Youth o’ today – not as lucky as they used to be

I was going to cover last week’s last week’s report by the Institute for Fiscal Studies, on the economic circumstances of different generations, as an update to the Boomers and Busters post but then I decided it needed a piece of its own.

Youth o’ today don’t know they’re born has long been the cry of older generations as they look upon the improved livings standards and greater opportunities available to the young. That was the natural order of things. As economies improved and per capita GDP increased, people got richer and had higher livings standards compared to those in previous generations.

This chart from the IFS report shows how this process continued throughout the last century, with each generation earning more, in real terms, than the one before it.

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Then in the early years of this century, the process started to falter. As the IFS comments:

Up to and including those born in the 1950s, each cohort has had higher incomes on average than the cohort before them did at the same age. Around the age of 50, for example, average income for the 1950s cohort was more than 20% higher than average income for the 1940s cohort – an increase equivalent to around £5,000 a year for a couple without children. Similarly, average income for the 1940s cohort was itself more than 20% higher than average income for the 1930s cohort at the same age. This is what one would expect to see: as the economy has grown over time, incomes have risen and so younger cohorts have higher incomes than their predecessors did at the same age. However, the figure shows that this is no longer true for those born after 1960. The 1960s, 1970s and early 1980s cohorts (currently in the middle of their working-age lives) do not have higher incomes than their predecessors did at the same age. This partly reflects the impact of the Great Recession on the incomes of working-age households, but it is also the result of the period of sluggish income growth that preceded the recession (from the early 2000s onwards) and the weakness of the recovery in incomes over the past few years.

So not only did the decade-by-decade pay hike for twentysomethings stop, those in their middle years didn’t see the pay increases that their predecessors had enjoyed. (Another reason why lumping the 60s-born in with the Baby Boomers doesn’t make sense.)

Those of us born in the 1960s are slightly luckier than those who came later because more of us managed to buy houses and so the fall in our housing costs, thanks to time and low interest rates, has partly offset the income stagnation. Housing costs are hitting those born after 1980 particularly hard. As this next chart shows, those born in the 1960s paid particularly heavily to get themselves onto the ‘housing ladder’ (a term which I’m sure was minted in the 1980s). Since then, the cost of servicing a mortgage has fallen while the cost of buying a house in the first place has risen. Consequently rates of home ownership have dropped.

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Youth o’ today who can get hold of enough capital to buy a house really don’t know they are born. The rest of their age cohort, though, are paying more as a proportion of their incomes in housing costs than previous generations did at a similar age. The decline in home ownership is clear from this chart but the drop is sharpest between the 1970s and 1980s age cohorts.

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It is therefore less likely that each 10-year cohort born after the 1950s will accumulate as much wealth as the one born before it. That would be enough of a problem on its own but if these figures look worrying, the ones for pensions are frightening.

Membership of defined benefit (DB) pension schemes, those that employers contribute to and which pay out based on a proportion of people’s salaries, has fallen. This has affected all age cohorts but a much smaller proportion of those born after 1970 had DB pensions and for those born after 1980 they are available only to the lucky few.

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The pensions that replaced the defined benefit schemes are not nearly as generous and don’t carry the same level of employer contribution. As the IFS says:

[T]he switch from DB to DC schemes has been associated with a large reduction in the generosity of employer pension contributions. Of those in DB schemes in 2015, 90% received an employer contribution equivalent to 10% of their earnings or more, compared with only 13% of those in DC schemes.13 The switch also represents a transfer of risk from employers to employees – as, in DB schemes, firms rather than employees bear the investment return and longevity risk. There is therefore good reason to think that younger cohorts will struggle to accumulate the pension wealth of their predecessors (certainly as a share of earnings), and they will certainly face greater uncertainty with regard to their future living standards than those cohorts with greater access to DB schemes.

As this chart from the Resolution Foundation’s Intergenerational Commission report shows, defined contribution schemes are not nearly as generous.

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The closure of defined benefit schemes was, in effect, a hidden pay cut, the implications of which will only become clear over the next couple of decades.

The upshot of this, then, is that the tradition of each new generation of young people ‘not knowing they’re born’ is no more. Pay stagnation has put a stop to the above-inflation pay increases, property prices have risen to the point where fewer people are able to buy houses and the generous (or should that be ‘adequate’?) pension funds have been shut down. And, of course,for anyone born after 1960 the state pension age has been pushed out to age 67. At least, for now. Where it will be when they actually come to retire is anyone’s guess. It’s hard to look at any of these figures without concluding that those who have recently retired have had the best of it and that each subsequent generation will find things more difficult than the one that went before.

That said, I’m still uncomfortable with the intergenerational conflict narrative. One generation has not robbed another. A lot of the things that happened since the Second World War were way beyond the control of most people. The economy grew, trade union power increased, middle earners gained a bigger slide of the economic pie, then GDP growth slowed, industries declined, trade unions lost power and wages began to get squeezed. These things affected everybody but how much and for how long depended on which stage of life you were at. Those born in the late 1940s and early 1950s happened to be get into the market at the right time and out of it before things started to go seriously wrong. Their relative wealth is a legacy of a time when those on middle incomes did quite well.

The trouble is, we assumed for many years that the postwar improvements in wages, living standards and pensions would simply continue and that each generation would be better off than the last one. A lot of older people still don’t seem to have cottoned on. I still hear ‘youth o’ today don’t know they are born’, or more modern variants of it, from people of my age and older who think youngsters have it easy. Of course, the young grew up materially better off in many ways than their predecessors but many of them will struggle to live as comfortably as their parents did later in life.

Of course, there could be a leap in economic growth sometime over the next couple of decades that showers today’s youngsters with super abundance in their later years. At the moment, though, that isn’t looking very likely. To achieve the sort of per capita GDP growth we saw in the last half of the twentieth century, and to compensate for the slump, the UK economy would need to be growing at well over 3 percent per year by now. There are no signs that it will get anywhere near that in the coming years.

