Underemployment: the UK’s response to economic weakness

Why is the UK suffering an underemployment crisis?

Despite the UK economy being in recession in the first quarter of 2012, unemployment fell by 45,000 (and youth unemployment was down by 18,000). This is very welcome news. Throughout the last four years of recession, hesitant recovery and return to recession the UK’s labour market has performed remarkably well. The fact that 2.63 million people are unemployed is terrible news, but, if the pattern of previous recessions had held, that number could have been closer to 3.5 million. It’s bad, but it could have been a lot worse.

Companies and workers have found two alternatives to mass redundancies: cuts in real pay and increased part-time working.

Pay has failed to keep pace with prices for much of the last four years and the latest figures show regular earnings (excluding bonuses) increased by just 1.6 per cent over the last year, compared to consumer price inflation of 3.5 per cent.

Meanwhile, the 105,000 increase in employment in the latest quarter was more than fully accounted for by part-time workers, while the number in full-time employment fell by 13,000. Looking at the numbers differently, 90,000 of the 105,000 increase in employment in the last quarter was due to an increase in self-employment.

These are not new trends; they have been evident throughout the recession and recovery. The following table shows the change in employment over the last four years (i.e. comparing the first quarter of 2008, just before the recession, with the first quarter of 2012).

 

 

Change in employment (000s)

Total employment

-277

 

 

Employees

-544

Self-employed

307

Unpaid and on government programmes

-40

 

 

Employment – full-time

-744

Employment – part-time

467

 

 

Employees – full-time

-792

Employees – part-time

248

 

 

Self-employed – full-time

44

Self-employed – part-time

263

 

In round numbers, over this period total employment in the UK has fallen by close to 300,000. But the number of full-time employees is down by 800,000, while the number of part-time employees and the number of part-time self-employed people are both up by about 250,000.

We know there are many reluctant part-time workers because the Office for National Statistics asks those who are working part-time if they would prefer to be working full-time and 1,418,000 are currently saying "yes" – the highest number since comparable records began in 1992 and an increase of 700,000 over the last four years. Unfortunately, the ONS does not ask the self-employed if they would rather be working as an employee – but it is a fair bet that some of the recent increase in self-employment reflects people who would rather not be self-employed but have set up their own businesses because they cannot find a company to employ them.

The headline unemployment figures do not tell the full story of the UK labour market during the recession and recovery. As well as a large increase in unemployment, there has been a large increase in underemployment – people working fewer hours than they would like.

This represents lost potential output to the UK economy, as well as lost income and lower living standards for those who find themselves underemployed, but it is far better for the economy in the long-run for people remain in work than for them to lose their jobs. Once people are out of work, there is a risk they lose touch with the labour market and find it impossible ever to get back into employment (as happened to thousands in the 1980s).

It is not clear, however, why underemployment is replacing unemployment as the response to economic weakness. There is no evidence of a renaissance in industrial relations at the whole economy level, but it seems that in many companies employers and workers are getting together to agree that more part-time working and cuts in real pay are preferable to lay-offs. You could say that some workers have decided that they are better off "all in it together" then seeing some of their number lose their jobs.

There is, however, one sense in which the increase in involuntary working is bad news, and that is for the outlook for employment once the economy does start to grow at a healthy pace. When this happens, before they start to recruit new workers, companies will want to bring back into use the underutilised resources represented by underemployment. Meanwhile, workers who are working part-time involuntarily will want to return to full-time employment before they see new colleagues alongside them. There is a limit to the ‘all in it together’ sentiment, which means it is not likely to extend to those unfortunate enough to be unemployed.

At a macro level, the result is likely to be something of a "jobless" recovery. Stronger output growth, when it eventually arrives, accompanied by modest increases in employment – and stubbornly high unemployment – while part-time working falls and full-time working increases.

Rita Manso, 26, part-time worker and student, serves cocktails. Part-time work in bars, shops and clerical positions has risen in the "jobless recovery". Photograph: Getty Images

Tony Dolphin is chief economist at IPPR

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David Davis interview: The next Conservative leader will be someone nobody expects

The man David Cameron beat on why we should bet on a surprise candidate and what the PM needs to do after the referendum. 

