From the TUC

Tracking The Labour Market Recovery

05 Oct 2015, by in Labour market

Developing better economic and employment policies for the future depends critically on distinguishing between changes that are temporary and cyclical and those which are long term and structural. In a recent report for the TUC, Tracking the Labour Market Recovery, we tried to do exactly that by comparing the current labour market recovery with the previous recovery from the 1990s recession.

All recessions destroy huge numbers of full time and permanent jobs and all recoveries put them back and the periods of 1990-1997 and 2008-2015 are no exception.  That is the why the share of permanent employees in the total workforce has not greatly changed since the mid 1990s.

The big difference was that we lost far fewer jobs in 2008-2010 than we did in 1990-1993, mainly because more employers were able to cut wages rather than make redundancies. This is a significant and major change – but it came at a price. The growth rate of jobs after 2010 has been similar to that after 1993, but only because productivity growth was virtually non-existent between 2010 and 2015.

Under-employment measured by the share of people in part time work because they could not get a full time job is cyclical – but in the post 2010 recovery it went much higher than in the 1990s and has yet to return to its pre-recession rate.

Flexible employment grew in both periods but it has taken different forms. Between 1990 and 1997 there was a big increase in temporary jobs and between 2008 and 2015 there was an equally big rise in self-employment. The rise in temporary work was not sustained, and temporary work in the UK is cyclical. Self-employment went up because fewer people than usual left rather than more people entering, and the share has started to fall over the past twelve months. So it is quite possible that the share of self-employment will continue to gradually contract.

But the underlying growth of zero hours contracts (albeit we do not know for certain by how much)  since 2008 looks structural – a shift towards casualised employment that was not picked up by the conventional labels of permanent and temporary work. Indeed, most people on zero hours contracts say they were in permanent employment.

Higher skill jobs have grown somewhat more strongly than in the 1990s in percentage terms and this translates into much bigger absolute gains because the base is much bigger in 2010 than it was in 1993. But we have also seen significant job growth in some low pay sectors in both periods – indeed, with the major exception of retailing, job growth in low pay sectors such as care and hospitality has been faster than in the 1990s.  Both are driven by structural changes that look set to stay.

One structural feature of the labour market that has remained unchanged comparing the two periods is the persistence of low pay jobs – around 20 per cent using the OECD definition.  However, in more recent years at least some of the low pay problem has gravitated to self-employment. We have seen an explosive growth in self-employment in building services (mainly cleaning and security) since 2010 with many more people in low income, low skill, and part-time self-employment.

What then are the policy implications of the analysis? The first is that the goal of full employment is within our grasp – indeed, it is hard to think of a more favourable macro-economic environment with unemployment already close to 5.5 per cent and not a hint of wage led inflation.

Sustaining economic growth, especially in the face of uncertainty about the international situation remains a necessary pre-condition. But as unemployment falls, the nature of the problem becomes increasingly structural – people without the right skills, experience, or qualifications; those who face multiple barriers to employment; and those who live in areas that the economic recovery has by-passed.  Tackling these structural challenges implies large scale investment in effective and high quality labour market programmes and the Chancellor making good on promises to rebalance the economy so that all areas of the UK can share in the benefits of economic growth.

The second area is pay and productivity. Since the report was written, there are welcome signs that pay and productivity in the private sector are both picking up – this must be sustained by ensuring the economy continues to grow. The OECD’s recent economic assessment of the UK suggests a number of measures to strengthen the UK’s knowledge base which need to be reflected in the Autumn Spending Review.

But a significant gap is now opening up with pay in the public sector which in a competitive labour market is unsustainable.  Moreover, a recent CIPD report suggested that nearly 40 per cent of public sector organisations simply do not have the finance or skills to make the investment and productivity improvements they think are needed, compared with just 14 per cent in the private sector.

But there remain major long term challenges which the disappointing Budget report on productivity did not sufficiently address. Firstly, we need a focus on improving workplace productivity, building on the recent ACAS report which identified seven principles that employers and unions should adopt. The Scottish Government has recently introduced some initiatives, notably the Fair Work Convention, which also seeks to improve workplace performance.  Secondly, there has to be a major focus on productivity progression in the low pay industries so we can take full advantage of the introduction of the National Living Wage to improve both workplace efficiency and job quality.

Lastly, we do not understand sufficiently well what is happening on the edges of the labour market with the spread of zero hours contracts and low income low skill self-employment. Since the report has been written, new concerns have emerged over the implications of the business and employment models used by digital platforms that make up the “gig economy”.  The implications of these developments for work are a the subject of current work by The Work Foundation.