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

Dan Kitwood/Getty
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I believe only Yvette Cooper has the breadth of support to beat Jeremy Corbyn

All the recent polling suggests Andy Burnham is losing more votes than anyone else to Jeremy Corbyn, says Diana Johnson MP.

Tom Blenkinsop MP on the New Statesman website today says he is giving his second preference to Andy Burnham as he thinks that Andy has the best chance of beating Jeremy.

This is on the basis that if Yvette goes out first all her second preferences will swing behind Andy, whereas if Andy goes out first then his second preferences, due to the broad alliance he has created behind his campaign, will all or largely switch to the other male candidate, Jeremy.

Let's take a deep breath and try and think through what will be the effect of preferential voting in the Labour leadership.

First of all, it is very difficult to know how second preferences will switch. From my telephone canvassing there is some rather interesting voting going on, but I don't accept that Tom’s analysis is correct. I have certainly picked up growing support for Yvette in recent weeks.

In fact you can argue the reverse of Tom’s analysis is true – Andy has moved further away from the centre and, as a result, his pitch to those like Tom who are supporting Liz first is now narrower. As a result, Yvette is more likely to pick up those second preferences.

Stats from the Yvette For Labour team show Yvette picking up the majority of second preferences from all candidates – from the Progress wing supporting Liz to the softer left fans of Jeremy – and Andy's supporters too. Their figures show many undecideds opting for Yvette as their first preference, as well as others choosing to switch their first preference to Yvette from one of the other candidates. It's for this reason I still believe only Yvette has the breadth of support to beat Jeremy and then to go on to win in 2020.

It's interesting that Andy has not been willing to make it clear that second preferences should go to Yvette or Liz. Yvette has been very clear that she would encourage second preferences to be for Andy or Liz.

Having watched Andy on Sky's Murnaghan show this morning, he categorically states that Labour will not get beyond first base with the electorate at a general election if we are not economically credible and that fundamentally Jeremy's economic plans do not add up. So, I am unsure why Andy is so unwilling to be clear on second preferences.

All the recent polling suggests Andy is losing more votes than anyone else to Jeremy. He trails fourth in London – where a huge proportion of our electorate is based.

So I would urge Tom to reflect more widely on who is best placed to provide the strongest opposition to the Tories, appeal to the widest group of voters and reach out to the communities we need to win back. I believe that this has to be Yvette.

The Newsnight focus group a few days ago showed that Yvette is best placed to win back those former Labour voters we will need in 2020.

Labour will pay a massive price if we ignore this.

Diana Johnson is the Labour MP for Hull North.