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.

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18 Responses to A high-skill, low-wage recovery

  1. Pingback: A high-skill, low-wage recovery – Flip Chart Fairy Tales | Vox Political

  2. Dave Timoney says:

    “Employers have been talking about skills shortages for some time now”. Are you aware of any point over the last 200 years when UK employers have said the opposite?

    Unless the labour market is completely broken, we can rely on the movement in wages to indicate the relative levels of demand and supply. Surely the Occam’s Razor answer to the conundrum identified by David Blanchflower is that supply remains higher than demand, at all skill levels.

    This in turn suggests that the reported rise in employment and fall in unemployment tells us little about the health of the labour market. This may be the result of a number of factors: the massaging of claimant counts and encouragement of self-employment; the impact of working tax credits, which may be encouraging employers to resist wage rises; and increased worker discouragement, which may be shrinking the labour force.

  3. guthrie says:

    Typing as a somewhat skilled worker with a broad range of experience and a degree, the jobs market is fucking awful, or indeed totally fucked. They might want skilled workers, but they aren’t willing to pay a decent wage, and even with my applying to jobs that I can do, I’ve had nothing but rejections for years. Very few even bother to reply, and those who do cite a massive number of applicants.

    Now that massive number will in part be driven by the government policy of making you apply for a set number of jobs every week, whether or not you can do those jobs.
    The issue as I see it is more that there is no way for a moderately skilled worker like myself to become a highly skilled worker. I need some experience, which I can’t get because nobody will employ me, and I can’t get work because I don’t match their precise criteria or suck up to them in the right way. It is a well known issue nowadays that companies prefer to poach or magically find already trained and experienced workers, rather than actually go to the bother of training them up themselves.

    Meanwhile, as you say, the wages are rubbish. I’m seeing jobs similar to the starting type that I was applying for 14 years ago, still offering 14.5k salary a year, for someone with a degree. Of course in the meantime the cost of living has increased by 20 or 30%, so in reality the wages of many people are far lower than they aught to be. Then the government wonders why the economy isn’t taking off and nobody can afford housing.

    David Timoney’s post is correct; I’ve also heard from someone who knows about the area of graduate employment that the British university system has been working fine for years now in its principle aim which is to churn out lots of graduates to glut the market and keep wages low. Not that that is how it is sold to graduates, but I’m doing minimum wage work at the moment, and one of the others there has a mechanical engineering HND, a good starting point for further work. And if you believe the propaganda we need such people with such qualifications. But nobody from his year of graduation has any work, or none related to their degree, and they are waking up to the fact they’ve been lied to about jobs and suchlike.

    Which in some cases helps drive them to vote yes in referendums on separation…
    And otherwise helps build up a massive pool of resentment.

  4. Reblogged this on amnesiaclinic and commented:
    I like the comment that British universities are doing a great job in churning out graduates and keeping wages low.

  5. ChrisA says:

    Its got to be immigration from Europe that is the cause of this. The UK is now connected to a massive pipeline of prime aged skilled workers. Most European young people, especially graduates, speak good English nowadays, and can move to the UK with zero issues. The higher the skill the easier it is to move, hence the growth in skilled employment but no growth in wages. The Euro-zone is mired in depression, so where do people look but the UK which actually has a growing economy. None of this was a factor in previous recessions, hence the puzzle as to why it is happening now. Employers can’t believe their luck in the UK, massive amounts of qualified graduates available for even the most menial jobs. Note that it doesn’t even require people moving to the UK, nowadays finding jobs and applying for them over the internet is easy. Again another factor not there in the past. The mere potential of people moving puts pressure on the wages of people who are already there. Furthermore, being “foreign” it is pretty hard for these people to get organized or even feel anything but grateful when they get a job. So once they are employed their expectations are also low also putting pressure on wage growth. Its hard to see how wages can move up in the UK until Europe actually starts to grow again (as a whole).

  6. John says:

    The question ” Is a skill still a skill if nobody is prepared to pay for it?” is similar to the question “Is a demand still a demand if there is no cash behind it?”.
    In both cases, cash is key.
    Both skills and demands can exist but lacking cash behind them they remain ineffective.
    Marxian economics contrasts exchange value with real value.
    The same is true of skills and demand.
    Someone may have great skills and great demands but if they do not receive cash for their skills or have cash to pay for their demands they remain ineffective.
    The historical examples to note are the artists who lived miserable penurious years in draughty attics but whose works today sell for millions in auction houses.
    Clearly, they possessed skills that were simply not recognised at the time.
    The same truth applies today except that the unused skills may never be recognised.

  7. HomerJS says:

    I find it difficult to believe that when we see large wage rises for some of the 10%, then how can there be this fall? If the top 1% are the only ones getting a rise then the other 9% must be really having their wages slashed. If that were the case then I think we would have heard a lot of people screaming out. I wonder whether this could be due to a changing balance between salaries and bonuses, or are bonuses actually included?

