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21 January 2015

More new jobs, but they’re not as good as the old ones

The fundamental labour market problems behind the latest fall in unemployment.

By Spencer Thompson

There was more good news in today’s labour market statistics. While growth in the employment rate appears to be tailing off, the headline rate of unemployment fell to 5.8 per cent in the latest three months of data, the first time it has been below 6 per cent since 2008.

In addition, some of the rapid increases in forms of employment other than as a full-time employee seen over recent years have started to roll back; the number of self-employed workers, temporary and part-time employees all fell on the quarter, although their levels are still higher than a year ago. And average earnings growth continues to outstrip inflation. While some worry that the current low rate of inflation may feed through into weak employee pay deals, if unemployment continues to fall workers’ bargaining power may strengthen, dampening the impact of low inflation on pay.

But what we don’t see in these statistics is the deeper, structural changes to the kinds of jobs that UK workers do. The new research by Craig Holmes of Oxford University, featured in Tuesday’s Financial Times, reveals that in the years leading up to the recession a fundamental restructuring of the UK labour market took place.

Because of a combination of globalisation and advances in technology, many well-paid, middle-skilled manufacturing, secretarial and administrative jobs have either been off-shored to other countries or easily replicated by computers and machinery. While in many European countries these jobs have been replaced by higher-skilled roles, the UK has followed a different pattern from our neighbours, with greater growth in low-paying, low-skilled jobs than at the top end of the labour market. There are many reasons to be concerned by this. The proliferation of low-skilled, low-pay jobs obviously puts pressure on individual and family living standards, leading to persistently high rates of low pay and working poverty.

But another important consideration is how these changes affect career ladders and progression opportunities. Forthcoming research by IPPR compares how rates of occupational progression, the movement of workers to higher-paying, higher-skilled jobs, varies across the occupational distribution. We found that very few workers in low-skilled positions, around one in 20, are able to “leapfrog” the middle of the occupational distribution into the highest paying jobs; most of those who progress move into jobs in the middle of the distribution. There is then a similarly high rate of progress from the middle to the top. The prospects for earnings mobility may rely less on “room at the top”, and more on “room in the middle”.

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This means the UK’s experience of a proliferation of low-skilled jobs with a shrinking middle tier of occupations may act to dampen progression opportunities for workers. Given that UKCES, which provides skills forecasts to the UK government, expects this pattern of occupational polarisation to continue, there is a real risk that more and more workers might be stuck at the bottom of the labour market.

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Barring a revival of UK manufacturing, source of many mid-skilled jobs, what can be done to mitigate this structural shift?

Firstly, those in low-skilled jobs need greater access to training, both on the job and outside their place of work. Currently the UK government only funds adult skills training for those furthest from the labour market. Finding a way to link these people up with low cost and subsidised lifelong learning opportunities that are relevant to growing highly skilled occupations will be key. This is particularly the case for those in more insecure forms of work, such as the self-employed, for whom training rates are very low.

Secondly, many high-skilled jobs come with expectations of long hours. Our research on flexible work finds that there aren’t enough good quality part-time and flexible jobs available at the top of the labour market. Many of those with responsibilities outside work that limit the amount of hours they can do, particularly mothers of young children, are forced to settle for a lower-skilled position. Encouraging more employers to adopt flexible work practices could open up progression opportunities to many more workers.

Finally, business owners and HR professionals who are looking to fill highly-skilled vacancies may need to change their recruitment methods. We often hear complaints from business over a lack of relevant skills among education leavers, particularly in specific areas such as computing, engineering and mathematics. But a complementary method of meeting these skills gaps is to train and progress current employees. While there are many examples of good practice among employers, if more were committed to training and progression routes across their workforce we could see a real step-change in rates of productivity and progression.

At a headline level, the UK labour market recovery might appear to be complete. As the labour market tightens, expect the debate to shift away from job creation towards skills shortages, particularly in the highly-skilled occupations of the future. Without a commitment to fostering progression from government and employers, we run the risk of limiting our growth potential and consigning a large section of the workforce to persistent low pay and working poverty.

Spencer Thompson is Senior Economic Analyst at IPPR