Employment in today’s Britain

The government cites the strength of employment as evidence of its success. Yet the rest of the economy has been perilously weak. So what’s going on? Is employment really doing well, providing the springboard for recovery and growth; or is this just spin in the face of deeper failures and problems?

The headline from the new ONS employment statistics is that the number of people ‘employed’ in Britain is at a high of 29.7 million and “1.25 million new private sector jobs” have been created. Unemployment is coming down (blips aside) and is lower than in other European countries.

Technically accurate, these claims are misleadingly selective. Sleights of hand are the start: 378,000 of the ‘new’ private sector jobs are attributable to just reclassification and public sector jobs being contracted-out. This reduces the headline increase in employment to 852,000; but depends on when you measure from. Employment had begun to recover before the government came to power and taken from the election in 2010, not the low point, the increase in employment narrows to 556,000.  Whatever, employment has taken longer to recover than in any other post-war recession, only returning to 2008 levels in mid-2012.

Similarly, official unemployment has come down from a high of 8.4 per cent to 7.8 per cent – where it was in May 2010 – but has remained higher for longer than earlier recessions. And the nominally higher unemployment of Britain’s European peers is entirely down to methods of calculation and our displacement of unemployment into other benefits and categories. Substantive worklessness is significantly worse in Britain.

Employment Changes

Official employment is also amorphous. The 852,000 increase in the government’s preferred figures includes 40,000 more people on unemployment training schemes and 15,000 additional ‘unpaid family workers’. Another 357,000 are increases in part-time work; 108,000 increases temporary work; and 303,000 more people self-employed (albeit with some overlap). A large proportion, if not a majority, are those who can’t get the full-time work they otherwise want/need: de facto under-employment.

Stripped down, there are 243,000 more full-time permanent employees plus the equivalent of approximately 287,000 such jobs from everything else – not the headline figure but an increase nonetheless. But this is coming off the bottom and has been painfully slow for three years. Actual inroads into unemployment are small, with the official count expected to remain over two and a quarter million until at least 2017.  The majority of the new jobs are also at the low-wage, unskilled end of the spectrum and noticeably inferior to those being lost.

But regardless of lacklustre improvements, employment has proved more resilient than many expected.  Employers have instead put pressure on pay and hours. For five years earnings have increased less than inflation, with average pay falling 10 per cent in real terms (but with increases at the top and yet larger falls for the rest). Employers sustaining employment has not, however, been matched by an equivalent rebound in output and until it is the pressure on pay will continue.

The government can’t, however, take credit for any resilience. Its policies have undermined demand and confidence, exacerbated downward pressure on employment and incomes, and added to employers’ reluctance to take on staff or invest. Meanwhile tax cuts for larger companies and high earners have had no effect on employment, output or growth.

Employment Levels and Worklessness

All this, however, is just surface peaks and troughs in deeper changes in employment as Britain faces profound economic challenges. Key is the proportionate levels and quality of substantive employment and worklessness, taking in both supply and demand.

Numbers of people employed may now be higher, subject to all the caveats, but the proportion of workforce employed has yet to recover to 2008 levels. This is in turn part of on-going long-term decline in employment relative to those available and wanting to work.

Immigration and demographic changes are steadily increasing the workforce. Just for employment levels to tread water, employment needed to increase by 485,000 over the last five years. Meanwhile the proportion of the potential workforce wanting/needing to work has been increasing as more women enter the workforce and older people work later.

The proportion of 16-64 year olds in employment is remorselessly falling over time, going from comfortably over 80 per cent of the engaged workforce in the 1960s to 71.4 per cent today; a fall in proportionate employment of well over 4 million working people.

In parallel, increasing structural unemployment has taken ever deeper root, largely hidden in the statistical fudge of the ‘economically inactive’. This lumps together those discouraged from seeking work, the retired under 65, students, home parents, lone parents and those with disabilities and illnesses. A large and increasing proportion is in reality worklessness but disguised and displaced by (marginally) better benefits and official connivance. Far higher than Britain’s European peers, hidden unemployment is then compounded by the increasing under-employment and degrading job quality among the employed.

The implications are seen most clearly so far among men, particularly those aged 50-64. Official unemployment is 5 per cent but ‘employment’ has fallen from 90+ per cent in the 1970s to 67 per cent today. One in three is now out of work or ‘economically inactive’ – all but permanently for the majority. Under-employment among those employed has increased just as relentlessly and 24 per cent are now earning less than half their peak pay.

Employment levels for women have been generally increasing since the 1970s as more women joined the active workforce. Now back to their 2008 high of 67 per cent (men 76 per cent), these fell back less than men’s over the last five years. But women have experienced more under-employment trepidations of part-time work, self-employment, etc. The underlying trend continues to be more women needing and wanting work, outstripping demand; with unemployment and disguised worklessness among the ‘economically inactive’ now on a par with men’s.

As the footfalls of the future, however, younger employment is the greatest concern. Only 16.5 per cent of 18-24 year olds are in full-time permanent work (including self-employed) and another 31.5 per cent are in education or training. This leaves over half either otherwise unemployed (11 per cent), economically inactive (10 per cent) or materially under-employed (31 per cent).