Meanwhile, the fortunes of the early baby boomers continue to grow. As Andy Haldane said, two-thirds of the household wealth increase since the recession has gone to those born before 1952. Of course they worked hard and saved hard but they should acknowledge that they have been lucky too. It is not their fault that subsequent generations will not enjoy such a comfortable retirement but their accumulated wealth isn’t entirely of their own doing either. Some of it is due simply to being born at the right time. A lot has changed over the last few decades. We used to assume that most pensioners were poor but there has never been a better time to be in your late 60s. Youth o’ today are not the lucky ones any more.

 

 

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Boomers and Busters

I’ve never set much store by generational definitions. According to the Atlantic, the only one officially recognised by the US Census Bureau is the Baby Boomer. All the rest have been made up and fitted in around the original one. But even the Baby Boomer definition doesn’t really work for the UK because we had two distinct baby booms. The first was taller and sharper but the second lasted much longer.

As this chart from the Resolution Foundation’s Intergenerational Commission report shows, we had two periods after the Second World War where the annual birth rate was between 900,000 and just over 1 million. Because we have imported all the other generational labels from the US, our second baby boom is cut in half. The later part is labelled Generation X simply because we have shoehorned our demographic history into a set of labels designed in America.

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Until the discussion of the various generations and their supposed characteristics became fashionable a few years ago, I had no idea that I was a Baby Boomer. (By some definitions, I’m not but let’s not over-complicate things.) The term had usually been used to describe the people born in the late 1940s and early 1950s. For the most part, it still is.

The Baby Boomers were the original Beatles fans and, later on, the hippies. They were the people who made the sixties swing, with their music festivals, fashionsprotest and socially liberal attitudes. The summer of love, the political riots and social unrest of 1968, and festivals like Woodstock and the Isle of Wight are landmark events in what is often described as the Baby Boomers’ defining decade.

It was certainly a defining decade for me and my contemporaries. We were very preoccupied with being born and taking our first steps. While the hippies were trying to change the world, we were at playgroup. While they were spray-painting and singing protest songs, we were finger-painting and singing nursery rhymes. I didn’t know who the Beatles were until after they had split up.

So you will understand why many of us are somewhat bemused to find ourselves categorised as Baby Boomers when most of the usual stories told about that generation don’t apply to us. Many of us deliberately defined ourselves against the hippies. Punk was a reaction against up-itself hippie music. Part of its appeal was that it unnerved the trendy guitar-playing teachers almost as much as it annoyed the old buffers. The sharp and spiky music and fashions of the late 1970s and early 1980s were symbols of very different zeitgeist from the hippie era. The long hair, flowers, jangly music and trodden-on flares didn’t reappear until the end of the 1980s, by which time most of the teenage shoegazing fans were too young to have remembered them the first time around. Perhaps that is a more useful generational divide than the one plonked arbitrarily in the middle of the 1960s.

The second baby boom seemed to take the planners by surprise. Because it continued for ten years it put severe pressure on schools. People complain about class sizes now but the ones at my primary school contained over 40 children. I still have the school reports to prove it. At one point they were teaching classes on tables in the hall, which then had to be cleared away each morning for the school assembly. I can remember the poor teachers trying to control rooms full of unruly children. Some of them just couldn’t do it.

As time has passed, the bulge created by the 60s children has moved upwards through the ONS age profile charts. In the population report published in June, you can clearly see my generation forming that big lump which peaks at around age 50.

Population pyramid for the UK, mid-2015

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Source: Office for National Statistics, National Records of Scotland, Northern Ireland Statistics and Research Agency

And this is where the problem starts. What caused trouble for the schools in the 1970s will   do the same for the health and welfare system over the next few decades. Many of those born in the 1960s will be hoping to retire in the next 10 to 20 years. The trouble is, they might not have very much money to do so.

Frances Coppola wrote a piece earlier this week on the rapid fall in interest rates since the 1980s and its likely impact on retirement incomes:

[T]he young adults of the 1980s paid the highest interest rates in history on their mortgages and car loans. Now, they are approaching retirement – indeed the oldest among them have already retired. And today’s ultra-low interest rates seem like a major betrayal. Where have the returns on their savings gone?

This is a bigger problem than it might seem. In the 1980s, companies started to replace defined-benefit pensions, which promised an income based on final salary, with defined-contribution pensions, where the returns on investment provide an income in retirement. By the mid-1990s, most defined-benefit schemes were closed to new entrants.

Replacing defined-benefit with defined-contribution didn’t seem that big a deal at the time. Some people even thought it was better. After all, with the rates prevailing at the time, you wouldn’t need a huge investment portfolio to generate quite a decent income in retirement. It never occurred to anyone that interest rates would fall.

Here too, then, my generation is different from those to whom the Baby Boomer label is usually applied. On the whole, the hippie generation has done rather well out of retirement.  For a number of reasons, they have hung onto the gains they made during their working lives. As the FT explained, there has never been a better time to be in your late 60s.

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And as Andy Haldane’s report from his speech in July shows, even the recession years didn’t really do them that much harm.

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It is unlikely that later generations will be able to pull off the same trick. As Frances says, membership of defined benefit pension schemes, those that pay out based on final salaries, has declined rapidly over the past fifteen years or so.

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Chart via DWP.

This is a problem for all generations, of course, but those of us born in the 1960s assumed  that the post-war world, in which companies provided decent pensions and investments yielded good returns, would last forever. Many of us changed jobs and found the old pension schemes closed replaced by defined contribution ones but didn’t think too much about it at the time. That the new schemes might not pay anywhere near as much barely occurred to us. Because we have less of our working lives left, we have less time to make up the shortfall. With incomes stagnating and interest rates so low, for many people it will be a daunting if not impossible task. Here’s Frances again:

For young people, today’s low interest rates mean that they have to save much more and take more investment risk to achieve the sort of income in retirement that the post-war generation had. But those who were young adults in the 1980s and 90s don’t have enough of their working lives left to build up the size of pension pot now needed to generate a comfortable retirement income. They are looking at a much less prosperous retirement than they expected.

Their wages have been stagnant for a decade, their occupational pensions are stuffed and their state pensions are receding into the distance. They are frightened of cuts to the healthcare they will need in retirement and worried that they may have to sell their houses to pay for their care.

