Work and Pay

The labour market is failing too many people

  • Published: Nov 28, 2014
  • Author: Adam Tinson
  • Category: Work and Pay

On the many of the headline figures, the labour market has turned the corner. Employment is up and all three components of underemployment are falling, as is long-term unemployment. And these are happening ahead of schedule - unemployment stood at 6.4% in the second quarter, something that the OBR predicted back in December would not happen until 2016-17. Although these indicators are now heading in the right direction, there are other problems. One which has been well publicised are falling real wages, which remain below their 2008 level. Last week’s provisional data on pay for 2014 confirmed this decline. Real self-employment incomes have fallen even more quickly, a fall that has coincided with a large growth in self-employment.

Regardless of the direction of some of these trends, there is plenty of evidence of a labour market that does not work for everyone. Our research, published this week by the Joseph Rowntree Foundation, examines these trends in detail. Some minority ethnic groups and young adults have substantially higher unemployment rates than average. Contracts which do not guarantee a minimum number of hours (such as zero hours contracts) are heavily concentrated in industries which have low average pay, such as hospitality and retail. Potentially unreliable working hours and low rates of pay are a poor combination for a family trying to stay above the poverty line.

Another dimension is that those unemployed a year ago but who are now in work are more likely to be low paid than not, as indicated by the graph. The same also goes for those who were in full-time education 12 months ago.  

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Many of these problems existed before the recession. Even during the strongest years of the labour market in the early to mid-2000s, unemployment for young adults was almost three times higher than for older adults. Those minority ethnic groups that saw the largest increases in unemployment during the recession had the highest unemployment rates before the recession as well.

This is not to say that a return to a buoyant labour market will not help these problems. In fact, it may be the best way for some. Plentiful job openings mean more choice for workers (provided they have the necessary skills) and more choice means a better chance of bargaining for a pay rise or guaranteed minimum hours. The first principle for improving the prospects of the poor in the labour market should therefore be ‘do no harm’ – for example, maintaining low interest rates for as long as possible.

As for the problems that were there before the recession, there may need to be more fundamental changes. For example, the Institute for Public Policy Research (IPPR) argues that compared with other European countries, the UK has little in the way of systems for the transition for young people from education to work, making the labour market less youth-friendly.

The labour market’s performance has exceeded expectations over the last few years. But it has still not returned to where it was before the recession. And for many, where it was before the recession was not good enough.


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