Sunday 21 September 2014

Sunday, September 21, 2014 Posted by Jake 3 comments Labels: , , , , , , , ,
Posted by Jake on Sunday, September 21, 2014 with 3 comments | Labels: , , , , , , , ,

It used to be the case that when unemployment fell wages rose. Bank of England figures show this has been true up to the last recession, but stopped being true since the recovery that started in 2013. According to Ben Broadbent, a deputy governor of the Bank of England, 

average pay growth [in 2014] is almost 2% points – more than four standard deviations – weaker than the 1993-2012 regression line (Chart 10)."

Statistically “four standard deviations” means this 2% deficit is extremely unlikely to be due to random chance. As James Bond, had his civil service career taken him into the Office of National Statistics, would have put it “four standard deviations is enemy action”.

So what is happening? A report by the think tank Centre For Cities, "Unequal opportunity: how jobs are changing in cities", provides some insight. While the number of both high pay and low pay jobs has been increasing, the number of mid pay jobs has been falling. A trend that has existed for decades:

The increase in 'high pay' has been faster than the increase in 'low pay'. Which is good nationally, but is not much comfort for those shifting down into low pay jobs.

The impact of this is different in cities across the country. In some places 'mid pay' jobs are mainly being replaced by 'high pay', while in others the jobs tend are moving into the 'low pay' category:
The overall impact of this can be seen in the graph below by the Inequality Briefing think tank, who commented: 

Middle-income earners are not getting their fair share of the proceeds of growth"The economy has grown by almost 50% since 1994, while ‘GDP per head’ – the value of the UK economy divided by the number of people living in the UK – has increased by nearly 40%. 

But over the past two decades ‘median incomes’ (‘those who are exactly in the middle of the income distribution - they earn more than the poorest half of the population but less than the richest half) have only risen by 20% - and have fallen dramatically since 2009, despite the economic recovery. This suggests that as the UK gets richer, it is mainly people at the top who are benefiting."

The types of jobs in an economy change all the time. This is generally a good thing. But all sorts of people find themselves on much lower pay for reasons outside their control.  "Self service" technologies have cut swathes of jobs from supermarkets to libraries to highstreet banks. The newspaper CityAM reported that "most bank branches could close over the next 10 to 20 years". Newly created high-pay jobs requiring new high-value skills tend not to go to middle aged redundant bank staff.

The Welfare State aims to provide a decent standard of living for everyone. When a politician offers to sacrifice the welfare state in return for lower taxes, think hard before you vote for them. You may not need high quality free health, education etc now. But you, or your children, or other people whose mid-pay jobs have evaporated, may need them in the future.



  1. Great article.

    Perhaps would be useful if the high pay/low pay/middle pay jobs had defined bands attached to them - although I appreciate that as time passes these bands change.

    Keep fighting the good fight!

  2. I think the flexibility of our labour market harms us more than capitalism's apologists care to admit. I've witnessed it firsthand. In 2008/2009, I was working for a company that had previously been performing well, but found itself on the rocks overnight because of the fallout from the Lehman Bros collapse and having a big chunk of its order book placed on hold while the pharmaceutical industry (for no good reason, as far as I could see) held its breath.

    In order to remain solvent, the firm had to shed nearly a fifth of its workforce. The bulk of those redundancies happened Stateside, but a lot were in Europe, too. Here's where out flexible labour market turns ugly. Out of all the European offices, the UK ones were amongst the best performers while Spain, the Netherlands and Belgium were objectively weaker. Unfortunately though, because it was much easier and cheaper to make British employees redundant, we bore the brunt of the them and our operations were cut back to the bone.

    Ah, you say, but once things picked up again the UK's flexible labour laws allowed you to recruit quickly and easily. On the face of it, that's true. Once the pharma industry finally woke up and said "oh shit, these drugs aren't going to develop themselves", we and most of our competitors went on a massive recruitment drive. The trouble is, while we'd lost about 150 jobs at levels ranging from entry level operations staff through project management and up to associate director level, almost all of the eighty or so new recruits were at the entry level i.e. the people we absolutely had to recruit because we needed them to be physically in the UK, doing the work at the coal face.

    What happened to the other 70, higher-paying jobs? Practically all of them were exported to countries with tougher labour laws that put employees in a stronger position. When they made most of our senior ops staff, PMs and project directors redundant, that work still had to be done and because in this day and age it's entirely possible to do that kind of work remotely, that's what happened. By the time we reached 2010, virtually all of our projects were being managed from the continent, in the very underperforming Belgian, Dutch, French and German offices that were spared the butcher's knife by virtue of their stronger labour laws.

    Labour laws as flexible as ours are ill-suited to this modern, connected age. They need to be toughened up as a priority, otherwise we'll just keep on exporting good, well-paid jobs every time the global economy contracts.

    1. Fascinating. A very good example of how the UK's hire & fire laws weaken our global competitiveness, not strengthen it.


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