“I’m tired,” says David Davis when I greet him. The former Conservative leadership candidate is running on three hours’ sleep after a Question Time appearance the night before. He is cheered, however, by the coverage of his exchange with Ed Miliband. “Which country would it be be like?” the former Labour leader asked of a post-EU UK. “The country we’re going to be like is Great Britain,” the pro-Brexit Davis retorted

The 67-year-old Haltemprice and Howden MP is at Hull University to debate constituency neighbour Alan Johnson, the head of the Labour In campaign. “As far as you can tell, it’s near to a dead heat,” Davis said of the referendum. “I think the run of events will favour Brexit but if I had to bet your salary, I wouldn’t bet mine, I’d place it on a very narrow victory for Brexit.”

Most economists differ only on how much harm a Leave vote would do. Does Davis believe withdrawal is justified even if it reduces growth? “Well, I think that’s a hypothetical question based on something that’s not going to happen ... One of the arguments for Brexit is that it will actually improve our longer-run economic position. In the short-run, I think Stuart Rose, the head of Remain, had a point when he said there would be very small challenges. In a few years probably nothing.

“The most immediate thing would likely be wage increases at the bottom end, which is very important. The people in my view who suffer from the immigration issue are those at the bottom of society, the working poor, which is why I bridle when people ‘oh, it’s a racist issue’. It’s not, it’s about people’s lives.”

More than a decade has passed since David Cameron defeated Davis by 68-32 in the 2005 Conservative leadership contest. The referendum has pitted the two men against each other once more. I asked Davis whether he agreed with the prime minister’s former strategist, Steve Hilton, that Cameron would be a Brexiter were he not in No.10.

“I think it might be true, I think it might be. When you are in that position you’re surrounded by lot of people: there’s the political establishment, the Whitehall establishment, the business establishment, most of who, in economic parlance, have a ‘sunk cost’ in the current set-up. If changes they stand to lose things rather than gain things, or that’s how they see it.

“Take big business. Big business typically gets markets on the continent, maybe distribution networks, supply networks. They’re going to think they’re all at risk and they’re not going to see the big opportunities that exist in terms of new markets in Brazil, new markets in China and so on, they’re naturally very small-C Conservative. Whitehall the same but for different reasons. If you’re a fast-track civil servant probably part of your career will be through the Commission or maybe the end of your career. Certainly in the Foreign Office. When I ran the European Union department in the Foreign Office, everybody wanted a job on the continent somewhere. They were all slanted that way. If all your advice comes from people like that, that’s what happens.”

Davis told me that he did not believe a vote to Leave would force Cameron’s resignation. “If it’s Brexit and he is sensible and appoints somebody who is clearly not in his little group but who is well-equipped to run the Brexit negotiations and has basically got a free hand, there’s an argument to say stability at home is an important part of making it work.”

He added: “I think in some senses the narrow Remain is more difficult for him than the narrow Brexit. You may get resentment. It’s hard to make a call about people’s emotional judgements under those circumstances.”

As a former leadership frontrunner, Davis avoids easy predictions about the coming contest. Indeed, he believes the victor will be a candidate few expect. “If it’s in a couple of years that’s quite a long time. The half life of people’s memories in this business ... The truth of the matter is, we almost certainly don’t know who the next Tory leader is. The old story I tell is nobody saw Thatcher coming a year in advance, nobody saw Major coming a year in advance, nobody saw Hague coming a year in advance, nobody saw Cameron coming a year in advance.

“Why should we know two years in advance who it’s going to be? The odds are that it’ll be a Brexiter but it’s not impossible the other way.”

Does Davis, like many of his colleagues, believe that Boris Johnson is having a bad war? “The polls say no, the polls say his standing has gone up. That being said, he’s had few scrapes but then Boris always has scrapes. One of the natures of Boris is that he’s a little bit teflon.”

He added: “One thing about Boris is that he attracts the cameras and he attracts the crowds ... What he says when the crowd gets there almost doesn’t matter.”

Of Johnson’s comparison of the EU to Hitler, he said: “Well, if you read it it’s not quite as stern as the headline. It’s always a hazardous thing to do in politics. I think the point he was trying to make is that there’s a long-running set of serial attempts to try and unify Europe not always by what you might term civilised methods. It would be perfectly possible for a German audience to turn that argument on its head and say isn’t it better whether we do it this way.”

Davis rejected the view that George Osborne’s leadership hopes were over (“it’s never all over”) but added: “Under modern turbulent conditions, with pressure for austerity and so on, the simple truth is being a chancellor is quite a chancy business ... The kindest thing for Dave to do to George would be to move him on and give him a bit of time away from the dangerous front.”