Why should the retirement worries of the 60s children worry anyone else? Because prosperous pensioners, who tend to spend more on leisure than anyone else, may be all that is keeping  the economy in some parts of the country afloat.

We tend to assume that deindustrialisation is yesterday’s news. After all, the factories, mines and steelworks that used to dominate many of our towns are long gone. Their ghosts are still there, though, in the form of their pension schemes. Towns with no industry to speak of still have relatively prosperous pensioners drawing down the benefits from their old employers. In some parts of the country, income from occupational pensions accounts for around 8-10 percent of household income. In areas already heavily dependent on state benefits, the disappearance of this income could be catastrophic.

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Source: Family Resources Survey, 2014/15 , published 28 June 2016

And disappear it will because the pensions of the next generation of retirees will be nowhere near as generous. In some towns, many of the young people are employed to run around after pensioners, in garden centres, in the hotels where they go for off-season breaks and the pubs where they enjoy weekday lunches. If the next generation can’t afford these things then the jobs will go.

And, as we can see from the charts above, there are a hell of a lot of 60s children. Imagine what will happen as that big bulge of people moves into hopelessly underfunded retirement. Having caused chaos in the school system at the beginning of our lives, we look set to do it to the entire economy at the end. This isn’t just a problem for people of my generation. It’s an economic disaster in waiting.

In all likelihood, most of us will have to work for a lot longer than we thought. Already our state pension age has been pushed out to 67, something which still seems to be news to many of my contemporaries. More than one actuary has suggested to me that by the time we get there it may be closer to 70.

One of the most famous TV dramas depicting the 60s-born generation was the recently received Cold Feet. Perhaps that is a better term for us than trying to squeeze us into definitions imported from the US. I quite like the term Cold Feet Generation. It neatly sums up how many of us feel about retirement.

 

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Globalisation: Not as big an elephant as we thought

Most of you are probably familiar with the Elephant Chart which shows the changes in the global income distribution over the three decades before the last recession. It came from a World Bank paper by Branko Milanovic and shows the increase or decrease in real incomes at each percentile. It shows big gains in the middle and lower percentiles, falling incomes at the upper middle while the very poor see almost no income growth and the very rich, as ever, see their incomes continue to rise steadily.

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The chart has been cited a lot recently, especially when explaining the Brexit vote, the rise of Donald Trump and the growth of populist movements in the developed economies. The less well-off in the developing economies have done well and millions have been lifted out of poverty. At the same time, and some would say inevitably, skilled middle-earners in the developed economies have suffered as their jobs have been offshored and their wages have stagnated. It’s no-wonder they are angry, the story goes, because they have lost out while the poor of Asia have gained. A nationalist or socialist backlash against globalisation is therefore hardly surprising.

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I have reached for this chart many times, especially when writing about Brexit and UKIP, but something always made me put it back on the shelf. I haven’t the time, the resources or the expertise to dig into the data behind it but I did wonder how far it applied to the UK and whether it was mostly the story of two big countries, China and the USA.

As it turns out I was half right. Adam Corlett of the Resolution Foundation has produced a very detailed analysis of the data which shows that the story is somewhat more complex than some people are making out. Before going any further, it is worth mentioning that the Resolution Foundation’s intention was not to trash Branko Milanovic’s work but to point out that some of the claims people were making about it are not really supported by the evidence.

Now before you switch off and assume that this is some dry academic argument, it really is worth persevering with the Resolution Foundation report because the story that emerges from it tells us so much about what has been happening to incomes and work throughout the world over the past thirty years. There is too much in the report to cover in one post but I will attempt to summarise the story about income distribution here and discuss some of the conclusions.

This is an argument that builds up stage by stage.

The countries in the 1988 data set are not the same as those in 2008

As more data became available, more countries were added to the data set. Most, through not all, were poorer countries. If you compare the data of countries that were in both the 1988 and 2008 surveys, the effect is less pronounced and the income drop in the upper middle percentiles disappears.

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Population growth in poorer countries has moved the rich counties further up the curve

Because the population of poor countries has risen more quickly than those of richer countries, they now account for a greater share of the world’s population. The people at around the 75th percentile of the world’s income distribution were the poorer American workers in 1988 but by 2008 many of the people at that point in the income distribution were urban Chinese. But while the urban Chinese have seen their wages increase they are still, in real terms, not up to where US workers were in 1988. Therefore there is a dip in the curve at around the 75th percentile. The US workers are no longer in the same position on the distribution because population growth has pushed them up to a higher percentile.

As the Resolution Foundation explains:

For example, the poorest decile of people in the US were in the 70-75th percentile range in 1988. But population growth among poorer countries would have pushed those Americans up into the 75th-80th percentile range by 2008. The bottom US decile would be replaced in the 70-75th percentile part of the global distribution by the richest urban Chinese, but the latter’s average income was around $1,500 compared to the former’s $2,600: producing a fall in the average income of those percentiles.

This chart by Chris Giles shows how the poor US families have moved up the global income ranking.

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The socio-economic groups who support Donald Trump might have been at the point where the curve dips in 1988 but they are not there now.

Japan and the former communist countries drag down the figures for the mature economies

Globalisation wasn’t the only thing going on in the 30 years before 2008. In the former Eastern Bloc, the collapse of communism hit incomes of the poorest particularly hard. At the same time, Japan saw the bursting of its economic bubble. This dragged down overall income growth in the developed economies. The overall picture, then, is distorted by local single-country issues rather than global ones. Once you strip out Japan and the former communist countries, income growth in the rest of the developed world doesn’t look too bad.

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Almost all of the rapid income growth among the poor happened in China

This is the bit where I was half right. Incomes for almost all of China’s income distribution rose at a faster rate than that of most other parts of the world. If you control for population and remove Japan and the former communist countries, the elephant shape becomes less pronounced. Take out China and it disappears altogether.

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So when you control for population and take out China, the ex-communist countries and Japan, income growth in the rest of the world looks remarkable even. Apart from among the very poorest and the very richest, it’s been somewhere between 30 and 50 percent at each percentile.

