Wednesday, 25 February 2015

The disturbing rise in zero hours contracts

The Office for National Statistics (ONS) this morning published its latest estimates on zero hours contracts (contracts with no guaranteed hours). Responses to the Labour Force Survey (LFS) indicate that almost 700,000 people in the UK were employed on such a contract in the final quarter of 2014 (over 100,000 more than the year before). Responses to a separate business survey meanwhile finds organisations employed 1.8 million people on such contracts in August 2014, up from the previous estimate of 1.4 million for January 2014, though the increase could be due in part to seasonal factors. The LFS and business survey estimates aren’t directly comparable but in general terms the discrepancy between number of contracts and people employed on contracts is due to the fact that some people have more than one contract.

The latest estimates of the number of people employed on zero hours contracts is disturbing not only because the share of jobs without guaranteed hours of work is increasing (up from 1.9% of total employment to 2.3% in the year to Q1 2014) but also because we were told that the economic recovery was likely to see their use diminish. On the contrary, it looks as though zero hours contracts are becoming a more ingrained feature of the UK’s employment landscape, which is likely to buttress poor pay and working conditions in the lower reaches of the labour market. 

Although the ONS is uncertain how much of the 19% annual increase from 586,000 to 697,000 in the number of people employed on zero hours contracts is due to increased reporting by people previously unsure of how to define their contractual status, the big leap in public awareness of zero hours contracts was in 2012 and 2013 which suggests that most of the rise between 2013 and 2014 is probably due to a greater number being employed in this way. But any rise is disappointing given the expectation that a tightening labour market would diminish use of these contracts.

It can of course be argued that, despite the apparent increase, the share of zero hours contracts in total employment remains relatively small and that some people (especially students and older workers) like the flexibility they provide. What this ignores, however, is that the ability of employers to hire people in this way undermines the bargaining ability of other workers, thereby dampening pressure for improved pay and conditions at the bottom end of the labour market. The practice also undermines the spirit of the statutory National Minimum Wage, since although people employed on zero hours contracts are entitled to the minimum wage for the hours they work the lack of guaranteed hours is a source of income insecurity. Consequently, what appears to be a gradual structural shift toward use of zero hours contracts in our economy is therefore disturbing. 

Tuesday, 24 February 2015

When it comes to judging the Common Good at Work the Church should not rely on Living Wage alone

The Wages of Sin.  So read the front page splash on yesterday’s issue of The Sun newspaper whose reporters found the Church of England doesn’t always practice what it preaches when it comes to paying staff the hourly Living Wage. The headline is obviously a bit rich coming from a red top tabloid that for almost half a century has profited as a purveyor of insidious soft porn. But the story highlights one of many issues that stem from advocacy of this particular change in employer practice.

I have no problem whatsoever in church people calling for higher wages for the working poor. On the contrary, Catholic Social Teaching provides a central plank of my own personal ideology and I’ve always tried my best to apply such principles as the Common Good or The Just Wage whenever considering public policy issues. However, it’s important to put specific calls in their complete economic, social and moral context so as to avoid being tripped up by the law of unintended consequences.

It’s inevitable that some cash strapped church organisations will struggle to pay workers the Living Wage right away, despite the best of intentions. But more to the point before deciding if this is something they or similarly placed organisations in all sectors of the economy should be told to aspire to we need to know how they will foot the bill.

Although it’s often asserted that the Living Wage in effect pays for itself because the workers who benefit from it will somehow become more productive there is little or no evidence to support this. Ultimately therefore something has to give. The common implicit assumption is that the cost of paying the Living Wage is met out of organisational profit or surplus. If not, which is likely to be the case in organisations operating on very tight margins where low pay is most prevalent, the news is less good for workers. The outcome could be fewer jobs albeit research on the effects of big minimum wage hikes indicates that employers tend instead to cut hours of work or if possible trim other parts of the overall reward package. Either way, a substantial increase in the hourly pay rate runs a substantial risk of being offset by a reduction in workers weekly income, especially if the result is lower employment which leaves some people with no income at all.

Payment of the Living Wage is therefore only a very partial guide to whether a Living Wage employer is a ‘good employer’ or whether a general shift of employer practice in this direction furthers the Common Good. One can see why the Church of England and others wish to see better terms and conditions for working people but when it comes to the realm of work the test of the Common Good does not rest on the Living Wage alone.  