  8. David Jones says:

    Globalisation continues to work as designed – the trickle up effect, will continue until the fat cats own everything they want, and there is no demand for peons to be anything other than stagnating slaves.

  9. rogerh says:

    This raises a lot of questions. How is ‘High Skill’ defined – is it a young PhD or a crusty old bank official? Then who is going to say ‘well actually I’m a dollop’ and which HR departments are going to say ‘actually, all we hire are dollops’.

    Then the question ‘does high-skill mean high intelligence or good training’ because if it is high intelligence then every employer is fishing in a smallish pond – in which case one expects the price to go up or one spends a lot of cash turning sow’s ears into silk purses. Or perhaps the employers are bigging up their requirements, ‘only really clever people here at BlogCo’. Then we ask how is intelligence/training related to usefulness – the answer ‘not always’.

    Then there is the question of fit between the real economy and what human product is available and the timescale of putting them to use. For example it probably takes a great many PhDs and a long time to come up with a useful and profitable product whilst a lawyer or accountant can turn a penny quite quickly. But which is better for the economy in the longer term? As they say ‘bad money drives out good’, perhaps the same applies to incentives.

    • guthrie says:

      In my experience, useful and profitable products can be thought up by people without any PhD’s at all. For instance, place I used to work, one of the shift operators (with perhaps a handful of O levels to his name) came up with the idea of making a cheaper version of the usual product by putting in recycled offcuts from the better grade of product. And lo and behold, it occupied a distinct product niche thereafter, for customers who just needed a cheap product for certain uses. Meanwhile others kept buying the premium product because it was more pure and had more closely restrained properties.

    • John says:

      On your very last point, I believe it was Francis Bacon who came up with the saying “Money is like muck, no good unless it is spread around”.
      What he realised was that the concentration of money into fewer and fewer hands simply resulted in money hoarding and the stifling of the economy.
      Without money being circulated and real effective demand in any economy, that economy is bound to stagnate – or even go backwards.
      The fact of growing inequality over the last 40 years and the failure of the economy to show significant improvement is proof that what was said back then holds true just as much today as it did back then – around 400 years ago.

  10. Thought-provoking but possibly not for the right reasons. What this article helps to identify but fails to acknowledge is the ‘professionalisation of everything’ and its effect on societal inequalities. Inequalities start in the work place as most young people nowadays are practically forced into having a degree which actually does no longer benefit them into getting a better paid job at the end. The article helps to identify symptoms global systemic dysfunctions which need urgent attention yet some comments throw blame at the feet of immigration which equally is a symptom rather than cause. This is not totally untrue, but again not in the way you might think. Following the completion of degrees, a fair number of British youngsters move abroad, meaning skills are leaving the UK as more opportunities combined with lower cost of living and higher quality of life encourage migration away from the British Isles which is partly responsible for the skills gaps. What we need is a comparison of migration and immigration figures. Wouldn’t that make interesting reading?

    This video may be of interest: http://m.youtube.com/watch?v=xQ-LYElvtEU

  11. Bina says:

    I suspect amongst the other explanations for the apparently contradictory messages in the stats is that casualization, out sourcing, zero-hours-forced-self-employment-but-tied-to-specific-contracts is affecting all professional and technically skilled personnel. The lucky few continue to have ‘proper’ employment contracts with in-company/organisation career routes. The rest are f***** (pardon my French). Decades ago ‘asset strippers’ took out the semi and low skilled ‘jobs’ making that section of worker subject to worse conditions than casualised dockers ever suffered – and their conditions were truly awful. Now, the ‘asset strippers’ and self-serving cost cutters have moved on to the aforementioned professional and technical class. Everyone knows that skills are not ‘valued’ and that the qualification mills are churning away temporarily stopping young willing people entering meaningful employment until they’ve had the creativity and drive mashed out of them. That achieved, your newly minted ‘high’ skill new starter will knuckle down and do all that rubbish work the semi skilled could do. Meanwhile, your established technical and professional personnel are reduced to doing minimal, repetitive, partially skilled work on an endless conveyor belt of short term contracts and such like. Same as the UK’s highway potholes and the failure to provide a proper planned and funded maintenance programme because of the outsourcing regime . Its wasteful, stupid and short sighted.

  12. Pingback: The taxless recovery – Flip Chart Fairy Tales | Vox Political

  13. Julia says:

    Well, I’d say that in short, globalization = death and Socialism = death. The purpose of globalization is to greatly increase the business reach of business conglomerates that grow increasingly corporatist and the purpose of Socialism is to greatly increase the power and decrease the accountability of political elites. The only answer when both your nation and your world have lost their minds is self-employment. Not an easy answer, mind you.

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