There are a number of conclusions that we can draw from this:

Income growth is as much a function of local factors as global ones

The figures on the elephant chart were skewed by things that happened in specific countries, such as the fall of communism, Japan’s stagnation and China’s rapid rise. What happened in China or Japan isn’t typical of the rest of Asia and what has happened in Eastern Europe isn’t typical of the rest of Europe. We should not assume a rise of Asia and fall of Europe story from these figures. There are also, as the Resolution Foundation report points out, local factors at work in the US and UK. For example, rising housing costs are a something of a British idiosyncrasy but you can’t draw conclusions about income growth in the UK without taking them into account.

Globalisation is not to blame for the squeeze on middle-incomes in the developed world 

As the Resolution Foundation’s Torsten Bell explains:

If we then dig into the big variation between individual countries it becomes clear that even this weak income growth is not a universal feature of low and middle income people in developed countries, but instead driven by the experience of Japan (where the data appears to be plain wrong) and ex-Soviet satellite states (who faced big income falls as the Soviet Union collapsed). These income changes are important, but again tell us very little about income levels in Western economies.

It is true that the US has seen very poor income growth, with the rich benefiting the most from what limited growth there was. But that experience is to quite a degree one of US exceptionalism. Variation amongst the developed world should make us reluctant to accept that this is inevitable or simply driven by global forces.

The report is not suggesting that globalisation hasn’t brought challenges. It has clearly had a significant impact on employment in some industries but it is far from the only factor causing low income growth.

Which means that government policy matters

For the past quarter of a century we have been hearing about the Global Race in which lots of hard-working but low-paid Asians would take people’s jobs if they didn’t run fast enough, running fast being a metaphor for accepting longer hours, poorer working conditions and lower pay.

But, as Torsten says, “Weak income growth generally is rooted in domestic policy.” By and large, he says, rapidly rising housing costs and the collapse of a financial services industry which was a major part of our economy are to blame for the UK’s living standards squeeze.

He concludes:

For the future major benefit cuts for working families will dominate their living standards experience for the rest of this Parliament. Domestic policy matters. To fetishise globalisation as the cause of all our ills is to let too many domestic policy makers off the hook for decisions they make, for problems they leave unaddressed and for the lower incomes working people experience as a result.

For politicians shrug and say, ‘well that’s globalisation for you’ is not good enough.

The ‘triumph of neoliberalism’ is overstated

Neoliberalism isn’t a term I use very often as it is one that means a lot of different things to a lot of different people. However, every so often there is an article telling us that neoliberalism has ‘lifted millions out of poverty’. The problem with this is that most of those millions are in China so we could just as easily say that authoritarian state-capitalism has lifted millions out of poverty. Trying to generalise this success to a particular political or economic system misses the point. Trade liberalisation helped but the Chinese state organised itself to take full advantage. The reason rising incomes in China loom so large in the global statistics is because the country has one fifth of the world’s population.

So far the trick hasn’t been repeated by any other countries. The Resolution Foundation is not convinced that it will be.

We should note too that we cannot assume that historic trends will continue, something Milanovic himself warns us against. [57] Processes such as the o shoring of some manufacturing jobs from the UK or US to China may have already happened and be unrepeatable, and because of its remarkable growth China is no longer such a low paying nation. We do not know if India or sub-Saharan Africa will bene t from exporting, inward investment and rapid growth in the same way that China did, nor what impact global demographic trends will have. And new technologies may change the equation too, continuing to shift commerce into the digital realm while reducing the need for primary and manufacturing labour in both poorer and richer countries.

In other words, the phenomenal rise of China might be a one-off event brought about by a peculiar set of circumstances at a particular time. It doesn’t necessarily follow that other poorer countries will see similar income growth.

There is much more in this report, including some detailed discussion of UK incomes which needs a post all of its own. Altogether, though, if I had to sum up the report’s conclusions it is that the bogeyman of globalisation and its potential threat to our living standards has been exaggerated. Some of the causes of income stagnation and low wages in western countries are to be found much nearer home.

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Don’t write the left off yet

Does the left have a future?” asks John Harris, citing the changes in the nature of work (see previous post), political fragmentation and the rise of nationalists and the populist right as challenges to mainstream leftwing parties throughout the western world.

He says:

Labour is engulfed by the same crisis facing its sister parties in Europe. Political commentary tends to focus on politicians, and describe the world as if parties can be pulled here and there by the sheer will of powerful individuals. But Labour’s problems are systemic, rooted in the deepest structures of the economy and society. The left’s basic ideals of equality, solidarity and a protected public realm should be ageless. But everything on which it once built its strength has either disappeared, or is shrinking fast.

The western left faces three grave challenges, which strike at the heart of its historic sense of what it is and who it speaks for. First, traditional work – and the left’s sacred notion of “the worker” – is fading, as people struggle through a new era of temporary jobs and rising self-employment, which may soon be succeeded by a drastic new age of automation. Second, there is a new wave of opposition to globalisation, led by forces on the right, which emphasise place and belonging, and a mistrust of outsiders. And all the time, politics rapidly fragments, which leaves the idea that one single party or ideology can represent a majority of people looking like a relic. The 20th century, in other words, really is over. Whether the left can return to meaningful power in the 21st is a question currently surrounded by a profound sense of doubt.

It’s difficult to disagree with any of that. The Labour Party is in dire straits at the moment and many other social democratic parties are not faring that much better. But is the rise of populism in Europe only a problem for left-wing parties or could it present challenges for the mainstream right as well? And does the term ‘right-wing’ adequately describe Europe’s populist movements?

Let’s take the EU referendum as a starting point. It tends to be seen as a victory for the populist right but the Brexit vote is the most anti-business poll result we have had in Britain for over 40 years. No vote since the election of Harold Wilson in 1974 can have caused so much dismay in corporate boardrooms. Companies find themselves having to set aside money to do things they hadn’t expected, like changing their supply chains, relocating staff and trying to understand and anticipate the new  regulatory environment. Potentially being shut out of the single market, thereby losing access to customers and a ready supply of skilled workers, will severely hit their profits over the next few years. When it comes to sticking it to the bosses, then, the vote to leave the EU was the most anti-capitalist thing the British have done since they voted for nationalisation in the post-war period.