Wednesday, 18 February 2015

UK jobs recovery accelerates but underlying pay growth weakens

The Office for National Statistics (ONS) has this morning released the latest set of UK labour market data, mostly covering the three months October to December 2014.

The UK labour market recovery is continuing to bring good news to jobseekers but also continuing to disappoint wage earners.

The quarterly 103,000 rise in employment represents acceleration in the pace of job creation at the end of last year, helping to cut unemployment by 97,000 to a rate of 5.7%. With the number of people in work now close to 31 million the working age employment has risen to 73.2%, a joint record

But although the December bonus season pushed growth in total average weekly earnings above 2%, underlying pay pressure as measured by regular average weekly earnings (i.e. excluding bonuses and a better guide to the state of the labour market) fell slightly. Economy wide the underlying rate of growth of average earnings dipped from 1.8% to 1.7%. In the private sector the dip was from 2.2% to 2.1% and in the public sector from 0.8% to 0.6%. This suggests that the jobs rich economic recovery is still failing to boost labour productivity, which does not bode well for long-term improvement in UK living standards even if very low price inflation is at present helping to raise real incomes.

Monday, 2 February 2015

The odd politics of business

Politics is a funny old business. What used to be the populist wing of Britain’s Conservative Party, often appealing to the working and lower middle classes and now at the core of Ukip, don’t want David Cameron to remain as prime minister after the General Election on May 7. The former ultra Blairite wing of the Labour Party – as voiced by Messrs Mandelson, Hutton and Milburn – don’t appear to want Ed Miliband to become prime minister. And almost nobody wants Liberal Democrat Party leader Nick Clegg to be anywhere near the next prime minister, although he says he doesn’t mind who is prime minister as long as they give him an important job in the Cabinet.

Meanwhile the politics of business is itself becoming funnier as polling day approaches. All the main business lobby groups claim to be politically neutral but have a default bias toward centre right parties and only favour centre left parties that seek office by claiming to be business friendly. Sometimes the mask slips, as it did last week when the head of the Institute of Directors made clear that his nightmare scenario is a Labour led government in coalition with the Greens and SNP. Despite this the big corporations usually try to keep their heads down – realpolitik requiring them to be prepared for every political eventuality – albeit individual business figures, especially those who provide financial backing for one party or another, tend to come out in open support of those they favour.

Yesterday, however, saw an exception to the rule when Stefano Pessina, active chief executive of high street retailer Boots (‘the chemist’) told a leading Sunday newspaper that the Labour Party’s current policy agenda was “not helpful to business, not helpful for the country and in the end it probably won’t be helpful for them.” “If they acted as they speak”, Mr Pessina went on, “it would be a catastrophe.” If one were being generous it might be possible to view Mr Pessina’s comments as well intentioned advice to Mr Miliband to change his policy stance ahead of the Election so as to gain business support which might help win votes. But given that Mr Pessina does not criticise any specific Labour Party policy, nor offer Mr Miliband a clear new prescription (no joke intended!) it’s hard to interpret the comments as anything other than an attempt to undermine Labour's chances at the ballot box. Indeed Conservative figures immediately took advantage of the situation by branding Labour the 'anti-business party', and there is talk of other top business leaders also preparing to put the boot in. 

This is interesting in part because it appears that Mr Pessina is using a position of potential influence to attempt to exert political influence regardless of what might or might not be the views of the various stakeholders in his business. Should we view the comments of a boss who neither lives or pays tax in Britain as representative of Boots employees or customers, as if to suggest that the next time we pop into one of Mr Pessina’s stores to purchase a seasonal flu remedy this might come with additional medicine to treat this or that public policy ailment. But more important is the widespread response to Mr Pessina’s words which seems to be that they must be sensible simple because he is an important business figure.

Mr Pessina is presumably very good at this job, as presumably are others in similar positions. But this does not necessarily make him an expert on public policy or well informed about the evidence upon which good policy is best based. The likelihood is that Mr Pessina’s view, and that of other business people and their representative bodies, is a reflection of vested interest, even if also based in part on a mix of personal experience, personal ideology, or evidence. Such views deserve to be given no more or less weight than those of any other vested interest, including trade unionists, environmentalists or church leaders who may well be equally vociferous in the coming months, and insofar as they are listened to should always be subject to the acid test of hard evidence to support them.