Declining Wage Share

Meanwhile, the wage share – the share of production going to employees – has been falling steadily, going from circa 60 per cent of GDP until the 1970s to 52 per cent today. Of this shrinking share of the pie an ever greater proportion is going to those at the top, with the wage share for the majority falling even faster.

In parallel there has been an overall decline in the quality of employment in terms of security, rights, conditions and real pay for the same work.

Weakening Demand

Demand for labour has gone from sustaining high levels of employment following post-war recovery; this starting to falter in the 1970-80s, growing more slowly than supply but still relatively strong; then intermittent weak growth and stagnation that increasingly under-utilises the available supply; to today’s serious danger of long term decline.

Britain is now confronting on-going erosion of its economic strengths. Numerous countries have been catching-up from behind while others are doing more to move ahead. It has for decades under-invested nearly every key underpinning of economic performance and now has a less than favourable mix of weakening competitive capabilities and comparative advantages, pedestrian and poorly improving productivity, mediocre and degrading infrastructure, and structural economic imbalances.

High Work Taxes

Employment is also undermined by high work taxes. Accounting for 45 per cent of all tax receipts, work is taxed twice as heavily as any other type of earnings or facet of economic activity. Employment demand and incentives are directly reduced as are output, demand and growth more generally. High work taxes also put Britain at an increasing competitive disadvantage. Once tax rates, absolute pay/tax costs and productivity are factored in, it has among the highest, least sustainable work taxes in the world. And they weigh heavily against all activities with a work component, favouring rentier and financial over substantively productive activities.

The Crossroads

Britain remains a leading economy with comparatively high levels of employment and income but the noose has been tightening for decades. Unless the shortcomings are confronted, all that will be left is managing the decline in employment, falling real pay and increasing worklessness; or at least an increasingly two tier economy split between a shrinking minority doing well and an ever greater proportion with stagnating employment, skills, productivity and quality of work.

Skills Development

On the skills front Britain has been doing quite a lot. Numbers of graduates have doubled and educational attainment increased. But others are doing considerably more, with Britain slipping down the competitive rankings (but still doing respectably).

There is also serious misalignment between skills and demand – particularly in IT, science and engineering – with simultaneous skills bottlenecks and high graduate under-employment. And, critically, skills advances have been uneven. Skills at the top have been moving ahead but those in the middle treading water, hence falling back relative to competitors, and those at the bottom going in reverse.

Critical Demand and Policy

But the real problem is demand. Successive governments not just failed to help but often made matters worse.

The policy mindset since the 1980s is that the market will best provide, with the private sector driven forward by tax cuts, deregulation and flexible employment; and the public sector just an imposition to be begrudgingly paid for (if not privatised). Yet, even if this wasn’t based on flawed economics, the gravity of the market is now against private sector resurgence – more whether it can even hold its own. Equally, tax cuts for companies and the well-off simply don’t deliver the benefits their proponents claim.

Each recent economic cycle has in reality seen weaker investment, employment demand and growth in direct correlation with pursuing free market polices. Meanwhile what growth there is has come increasingly from greater short-term exploitation of markets, workers or assets and/or reliance on rentier activities, speculation and financial engineering.

While considerable, public expenditure leans heavily towards the only remotely economically enhancing (save generally supporting incomes and demand). Only 3.5 per cent is capital investment and far too little goes into the critical underpinnings of the economy. Yet to pay for public expenditure while cutting company taxes, employment has been taxed yet more; despite at prevailing rates etc. work taxes having greater negative economic and competitive impact.

Present government policies compound these failings. Precipitate public expenditure cuts have undermined demand, investment and confidence while eroding the economy’s ability to sustain and evolve its economic capabilities. And increasing taxes for the majority to fund tax cuts for companies and the well-off have yet again proved a poor bargain, with little to show for it.

Conclusion

Stripped of the illusory, any good news in the recent employment figures is little and late; and despite not because of government policies. Employment has, however, proved more resilient than expected but at the price of significant falls in real pay. The worst may be passed but future improvements are likely to be weak.

The deeper forces at work are increasingly perilous. Still reasonably high employment levels mask long term weakening employment and growing worklessness and under-employment. Pressures are increasing and, unchecked, condemn Britain to a two-tier employment economy, with declining levels of employment, comparative pay and quality of work as its capabilities and productivity are overtaken by others. Government policy has so far compounded rather than come to grips with the problems.

Sustaining high levels of quality employment is now Britain’s greatest challenge; the bedrock and raison d’être of all else economically. Essential cornerstones are:

• The enabled and enabling economy – private and public sectors working in partnership and more effectively to sustain and continuously evolve sufficient breadth and depth of economic capabilities.
• Economic development, investment and employment strategy – a clear strategic framework together with resources and delivery on the ground.
• Substantial reduction in employment taxes – mitigating economically pernicious impositions.
• Work development and skills alignment – joined-up policies linking skills development, work development and in-work capabilities enhancement.

These would be paid for by increased taxes on a combination of unearned income, company profits, capital gains, financial transactions or wealth/property as well as reprioritising public expenditure. Seeing behind the headlines to what’s really going on with employment in Britain is a start.