The Brexit vote was, at least in part, a re-assertion of old workerist ideas; protect the British worker from foreign competition, foreign workers and globalisation. It certainly wasn’t a vote for a smaller state. The sheer complexity of disentangling the UK from the EU and setting up new trade agreements will require an army of lawyers and civil servants. Even when these are in place, there will need to be a bureaucracy to maintain them. Immigration controls, too, need to be policed. The tougher they are, the more control will be needed.

There is a strong correlation between Brexit voting and authoritarian attitudes. Brexit voters tend to want harsher punishments and longer sentences, all of which implies more public spending, both to catch and punish the offenders. It is also likely that most are in favour of re-nationalising the public utilities.

Surveys of UKIP voters have found attitudes we usually associate with the right, like wanting tougher sentences and more discipline in schools, but also with the left, like support for re-nationalisation and the NHS, distrust of big business and the belief that wealth is not fairly distributed. As the British Social Attitudes Survey commented:

It seems that on this central issue of political debate in Britain, UKIP supporters are far from being on the right.

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Similar attitudes can be found in other populist movements in Europe and among Donald Trump’s supporters in the USA. A combination of economically left-wing and culturally right-wing views, diametrically opposed to the prevailing political climate over the past three decades during which, as Alan Wolfe said, “The right won the economic war and the left won the cultural war.”

The thing is, though, this is not a new kind of politics. It’s an old one. My grandfather, a former soldier, miner and trade union activist, would not have found any of this at all strange. He was a socialist who believed in workers’ rights, nationalisation and the welfare state, while having a low opinion of those who simply ‘shirked’ and a mistrust of foreigners that I would not describe as racist but more as a mild xenophobia. What he would have made of gay marriage is anybody’s guess. Such things were not discussed. But Grandad would have no truck with ‘blackshirts’ as he still called the far-right. No party led by former fascists and racist street fighters would ever have got his vote. Many people still hold this combination of left-wing economic views and right-wing social attitudes. No-one would have questioned Bob Crow’s credentials as a left-winger yet he was in favour of capital punishment.

As it pushed its socially liberal agenda forward, the Labour Party failed to take many of its voters with it. As it emphasised its social liberalism and toned down its socialist policies, many voters began to wonder whether it still represented them.

The only reason parties like the National Front and BNP made no headway was because, like my grandfather, most voters would have no truck with such people. Every so often, a party of the far-right would try to make itself ‘respectable’ by swapping boots for suits but no-one was fooled. Then along came UKIP, the first populist right-wing group not to be founded by former leaders of racist or fascist groups and one which didn’t go in for marches and violent confrontation. It started out as a party of the libertarian right and it still describes itself as such but these days there is almost nothing libertarian about it.

There were hoots of derision from the left when James Peterson, a UKIP candidate in South Wales, described himself as “very left-wing” and UKIP as “the truly left-wing party” but looking at its policies on the NHS, the minimum wage, workers rights and the scrapping of the bedroom tax, there is plenty there to attract traditional Labour voters. More importantly, the prevailing attitudes among its target voters suggest that the party may need to shift further to the left on economic issues. As the New Statesman said, the departure of Nigel Farage may open the way for Red UKIP, which could present a serious of a challenge to Labour in places like south Wales.

All good news for the Conservatives then? Well maybe not. Both our major political parties fused different and potentially contradictory sets of attitudes together in electoral coalitions that were remarkably long-lived. The Labour Party was an alliance between socialism and social liberal progressivism while the Conservative Party brought together traditionalism, social conservatism and free market economic liberalism. Just as Labour’s social progressives won out, so did the Conservatives’ free marketeers, in what David Goodhart called the triumph of the two liberalisms, the social liberalism of the left and the economic liberalism of the right. Some of the traditional conservative voters were not at all happy with the outcome of the liberalised world.

Ed West criticised the Tories for being right-wing about the wrong things:

What is it with the Conservatives? They seem to be Right-wing only where no one wants them to be Right-wing. Theirs is a conservatism that cares nothing about British sovereignty, marriage, natural justice, defending the borders, law and order or the armed forces, but that cares deeply about reducing the rights of British workers. Contrary to the idea banded about in the less thoughtful areas of political discourse, conservatism is not about protecting the rich: it is about creating an environment that is safe, sober, crime-free, respectful, educated, gentle and high in social capital and trust. In other words, about protecting the poor and weak. Until the Conservative Party realises this, they will continue to haemorrhage support.

Peter Hitchens thinks that Thatcherism ruined Britain and that “Neoliberal free market Thatcherism is the enemy of conservatism.” You’d be pushed to find many Conservatives who would criticise Margaret Thatcher quite so bluntly but many are uneasy about the way things have turned out. They would no doubt share his opinion that the Conservative Party let “the roar of commerce” blast away communities, Christianity, marriage and the family while doing “little or nothing to reverse the demoralization brought about in the 1960s”.

Some of these disgruntled Tories shared the concerns of socially conservative Labour voters and, like them, defected to UKIP.

John Harris fears the ascendency of a new right, epitomised by the Britannia Unchained authors Kwasi Kwarteng, Priti Patel, Dominic Raab, Chris Skidmore and Elizabeth Truss. But the populist right is a very different sort of right from that of Raab & Co. Most of those who voted Brexit would be unlikely to go for their vision of a deregulated and Uberised economy. After all, these are the politicians who called British workers lazy. That’s not likely to go down well on Teesside. They are, as Ed West might put it, the wrong sort of right. UKIP understands this, hence its emphasis on workers’ rights.

So, it seems, does Theresa May. As Chris Dillow said, her speech about workers being exploited by unscrupulous bosses, the unhealthy gap between employees’ and bosses’ pay, the clampdown on tax dodgers and the proposal to put workers on boards made her sound a bit like a Labour prime minister. Despite some pressure from employers, she plans to go ahead with the increases in the minimum wage. Appealing to both traditional Tories and many Labour voters, she has promised of a big reduction in immigration.