Political debate is all too often conducted as if the only economically sound policy mix is that deemed to be business friendly, on the unwritten assumption that this always equates with what is in the national interest or that most likely to maximise the common good. It might be at times but experience suggests that this is rarely the case, as is likely to hold true for any policy mix designed to pander too heavily toward one vested interest or another.

Seldom in British history have successive governments, centre right and centre left, been more business friendly than those in office in the past three and a half decades. The resulting predominant policy mix has been one of extremely light business regulation, with taxation kept low enough to just about fund the key public infrastructure firms need to underpin the profit making process. Has this helped make our economy more stable or productive, our society happier and less unequal? It’s up to each of us as individuals to decide how to answer these questions, which should at the top of our shared policy objectives. But at the very least, when it comes to assessing how beneficial uncritical acceptance of the odd politics of business is to the common good of British society the jury must surely be out.                   

Monday, 26 January 2015

Why talk of The Living Wage both helps and hinders policy debate on low pay

The Living Wage is all the rage but mostly honoured in the breach. Around 1 in 5 UK employees (5 million people) at present earn less than the rate of pay its reckoned an individual needs to cover the basic cost of living – currently estimated at £7.85 per hour (£9.15 in London where living costs are higher) roughly a fifth more than the statutory hourly National Minimum Wage (NMW) of £6.50. As of yet, however, only around 1,000 organisations (that’s less than 1% of employers) have voluntarily signed up to be accredited as Living Wage Employers, benefitting less than 0.2% (35,000)  of employees.

Not surprisingly therefore campaigners want many more employers to voluntarily pay their lowest paid staff at least the Living Wage and are increasingly supported in their efforts by politicians across the political spectrum. Last week Prime Minister, David Cameron, encouraged employers who can afford it to pay the living rate and if we ever get the much pondered televised Leaders’ debates ahead of the UK General Election in May politicians of every stripe will doubtless join him in calling upon bosses to do the decent thing.

The Living Wage campaign is laudable - aside from any success in raising hourly wages it helps focus public attention on the related problems of low pay and in-work poverty. But Living Wage rhetoric also has a tendency to mislead or oversimplify policy debate on these problems, with the public hoodwinked into thinking that positive talk about the Living Wage necessarily implies we are about to see a big hike in the NMW, which would guarantee a pay rise for at least 1.2 million employees.  It’s thus helpful to consider the Living Wage in its proper economic and policy context.

Advocacy of the Living Wage, which has echoes of the concept of the Just Wage often discussed within the realm of Catholic Social Teaching, sits within a long tradition of what one might call ‘real world economics’ that parallels orthodox labour market theory.

Orthodoxy concludes that absolute and relative rates of pay are determined by the interaction of supply and demand for labour of given productivity, the observed outcome reflecting the market rate or value of that labour. There is no reason to assume that workers whose productivity places them toward the bottom of the resulting pay structure will earn more or less than what is deemed the Living Wage, nor any reason why a profit maximising employer should pay more than the market rate. Affordability is relevant only insofar as an employer must be able to meet at least the market rate since otherwise employees will go to work elsewhere. The corollary is that competition between employers ensures that the pay of workers of given productivity will always be tending toward being the same across all employers of all types, size and profitability, certainly within local labour markets and, if market conditions are sufficiently fluid, across regions and nations too.

The real world view, by contrast, is that pay rates for workers of seemingly similar productivity are often found to differ across employers, even within local labour markets. Although this can be interpreted within the orthodox framework – for example, individuals who to all intents and purposes look the same in terms of skill or experience as co-workers who are paid differently might differ in terms of personal drive or ability which affects their market value – it is normally taken to suggest that there is an element of indeterminacy in pay setting. In other words, when it comes to pay, who you work for can, at least to some degree, matter as well as how productive you are.

Such indeterminacy is sometimes explained by the relative product market power or success of some employers, which enables them to pay ‘over the odds’, sometimes by their bargaining power relative to their workers which enables them to pay ‘under the odds’, sometimes simply because they are either ‘good employers’ or ‘bad employers’. But whatever the explanation, the possibility of employer discretion in pay setting opens up the potential to make efforts to change employer behaviour.

