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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Google’s tax worries, Oxford’s race dilemma and the left-wing case for leaving Europe

The truth is that many black students looking at the white, middle-class Oxford would justifiably conclude that they don’t belong.

As a Gmail user and a Google searcher, am I morally compromised by using the services of a serial tax avoider? Surely not. Google gets roughly 95 per cent of its revenues from advertising and much of that from clicks on the ads that surround its offerings. I have long observed a rule never to click on any of these, even when they advertise something that I need urgently. Instead, I check the seller’s website address and type it directly into my browser.

Taking full advantage of its services without contributing to its profits strikes me as a very good way of damaging the company. More problematic are pharmaceutical companies such as AstraZeneca (zero UK corporation tax in 2014) and GlaxoSmithKline (UK corporation tax undisclosed but it has subsidiaries in tax havens), which makes many prescription drugs and consumer products such as toothpaste – I chew it to stop me smoking. To boycott all such companies, as well as those that underpay their workers or pollute the planet, one would need, more or less, to drop out from the modern world. Consumer boycotts, though they have a certain feel-good factor, aren’t a substitute for electing governments that will make a concerted effort to tax and regulate big corporations.

 

After EU

David Cameron is finding it hard to get changes to EU rules that he can credibly present as concessions. But the talks that would follow a vote for Brexit would be a hundred times more difficult. Ministers would need to negotiate access to the single market, renegotiate trade deals with 60 other countries and make a deal on the status of Britons living in the EU, as well as EU citizens living here. All this would create immense uncertainty for a fragile economy.

With a current-account trade deficit of 4 per cent, the dangers of a run on sterling would be considerable. (This apocalyptic scenario is not mine; I draw on the wisdom of the Financial Times economics editor, Chris Giles.) But here’s the question. If the UK got into the same pickle as Greece – and George Osborne had to do a Norman Lamont, popping out of No 11 periodically to announce interest-rate rises – Jeremy Corbyn would walk the 2020 election. Should we lefties therefore vote Out?

 

University blues

Hardly a Sunday now passes without David Cameron announcing an “initiative”, either on TV or in the newspapers. The latest concerns the under-representation of black Britons at top universities, notably Oxford, which accepted just 27 black students in 2014 out of an intake of more than 2,500. As usual, Cameron’s proposed “action” is risibly inadequate: a requirement that universities publish “transparent” data on admissions and acceptances, much of which is already available, and a call for schools to teach “character”, whatever that means.

The truth is that many black students looking at the white, middle-class Oxford – with its disproportionate numbers from a handful of fee-charging schools, such as Eton – would justifiably conclude that they don’t belong. Cameron rules out quotas as “politically correct, contrived and unfair”. But quotas in some form may be what is needed if young people from poor white, as well as black, homes are ever to feel that they would be more than interlopers.

In the meantime, Cameron could tell elite universities to stop setting ever-higher barriers to entry. As well as demanding two A*s and an A at A-level, Oxford and Cambridge are introducing tests for “thinking skills” and subject-specific “aptitude”. Whatever the developers of such tests claim, it is possible to coach students for them. State schools don’t have the resources to do so or even to research the complex requirements of the various colleges and subjects. Oxbridge admissions tutors must know this but evidently they don’t care.

 

A fine balance

The latest government figures show that, despite the former education secretary Michael Gove introducing £60 fines for parents who take their children on term-time breaks, the days lost to unsanctioned holidays are up by 50 per cent to three million in four years. This was a predictable result. Previously, the sense of an obligation to respect the law and set their children an example of doing so persuaded most parents to confine absences to school holidays. Now a modest price has been placed on term-time holidays. Parents do the sums and note that they save far more than £60 on cheaper flights and hotels.

A similar outcome emerged in Israel when daycare centres introduced fines for parents who arrived late. Previously, most preferred to avoid the embarrassment of apologising to a carer and explaining why they had been delayed. Once it became just a monetary transaction, many more happily arrived late and paid the price.

 

Minority report

Here in Loughton, Essex, where I live quietly and unfashionably, we are dancing in the streets. Well, not quite, but perhaps we ought to be. According to an analysis by the Policy Exchange think tank, Loughton is the third most integrated community in England and Wales, just behind Sutton Coldfield in the West Midlands and Amersham, Buckinghamshire, but above 157 others that have significant minorities. We are well ahead of fashionable London boroughs such as Islington and Hackney, where residents obviously keep Muslims and eastern Europeans out of their vibrant dinner parties, whereas we have bearded imams, African chiefs in traditional dress and Romanian gypsies dropping in for tea all the time.

Again, not quite. I’m not sure that I have met that many non-indigenous folk around here, or even seen any, except in the local newsagents. Still, I am grateful to Policy Exchange for brushing up Loughton’s public image, which was in need of a facelift after the BNP won four seats on the council a few years ago and a TOWIE actor opened a shop on the high street.

Peter Wilby was editor of the Independent on Sunday from 1995 to 1996 and of the New Statesman from 1998 to 2005. He writes the weekly First Thoughts column for the NS.

This article first appeared in the 05 February 2015 issue of the New Statesman, Putin's war