The Conservative Party, then, may look like a beneficiary of the post-Brexit policies but, like Labour, it has to manage its internal contradictions. A lot of its business supporters are even more worried about restrictions on immigration than they are about the minimum wage. And, while most are resigned to leaving the EU, they are aghast at the prospect of leaving the single market. It will be almost impossible to please everybody. At best, some Tory voters will be disappointed, at worst, all will be outraged.

Aside from the almost inevitable Tory troubles, there are other reasons why the left should not despair. Although Europe is experiencing a socially conservative populist backlash, studies of social attitudes in the UK suggest that things are moving in the opposite direction. We have now reached the point where the Labour social legislation of the 1960s has majority support. Most people are now OK with gay marriage and gender equality. Social conservatism is in a gradual decline, especially among younger voters. Even the death penalty no longer enjoys majority support.

At the same time, there is no appetite for the sort of state-shrinkage advocated by some on the right. There never has been. Public attitudes oscillate between wanting more taxation and spending and keeping it the same. At the moment, the pendulum seems to be swinging back towards higher spending.

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Chart by British Social Attitudes Survey

That UKIP is having to adopt more left-wing policies to steal Labour votes should also give some comfort to the left. The idea of a right-wing free-market government dismantling the state, ripping up regulation and shredding employment laws is a fantasy shared by left-wingers and the libertarian right but it’s not going to happen. In its report on post-Brexit Britain, Open Europe said that a bonfire of red-tape would be unlikely as it would not be ‘politically feasible’ to scrap all regulation currently associated with the EU. That’s another way of saying that the voters wouldn’t stand for it. Some regulations are actually quite popular.

All in all, then, there is still quite a lot of support for things that the left holds dear. The one area where the left is most out of step with public opinion is immigration. As a recent Migration Observatory report said, most people think immigration should be reduced.

screen-shot-2016-09-09-at-18-01-28Even so, as an Ipsos MORI survey found, although many people think immigration is a national problem, most don’t see it as an issue in their local area.

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It’s almost as though people think that, somewhere out there, there is a mass of migrants taking people’s jobs, scrounging benefits and putting pressure on public services, even though they haven’t actually witnessed such things themselves. There must, then, be some scope for the left to fight back even on its most vulnerable flank.

This is all a very long way of saying that I don’t believe the political, social and economic changes are as stacked against the left as John Harris does. He is right that the old parties of the mainstream left will have to change but so will those of the mainstream right. He is also right to point out that the response of left-wing parties and trade unions to changes in the labour market have been inadequate but the discussion of that will require a post of its own. But to suggest that the left is doomed because we are moving inexorably into some new right-wing zeitgeist seems a bit premature. A lot of what the left has stood for in the past is still quite popular with a lot of voters.

A decade ago, people were talking about the death of the Conservative Party. That seems absurd now. Likewise, it’s a bit soon to be talking about the death of the left. It, too, will make a comeback. At some point, something will emerge from the current chaos that is capable of winning an election and throwing what looks like an unassailable government out of office. It always does in the end.

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We are not all temps and freelancers yet

John Harris has written a long piece in the Guardian asking, “Does the left have a future?” It’s an excellent read and I will write a longer piece on it soon. But, on the subject of changes in the labour market, he said this:

One in seven Britons is now self-employed. In the US, Forbes magazine has predicted that by 2020, 50% of people will at least partly work on a freelance basis. In 2015, the Organisation for Economic Cooperation and Development reported that since 1995, “non-standard” jobs – which is to say, temporary, part-time or self-employed positions – accounted for the whole of net jobs growth in the UK since 1995.

While the first sentence is true, the rest of the paragraph is at best misleading and at worst total nonsense. It’s not the first time I have seen these factoids and it probably won’t be the last.

The “50% of Americans will be freelancers by 2020” meme just refuses to die, despite numerous stakes having been driven through its heart by US labour economists. Some of these large figures are based on a survey that used a very wide definition of gig economy workers, which included what we in the UK would call part-timers, temporary workers, agency workers and those on zero-hours contracts, and which was carried out in the depths of a recession when full-time jobs were at their lowest. As Bloomberg’s Justin Fox said, if you take out standard part-time workers, even the most generous definition of freelancers still only gets you to around one in five workers, down from a recession peak of just below 22 percent.

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Most of the US data show similar trends. The number of people with multiple jobs has fallen, as have the proportions of involuntary part-time workers, contract workers and workers in businesses with 1-4 employees. Compared to other developed economies, full-time employment in America is relatively high and, after falling during the recession, increased again as the economy recovered.

It is true that a survey by the Freelancers’ Union found that a third of Americans gain some of their income from doing some form of freelance work but that proportion hasn’t increased by much in recent years. Furthermore, the definition used was so broad that it included people whose income from freelancing wasn’t even enough to be taxable. In other words, it captured anyone who had done a bit of work in their spare time or sold a few things on eBay. Some people are using online platforms to supplement their income and this number will no doubt increase. But to suggest that this represents a major shift towards freelance work in the US labour market is something of an exaggeration.

If the statement about the US economy is misleading, the one about the UK is just plain wrong. Even so, like its American counterpart, it too crops up all over the place. Apparently, data from the OECD suggest that all the job growth in the UK over the past 20 years has been in non-standard work, meaning part-time, temporary or self-employment. But the only OECD data I could find, from this report in May 2015, say that there has been very little change in the proportion of non-standard workers in the UK. There has been an increase since the 1980s but almost none over the last twenty years.

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In fact, as Michael O’Connor pointed out, most of the change in employment since 1995 has come from full-time employee jobs.

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It is true that around half of the employment growth since the recession has been due to part-time and self-employment and that the growth in full-time employee jobs took much longer to get going. As a consequence the proportion of workers in full-time employee jobs has fallen slightly but it is still over 60 percent.

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 Source: ONS Employment Statistics, 17 August 2016.