He suggested that it was wrong to assume the leadership contest would be viewed through the prism of the EU. “In two years’ time this may all be wholly irrelevant - and probably will be. We’ll be on to some other big subject. It’’ll be terrorism or foreign wars or a world financial crash, which I think is on the cards.”

One of those spoken of as a dark horse candidate is Dominic Raab, the pro-Brexit justice minister and Davis’s former chief of staff. “You know what, if I want to kill somebody’s chances the thing I would do is talk them up right now, so forgive me if I pass on that question,” Davis diplomatically replied. “The reason people come out at the last minute in these battles is that if you come out early you acquire enemies and rivals. Talking someone up today is not a friendly thing to do.” But Davis went on to note: “They’re a few out there: you’ve got Priti [Patel], you’ve got Andrea [Leadsom]”.

Since resigning as shadow home secretary in 2008 in order to fight a by-election over the issue of 42-day detention, Davis has earned renown as one of parliament’s most redoubtable defenders of civil liberties. He was also, as he proudly reminded me, one of just two Tory MPs to originally vote against tax credit cuts (a record of rebellion that also includes tuition fees, capital gains tax, child benefit cuts, House of Lords reform, boundary changes and Syria).

Davis warned that that any attempt to withdraw the UK from the European Convention on Human Rights would be defeated by himself and “a dozen” other Conservatives (a group known as the “Runnymede Tories” after the meadow where Magna Carta was sealed).

“They’ve promised to consult on it [a British Bill of Rights], rather than bring it back. The reason they did that is because it’s incredibly difficult. They’ve got a conundrum: if they make it non-compliant with the ECHR, it won’t last and some of us will vote against it.

“If they make it compliant with the ECHR it is in essence a rebranding exercise, it’s not really a change. I’d go along with that ... But the idea of a significant change is very difficult to pull off. Dominic Raab, who is working on this, is a very clever man. I would say that, wouldn’t I? But I think even his brain will be tested by finding the eye of the needle to go through.”

Davis is hopeful of winning a case before the European Court of Justice challenging the legality of the bulk retention of communications data. “It’s a court case, court cases have a random element to them. But I think we’ve got a very strong case. It was quite funny theatre when the ECJ met in Luxembourg, an individual vs. 15 governments, very symbolic. But I didn’t think any of the governments made good arguments. I’m lucky I had a very good QC. Our argument was pretty simple: if you have bulk data collected universally you’ve absolutely got to have an incredibly independent and tough authority confirming this. I would be surprised if the ECJ doesn’t find in my favour and that will have big implications for the IP [Investigatory Powers] bill.”

Davis launched the legal challenge in collaboration with Labour’s deputy leader Tom Watson. He has also campaigned alongside Jeremy Corbyn, last year travelling to Washington D.C. with him to campaign successfully for the release of Shaker Aamer, the final Briton to be held in Guantanamo Bay.

“I like Jeremy,” Davis told me, “but the long and the short of it is that not having been on the frontbench at all shows. I’m not even sure that Jeremy wanted to win the thing. He’s never been at the Despatch Box. He’s up against a PM who’s pretty good at it and who’s been there for quite a long time. He’s playing out of his division at the moment. Now, he may get better. But he’s also got an incredibly schismatic party behind him, nearly all of his own MPs didn’t vote for him. We had a situation a bit like that with Iain Duncan Smith. Because we’re a party given to regicide he didn’t survive it. Because the Labour Party’s not so given to regicide and because he’d be re-elected under the system he can survive it.”

At the close of our conversation, I returned to the subject of the EU, asking Davis what Cameron needed to do to pacify his opponents in the event of a narrow Remain vote.

“He probably needs to open the government up a bit, bring in more people. He can’t take a vengeful attitude, it’s got to be a heal and mend process and that may involve bringing in some of the Brexiters into the system and perhaps recognising that, if it’s a very narrow outcome, half of the population are worried about our status. If I was his policy adviser I’d say it’s time to go back and have another go at reform.”

Davis believes that the UK should demand a “permanent opt-out” from EU laws “both because occasionally we’ll use it but also because it will make the [European] Commission more sensitive to the interests of individual member states. That’s the fundamental constitutional issue that I would go for.”

He ended with some rare praise for the man who denied him the crown.

“The thing about David Cameron, one of the great virtues of his premiership, is that he faces up to problems and deals with them. Sometimes he gets teased for doing too many U-turns - but that does at least indicate that he’s listening.”

George Eaton is political editor of the New Statesman.