For example, where some low paid workers are thought to lose out because less powerful than their bosses the state can step in by setting a minimum wage to even things up, as we do in the UK with the NMW. But the minimum wage confronts the problem that some workers really are of low market value, in which case requiring employers to pay too much more will mean fewer workers are hired. This explains why the independent Low Pay Commission normally exercises a degree of caution when advising government on raising the NMW, leaving the minimum well below the estimated Living Wage. In this situation the only way to further raise the pay of workers of low market value – other than increase their productivity by way of education or training – is to encourage those employers who can afford it to pay over the odds, thereby providing the impetus for Living Wage campaigns.
The trouble is that ‘affordability’ is a vague concept and is just as likely to be deployed by employers as justification for maintaining the status quo as for signing the Living Wage pledge.  This is precisely why even the best run campaign faces an uphill struggle to attract more than a minority of private sector employers to the cause (many of those in the initial crop of signed up employers being charitable, faith based, not-for-profit and public sector organisations). Indeed, what’s normally presented as the business case for the Living Wage – enhanced corporate reputation and a positive employer brand that aids recruitment and lowers costly staff turnover - implicitly assumes limited adherence. If all employers were Living Wage employers any relative competitive advantage would disappear.   

Consequently, although emphasis on the Living Wage adds a useful dimension to debate on low pay one should not exaggerate its role in tackling the problem. By far the most important element is and will continue to be the level of the NMW, which the economic consensus suggests could be significantly higher than the current rate without cost to jobs albeit remaining below the estimated Living Wage. Whenever politicians talk about the Living Wage what they should really be quizzed on therefore is what they intend to do about the NMW.

If a higher NMW is still considered inadequate to provide a de-facto Living Wage or income the only efficient market based solution is to increase the productivity of those workers – thereby raising their market value – the only alternative policy option being to use the tax or benefit system to top-up earnings so that the incomes of the low paid reach a minimum accepted level. In this context the principal focus of political debate should be on the relative balance of the NMW and fiscal top-ups in the policy mix, in particular to ensure that top-ups do not act as an excessive subsidy to low wage employers. Living Wage campaigns, supported by government, including adherence in all public sector bodies, should continue in tandem with this policy but as a valuable adjunct rather than the key component.   

This policy mix undoubtedly may seem rather mundane to those excited by the current widespread Living Wage rhetoric. But far better to focus on this - especially the level of the statutory NMW - than pin hope on unrealistic goals or the goodwill of a tiny minority of employers.  

Wednesday, 21 January 2015

Overall pace of UK labour market recovery slows but vacancies reach new record level, giving a further lift to real wages, while rise in number of people economically inactive helps lower jobless rate to 5.8% despite worrying increase in youth unemployment

The Office for National Statistics (ONS) has this morning released the latest set of UK labour market data, mostly covering the three months September to November 2014.

These latest figures paint a mixed picture of the state of the UK labour market toward the end of last year. There was a clear slowing in the overall pace of job creation – the quarterly increase of 37,000 (to 30.80 million) being the smallest since spring 2013, leaving the UK employment rate unchanged at 73.0%. Similarly the quarterly fall of 58,000 in the number of people unemployed (to 1.91 million) is the smallest since late summer 2013. However, despite this slower pace of recovery a sharp quarterly increase of 66,000 in the number of people of working age who are economically inactive – i.e. outside the labour market – helped lower the unemployment rate to a six year low of 5.8%.

Full-time employees account for the entire quarterly net increase in employment, the number of people self-employed and/or working part-time having fallen slightly. There was also a fall in the number of temporary employees while the number of people working part-time because unable to find a full-time job remains on the recent downward trend to stand at 1.32 million. The level of long-term unemployment has fallen again (down 53,000 to 658,000) though youth unemployment (16-24 year olds unemployed and actively seeking work) is up 30,000 to 764,000, the number of 16-24 year olds in work dropping by 84,000.    

The most encouraging news in the latest quarterly figures is a rise of 19,000 in the number of job vacancies to a new record level of 700,000. This indicates a modest ongoing tightening of conditions in the labour market which underpins a continued increase in pay growth and a further improvement in real weekly earnings, with regular weekly pay growth of 1.8% far outstripping the CPI rate of price inflation.