Of those of us in work, then, 3 in 5 are in full-time employee jobs. That’s not to say there haven’t been shifts in the labour market that have made things difficult for some people. Even for those in full-time employment, job protection, from both unions and the law, isn’t as strong as it once was. There has also been a pay squeeze and an increase in low-paid zero hours work and self-employment. The job recovery in some parts of the country is still looking precarious.

Of course there have been changes in the labour market both here and in the USA but it is important to keep such things in perspective. If the number of freelancers in the US really were nearing 50 percent and if all the job growth in the UK really had been due to part-time and self-employment, both governments would be facing fiscal crises far worse than their current ones. These shifts in the nature of work present challenges for the left and for trade unions as well as for governments and for people trying to find secure work. There is no need to over-state the case with wild and spurious numbers though. Things are difficult enough as it is.

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Immigration and the ‘left behind’

Statsmeister Michael O’Connor produced this gem of a chart a few weeks ago, breaking down the post-recession employment recovery by region, type of employment and country of birth. It shows how much of the job growth outside London has come from self-employment, especially for those born in the UK. Even now, there are still fewer people in employee jobs in Yorkshire and Humberside than there were before the recession. Among the UK-born, there are fewer people in employee jobs in Yorkshire, the Midlands, Scotland and, most surprisingly, the South-East.

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Some of this might be due to demographic change. The population of working age UK-born has fallen in some areas. But that wouldn’t explain why there has also been a growth in self-employment among the UK-born. If it were simply a case of there being fewer of them, surely the number of self-employed would fall too.

Mobility, and the lack of it, provides some explanation for these patterns. In any society, people in their twenties and early thirties, without children, tend to be the most mobile. They are free to travel for work and happy to live in relatively basic accommodation. After all, it won’t be for long and the money and experience will set them up for a (hopefully) more stable future.

The effect of free movement of labour throughout the EU has been to gather all these people, across Europe, into a single labour pool. It is a pool in which British employers have found it easy to fish. With English being the most popular second language in Europe and wages in the UK being relatively high, it was inevitable that a lot of these people would be attracted to the UK. As a Centre for Population Change report published earlier this year showed, the proportion of people in their twenties and thirties is much higher among EU migrants than among the UK-born population

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These are the people who can move most freely across the continent, making them highly responsive to the demand for labour. (More on this in last week’s post.)

Many of the UK-born population find it difficult to do some of the jobs current filled by migrants. It’s not because they are lazy it is simply that the sort of flexibility the migrants provide, and employers have come to expect, is hard to maintain when you have a home and a family. As Sarah O’Connor said:

When people say “migrants are doing the jobs that Brits are too lazy to do”, they are missing the point. These jobs may be palatable if you are a single person who has come to the UK to earn money as a stepping stone to a better future. But if you live here permanently, have children here, claim benefits here, they are not jobs on which you can easily build a life.

James Gleeson produced an interesting chart earlier this week showing how the geographical centre of gravity for jobs has shifted further south over the past decade or so, while the people and, especially, the housing have lagged behind. (He explains the methodology behind it here.)

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To a certain extent, then, people are following the work but many are, for obvious reasons, staying where their families and accommodation are.

Recent research by the Joseph Rowntree Foundation suggests that there is a similar problem in microcosm in many of the large cities. The prosperity of the shiny new city centres in Manchester, Leeds and Birmingham does not flow to the areas round about. This doughnut problem sees unemployment and underemployment in the periphery of major cities existing alongside unfilled jobs in the city centres. A mixture of skills mismatches and poor transport disconnects suburbs and small towns from the employment opportunities in the cities close by.

Perhaps this explains some of the rise in self-employment among the UK born in the Midlands and North. In the absence of new local jobs, people have set up their own businesses. The trouble is, as Paul Nightingale and Alex Coad point out, a lot of these businesses are likely to be marginal, lacking the capacity even to provide a minimum wage income for their owners. The vast majority of businesses set up in recent years have turnover below the VAT threshold and the incomes of the self-employed have collapsed since the recession. Even so, subsistence-level self-employment is preferable to no employment at all.

This raises another question though. If we hadn’t had free movement of labour and a young mobile workforce on tap, would the labour shortage have forced employers to train more people and to move to areas where they could find workers? Might they have had to put a bit more effort into using the workers we already had available in the UK? Or might it simply be that, without the ready supply of migrant labour, a lot of the jobs and a lot of the companies that have appeared since the recession would simply not exist?

The end of free movement of labour probably won’t make us any the wiser. The effects will be dwarfed by the economic downturn. As Jonathan Portes notes, there are already signs that the weakening UK economy is making the country look less attractive to migrants. The Resolution Foundation points out that, even if annual migration is cut to below 100,000, any increase in wages brought about by the resulting labour shortage is likely to be cancelled out. The pay squeeze caused by the economic shock of Brexit will obliterate any gains.

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Their report showed that, while immigration does create some downward pressure on pay, it is nothing compared to the effects of an economic slowdown. Recessions hit people’s pay packets much harder than migrants do.

The next recovery will be different from the last one. Recessions and recoveries always are. Whether the absence of free movement of labour from the EU will make much difference to the overall pattern of job growth is difficult to say. Without concerted effort from government and employers on infrastructure, training and technology, it looks unlikely that much will change. Without that, Brexit or otherwise, the workless, the underemployed and those in precarious jobs probably won’t see much improvement.

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Are we prepared for post-Polish Britain?

The HR director at an organisation I worked with a few years ago, commenting on people’s refusal to engage with change until the last minute, said: “When a decision is announced in this place it’s a signal for the debate to start.”

I was reminded of this when I read Heather Rolfe’s report on employer responses to Brexit, in which a number of employers commented that there had been more workplace discussion of the referendum since it happened than there was before it:

While referendum discussions were described as fairly limited before the vote, levels of interest were considerably higher after June 23rd. The surprise of employers was shared by employees and accompanied by a good deal of informal discussion, often focused on free movement issues. The manager of a hotel chain described how this included ‘concern around whether the people are wanted in the UK’. Some respondents felt it was ironic that interest in the referendum and in the EU was higher in the aftermath of the vote. The HR director of a food manufacturer stated:

‘My disappointment from people generally is if there’d been that level of discussion and engagement prior to the Referendum… perhaps the outcome might have been different’.

