this report. It is well researched and thought-provoking. Of course, its projections are educated guesses designed to get people thinking but you could say that about any government or think-tank report.
The disturbing thing about all the scenarios described by UKCES is that they are pretty grim for most employees. Apart from the highly skilled and the already rich, the outlook for everyone else is an increase in precariousness, uncertainty and low pay.
Here is a summary of the four scenarios for Jobs and Skills in 2030:
The report expands on what each of these means for employees:
1 Forced Flexibility
Employees find themselves in an hourglass-shaped labour market. For highly skilled individuals, a progressive work environment allows for greater autonomy and a better balancing of work and family life. While the “squeezed middle” of the workforce sees jobs disappearing, low-skilled workers compete ferociously for positions (across all sectors). Security of employment is highly important for individuals – especially the low-skilled. Intergenerational differences need careful management in the work place, since many young people are trapped in low-level entry positions, as older people stay in employment longer.
2 The Great Divide
Employees experience new job opportunities due to the growth of companies providing high-tech goods. New jobs are also created in the higher value business and professional service industries that are linked to these new technologies. Positions for highly skilled workers come with a high degree of autonomy. Among the medium and low-skilled there is intense competition for poorly paid temporary positions, with limited career prospects, and a continued drop in demand for medium and low-skilled workers in manufacturing. Generation Y shapes organisational values and practices. Flexibility, transparency and employee engagement are widely adopted by business, but their application is effectively limited to the highly-skilled.
3 Skills Activism
Employees face long periods of unemployment, in particular those professionals made redundant by IT automation. Work is mainly project-based, with a high turnover of jobs, which can make the development of new skills more challenging.
4 Innovation Adaptation
Employees face relative insecurity of employment, many being forced to develop ongoing portfolios of project-based assignments with a variety of employers. Company-specific qualifications are often demanded as an entry ticket to jobs.
So if any of these scenarios comes to pass, or even a mixture of them, life for the medium to low skilled is likely to get worse. Job security, personal development, autonomy, engagement and all those other good things become limited to the highly skilled elite at the core of the organisation.
The report goes on to suggest that the use of zero-hours contracts could extend to half the workforce by 2030. The scenario described:
With individuals facing such high competition in the job market, employers are able to structure employment conditions to meet their specific needs. It is evident in a rise in the practice of zero-hour contracts, and similar flexible arrangements, coupled with the decline of investment (by employers) in up-skilling individuals.
A possible outcome is a highly polarised labour market, with low- to medium-skilled workers in constant competition for more hours – either in zero-hour contracts (low and unskilled) or as freelancers – offering employers low wage bills and utmost flexibility. Full-hour contracts would be limited to a small minority of core staff in executive positions, similar to, e.g., Sport Direct today (only 10 per cent of all staff were on regular contracts as of 2013; Neville, 2013).
Companies’ investment in skills might be tightly concentrated on job-specific requirements. In addition, uncertainty about one’s personal income situation reduces the incentive to pay for one’s own training, hurting overall skill levels.
Far fetched? Maybe so but last week, the CIPD warned that the UK is becoming a low wage, low skill, low cost economy.
The low cost, low road economy means Britain has the highest proportion of low skilled jobs in the OECD after Spain. 22% of UK jobs require no more than primary education, compared with less than 5% in countries like Germany and Sweden. Low skilled jobs obviously mean low pay and carry wider social implications. In-work poverty has increased by 20% in the last decade, creating a huge benefits bill.
The OECD figures quoted come from its report on skills from last year:
Last month’s Resolution Foundation report on living standards spotted a shift in the labour market during the recession. There was an increase in the number of high and low skill jobs but a decrease in those at the middle level.
To better understand whether recent shifts in the UK labour market are here to stay, we can look at changes in the types of jobs the UK economy is creating. Resolution Foundation research had already shown that the UK labour market was polarising before the crisis struck. In common with other mature economies, middle-skilled occupations have been falling as a share of employment while low and high-skilled jobs were expanding. We now know the crisis accelerated these trends. From 2008 to 2012 Britain’s low- and high-skilled jobs expanded their share of employment while middle-skilled jobs declined faster than they had previously.
Despite economic growth over the next few years, the Resolution Foundation reckons that, five years from now, the real-terms median working-age income will still be below what it was at the start of the recession.
Projections from the OBR tell a similar story.
None of this looks good for those on low to average incomes. They may spend much of this decade simply struggling to recover what they lost during the recession. The number of mid-level jobs, which might have been a route for some to improve their financial circumstances, has shrunk. Relative to other advanced economies, Britain has a high number of low skill jobs.
Against this background, then, the grim forecasts outlined in the UKCES report don’t look quite so unlikely. Low pay and low skill can become self-perpetuating. If pay is low, employers don’t need to invest as much. It costs less to throw cheap workers at a problem than it does to invest in new technology or processes. If the workers are on temporary and zero hours contracts anyway, why bother to invest in their development? Low investment means that skills stay low and pay stays low.
We see this reflected in the UK’s productivity figures. Part of the reason behind Britain’s fall in productivity is simple maths. If employment increases but the economy doesn’t grow, then productivity must fall. Self-employment, which accounts for three quarters of the growth in employment since the recession, has increased in Britain at a much faster rate than anywhere else in the G7. Incomes, especially those from self-employment, have crashed. While pay rates have recovered in most countries, here, they are still well below their pre-recession level.
Source: CIPD Megatrends
It should therefore come as no surprise that, according to the ONS, the UK’s productivity is lagging behind that of most of the major advanced economies.
We are not doing well when compared to some of the smaller ones either.
With the exception of the US, productivity took a hit in all the major economies after the financial crash. Most, however, have recovered more quickly than the UK.
Source: Centre for Policy Studies
Again, we can’t just blame the recession for this. Poor productivity has been a feature of Britain’s economy for some time.
Source: LSE Politcs Blog
The recession has made an existing situation worse. The UK was closing the gap in the decade before the recession only to see it open up again with the financial crisis. The relative gains we made over the past couple of decades have been completely wiped out.
As the LSE’s Bob Hancké notes, the UK is now among the hard-working low productivity countries, not the smart-working high-productivity ones.
Skills supply and demand lie at the heart of the problems facing the UK. We have a higher proportion of very low-skilled jobs than many other developed economies. This has to change.
The issue is not simply about increasing the supply of skills – a preoccupation of current and past governments. The solution to the challenges we face lies just as much with improving skills utilisation and demand for higher-level skills through increasing the number of higher skilled roles available. To do this, we need to encourage more employer investment in innovation and growth and the capabilities and skills needed to deliver high- performance workplaces which can better utilise the skills available and to generate opportunities, raise productivity and add value, which are vital to our long-term international competitiveness.
So investment, innovation, more highly skilled people and, crucially, more higher-skill jobs. He continues:
Unless we address the demand side of the skills equation, we will fail to improve our poor productivity or to achieve the sustainable increases in real wages that have become such a dominant feature of the current media and political narrative.
The UK is at a crossroads – one which requires us to think about the fundamental nature and direction of our economy. Are we taking the high road – of higher skills and value-added employment – or the low road – trying to compete primarily on low cost?
At the moment, we seem to be stumbling with a post-recession hangover towards the low road.