As for what these figures suggest for the labour market in 2015, the message is broadly in line with expectations at the start of the year – continued improvement but at a slower pace than in the past two years and with no sign of a worrying rise in pay pressure even though low price inflation is helping to boost real wages. However, the apparent quarterly deterioration in the position of young people in the labour market is of concern and if it continues may well feature as an important issue in pre General Election campaigning.          

Monday, 19 January 2015

Talk of ‘full employment’ rings hollow in Britain’s Dorian Gray economy

With the latest monthly official UK labour market statistics due out on Wednesday this will be one of four weeks between now and the General Election is which jobs are likely to be particularly prominent in political debate. The Prime Minister, David Cameron, is due to kick things off later today in a speech setting ‘full employment’ as a policy goal, with a pledge to propel the UK employment rate – the proportion of people of working age in a job – to the very top of the developed economy league table, ahead of the likes of Germany which currently enjoys an employment rate of 74%.  

Mr Cameron is understandably keen to make much of the remarkably strong employment growth enjoyed in the past two and a half years, though as I have noted before in this blog it’s difficult to attribute this outcome to any specific policy measures introduced by the Conservative- Liberal Democrat coalition government since 2010.

The scale of job losses across both the public and private sectors resulting from fiscal austerity has turned out to be roughly what I expected following Chancellor of the Exchequer George Osborne’s first budget. What I hadn’t expected was the speed of offsetting job gains – I knew new jobs would come but thought this would take longer on the assumption that the rate of growth in labour productivity would remain close to its long-run trend. But as we now know the labour market response to deficient aggregate demand was most unusual. Pay took far more of the strain of adjustment, resulting in a prolonged productivity slump, while there was also an exceptional surge in the number of people becoming self-employed and working on very low average incomes.

Insofar as the pay squeeze and rise in self-employment is the consequence of policy effects the cause has been flexible labour market measures implemented by successive governments over the past three decades. The only policy introduced by the Conservative-Liberal Democrat coalition I think might eventually be found to have been significant is the watering down of employee rights against unfair dismissal which took effect in 2012. This was overseen by the Lib Dem Business Secretary, Vince Cable, somewhat ironically given that Dr Cable is currently talking up his worker friendly credentials with an eye to what the post-Election parliamentary configuration might bring. By making it easier to fire employees, Cable’s reform may have encouraged increased hiring during the economic upswing that began in 2013, albeit sowing the seeds of a sharp firing spree were we to see another serious downturn.

Either way, good news on jobs has been enough for some to start speculating on when the economy might reach a state of full employment – hence the Prime Minister’s bullish speech today. At a superficial level one can see why. For example, at present I expect the working age UK employment rate to reach a new record high (on current measurement) of above 73.5% at some point this year, bringing Mr Cameron’s aim clearly into view. I also expect unemployment to fall back to or below the pre-recession rate of 5.2%. However, I would not consider this as anything more than a partial step toward full-employment.

Although a 5.2% unemployment rate is in line with many estimates of the long run sustainable rate, still very muted wage pressure as unemployment has fallen rapidly to the current rate (6%) suggests that the jobless total might now be able to fall well below 5% before threatening the government’s 2% CPI inflation target. I therefore conclude that the UK will remain far short of full employment for some time yet.

Moreover, even a new record high employment rate would at present occur in a labour market characterised by a relatively high rate of underemployment, a still high youth unemployment rate, an unemployment pool with over 1 in 3 people long-term unemployed, around 2 million economically inactive people expressing a desire for work, and a large segment of the workforce employed in low productivity jobs paid at or close to the National Minimum Wage. This does not constitute a state of ‘full employment’ in any genuine sense of the concept.

On the contrary, what we currently have is a labour intensive UK economy with endemically slow growth in both productivity and pay combined with deeply ingrained pay inequality. This is in other words a Dorian Gray economy, the admired façade of seemingly approaching full employment hiding a far from perfect reality. In an economy where poverty pay and use of zero hours contracts is rife, talk of ‘full employment’ rings hollow. For all the good news on jobs, the focus of policy debate in the coming weeks should be firmly on the reality rather than the façade.