The shock among the employers surveyed is a reflection of how dependent they are on workers from the EU. The possibility of a reduction in their labour supply fills them with horror.

For over a decade, the UK economy has been built on the assumption that there is a massive pool of flexible labour available. Free movement rules and geographical proximity mean that the EU migrant workforce is highly responsive to changes in the economy. People come and go according to how many jobs are available. As the ONS migration statistics show, migration from the EU tailed off during the recession and then picked up again as the economy recovered.

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At the same time, many of the EU migrants already here went home (or somewhere else) when the economy crashed and the work dried up.

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While these charts only cover migration of more than a year, we also know, thanks to Michael O’Connor and Jonathan Portes, that there is a considerable churn of short-term migrants from the EU. The difference between long-term migrants and the number of NI allocations shows that a lot of people come to the UK to work for short periods.

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Chart via Guardian

As the Resolution Foundation’s recent report on migration and the labour market showed, the employment rate among EU migrants has tended to be higher than for the UK born, and is especially high for those from eastern Europe. Furthermore, their employment rate recovered more quickly after the recession. This is due, in part, to their mobility. When there is more work, more of them come. When there is less work, fewer come and more leave.

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From an employer’s point of view this is great. There is a ready supply of labour, much of it highly qualified, that responds quickly to changes in demand. When you want more people they arrive. When you don’t need them any more they go home.

Around half of the net increase in employment since the recession has been due to EU migration.

Emp Chg country of birth Aug 2016

Source: ONS EMP06, 17 August 2016

It is disingenuous of politicians to boast about the ‘jobs miracle’ while, at the same time, demanding a reduction in immigration to under 100,000. Many of these jobs would probably not exist without the ready supply of EU migrants. As the Resolution Foundation research shows, entire sectors are now dependent on labour from the EU and it is unlikely that UK-born workers will take these jobs over should they leave.

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It is unlikely that native workers will totally fill the gap at current wage rates. Pay in these sectors averages £9.32 an hour, significantly below average native wages of £11.09. We know that lots of workers in these sectors are migrants from the EU ‘accession’ countries, whose average earnings are £8.33, £2.76 below that of natives. With employment at an all-time high it is unlikely that there are large numbers of natives either looking for work that will be attracted to these sectors given the low-wages on offer. Similarly these kind of wage rates are currently not sufficient to bring those not in the labour market into participation. It seems unlikely that the simple absence of migrants would be enough to change that situation.

Sarah O’Connor wrote about the potential impact of the end of free movement on the food industry:

Have you ever noticed how supermarkets run out of fruit salads on sunny days when everyone decides they fancy a picnic? No? That’s because they rarely do.

I never really thought about the mechanics behind this until I interviewed a man who supplied temp workers to a British company that made bagged salads and fruit pots. Demand would fluctuate according to the weather, but British weather is notoriously changeable and fresh products have a short shelf life. So the company would only finalise its order for the number of temps it required for the night shift at 4pm on the day. Workers on standby would receive text messages: “you’re on for tonight” or “you’re off”.

Most of this hyper-flexible workforce had come to the UK from Europe. “We wouldn’t eat without eastern Europeans,” the man from the temp agency said confidently.

And there are many good reasons why the locals won’t take over when they are gone.

[T]here are already plenty of jobs for British people. The proportion of UK nationals in work is at a near-record 74.4 per cent, higher than in 2004 when the “A8” eastern European countries joined the EU (which is when migration to the UK began to increase sharply). Torsten Bell, director of the Resolution Foundation think-tank, says the only significant pocket of unemployment left in Britain is among disabled people. “And we’re not about to send them out into the fields”.

There is also something about the nature of these jobs that makes them tough for UK nationals to do. These sectors usually require extreme flexibility from staff: the salad-baggers who wait for a text message to say they have work that night; the cleaners who cobble together piecemeal shifts at dusk and dawn; the fruit pickers living in caravans on farms.

When people say “migrants are doing the jobs that Brits are too lazy to do”, they are missing the point. These jobs may be palatable if you are a single person who has come to the UK to earn money as a stepping stone to a better future. But if you live here permanently, have children here, claim benefits here, they are not jobs on which you can easily build a life.

There you have it. British employers have access to a plentiful supply of Europe’s young, mobile and hyper-flexible employees. We have structured many sectors of our economy on the assumption that there will always be a steady stream of them.

Of course, the supply won’t disappear overnight. As the Social Market Foundation said, by the time we actually leave the EU, a majority of the EU migrants who are already here will have permanent residency rights.

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But, as the tap is turned off, the hyper flexibility will disappear. If, in future, EU citizens are subject to the same immigration rules as those from outside the EU, firms that have come to rely on that flexibility will struggle to find workers.

An optimistic view is that this may lead to more investment in technology and training as employers find ways to produce the same with fewer people. Last month, I went to a Resolution Foundation conference on robotics. (The accompanying report is here.) The combination of economists and robotics experts produced some fascinating discussion. One scenario had the post-Brexit labour shortage kick-starting massive investment in technology, with robots picking crops in the Lincolnshire fields and the UK becoming a world leader in artificial intelligence by 2030.

The trouble is, such a re-orientation of our economy would require a complete change in British corporate culture, much of which has been short-termist and reluctant to invest for several decades. The more troubling possibility is that the reduction in EU migration will simply lead to an increase in the number of illegal workers. Should that happen the enforcement agencies would struggle. As the Resolution Foundation warns, their resources are already stretched as it is:

[T]he three existing labour enforcement units have a combined staff of less than 350 – equivalent to one enforcement officer for every 20,000 working age migrants.

These agencies could be given responsibility for enforcing and policing any temporary workers schemes that might be set up in the future, but they are already stretched carrying out their current duties. If temporary labour migration is not to become illegal migration there would need to be significant investment in the future.

Cutting off or even significantly reducing migration from the EU will be a shock to an economy that has been built on the assumption of a plentiful on-tap supply labour. As Sarah said, we have come to take for granted much of the work that the migrants do. We will only really we’ll only really understand that when they have gone.

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