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Labour Markets and Inclusive Growth
Richard Blundell
Institute for Fiscal Studies and University College London
Growth Commission Reprise
17th November 2016, LSE
Changes to total output, employment and hours worked since 2008Q1
90
95
100
105
110 2
00
8Q
1
20
08
Q3
20
09
Q1
20
09
Q3
20
10
Q1
20
10
Q3
20
11
Q1
20
11
Q3
20
12
Q1
20
12
Q3
20
13
Q1
20
13
Q3
20
14
Q1
20
14
Q3
20
15
Q1
20
15
Q3
20
16
Q1
20
16
Q3
Ind
exed
to
10
0 in
20
08
Q1
Output Employment Total hours
- in contrast to previous recessions, real output per hour has remained largely stagnant
Employment rates have rebounded (16 to 64 year olds)
© Institute for Fiscal Studies
60%
65%
70%
75%
80%
85% 2
00
5 Q
1
20
05
Q3
20
06
Q1
20
06
Q3
20
07
Q1
20
07
Q3
20
08
Q1
20
08
Q3
20
09
Q1
20
09
Q3
20
10
Q1
20
10
Q3
20
11
Q1
20
11
Q3
20
12
Q1
20
12
Q3
20
13
Q1
20
13
Q3
20
14
Q1
20
14
Q3
20
15
Q1
20
15
Q3
20
16
Q1
Emp
loym
en
t ra
te
All Male Female
Source: Office for National Statistics (Labour Force Survey) series LF24, LF25 and MGSV.
Particularly strong growth in private sector
© Institute for Fiscal Studies Source: Updated Fig 2.2 of Cribb and Joyce (2015) “Earnings since the
recession”
4
4.5
5
5.5
6
6.5
7
7.5
8
23
23.5
24
24.5
25
25.5
26
26.5
27
Pu
blic
se
cto
r e
mp
loym
en
t (m
illio
ns)
Pri
vate
se
cto
r e
mp
loym
en
t (m
illio
ns)
Private (LH axis) Public (RH axis)
Large falls in labour market earnings, followed by a partial recovery since mid 2014
400
420
440
460
480
500
520
540
560 M
ar 0
0
Oct
00
May
01
Dec
01
Jul 0
2
Feb
03
Sep
03
Ap
r 0
4
No
v 0
4
Jun
05
Jan
06
Au
g 0
6
Mar
07
Oct
07
May
08
Dec
08
Jul 0
9
Feb
10
Sep
10
Ap
r 1
1
No
v 1
1
Jun
12
Jan
13
Au
g 1
3
Mar
14
Oct
14
May
15
Dec
15
Jul 1
6
Rea
l mea
n w
eekl
y ea
rnin
gs o
f em
plo
yees
(£
per
wee
k)
© Institute for Fiscal Studies
Notes: Earnings deflated using the CPI and expressed in July 2016 prices. Each data point refers to the average real weekly earnings over the previous 3 months. Source: IFS calculations using ONS Average Weekly Earnings series KAB9
Inclusive? In terms of income inequality the 90:10 ratio and the top 1% share show very different trends
0%
1%
2%
3%
4%
5%
6%
7%
8%
9%
10%
0
1
2
3
4
5
6
7
8
9
10
Top
1%
sh
are
of
inco
me
90-10 ratio (left-hand axis)
top 1% share (right-hand axis)
=> 1995 – 2007 was a relatively inclusive growth period in terms of the 90:10 family income (less in terms of male earnings or the top 1%!) Mean real household income since 1961…
£0
£100
£200
£300
£400
£500
£600
£700 19
61
1964
1967
1970
1973
1976
1979
1982
1985
1988
1991
1994
1997
2000
2003
2006
2009
2012
Ave
rage
net
equ
ival
ised
hou
seho
ld
inco
me
(201
4–15
pri
ces
)
Recession years Mean income
Reductions in all forms of ‘inactivity’ other than being in education
© Institute for Fiscal Studies
0%
1%
2%
3%
4%
5%
6%
7%
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Pro
po
rtio
n o
f 1
6-6
4 y
ear
old
s w
ho
are
eco
no
mic
ally
in
acti
ve fo
r a
give
n r
eas
on
Retired Long term sick/disabled In education Looking after family Other
Source: IFS calculations using the Labour Force Survey. 2016 refers to 2016 Q1 and Q2
Big changes in other characteristics
10%
15%
20%
25%
30%
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Perc
enta
ge o
f th
e w
ork
forc
e
Born abroad Self employed Work part time Public sector
© Institute for Fiscal Studies
Source: IFS calculations using the Labour Force Survey. Public sector % from ONS Public Sector employment statistics, and excludes the effects of reclassifications.
But same proportion in full time employment as in 2005
© Institute for Fiscal Studies
40%
42%
44%
46%
48%
50%
52%
54% 2
00
5 Q
1
20
05
Q3
20
06
Q1
20
06
Q3
20
07
Q1
20
07
Q3
20
08
Q1
20
08
Q3
20
09
Q1
20
09
Q3
20
10
Q1
20
10
Q3
20
11
Q1
20
11
Q3
20
12
Q1
20
12
Q3
20
13
Q1
20
13
Q3
20
14
Q1
20
14
Q3
20
15
Q1
20
15
Q3
20
16
Q1
Pro
po
rtio
n o
f w
ork
ing
age
ad
ult
s w
ho
are
fu
ll-ti
me
em
plo
yee
s
16-64 year olds 22 to 64 year olds
Source: Office for National Statistics (Labour Force Survey) series LF24, LF25 and MGSV.
In terms of ‘inclusion’ there has been a key role for benefits and tax credits: Household income growth for working households 07/08 to 14/15
-3.0
-2.0
-1.0
0.0
1.0
2.0
5 10 15 20 25 30 35 40 45 50 55 60 65 70 75 80 85 90 95
Av
erag
e a
nn
ua
lise
d r
eal
gro
wth
(%
)
Percentile
Gross labour income Net income
Notes: Includes self employment income and self employed households. Family Resources Survey. All income measures are equivalised. Source: Belfield, Blundell, Cribb, Hood and Joyce (2016)
And a role for hours Weekly earnings and hourly wage growth, men and women, 1994–95 to 2014–15
-1.0
-0.5
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
5 10 15 20 25 30 35 40 45 50 55 60 65 70 75 80 85 90 95
Aver
age
annual
ised
rea
l gro
wth
(%
)
Percentile
Female weekly earnings Female hourly wages
Male weekly earnings Male hourly wages
Source: Belfield, Blundell, Cribb, Hood and Joyce (2016)
Note: assortative partnering implies this has not improved between family inequality
Partly explained by fall in hours worked for lower wage men (a secular shift in the UK)
-8%
-7%
-6%
-5%
-4%
-3%
-2%
-1%
0%
1%
2%
3%
1 2 3 4 5 6 7 8 9 10
Cu
mu
lati
ve c
han
ge in
me
an p
aid
h
ou
rs w
ork
ed
, 20
07
to
20
15
Decile of male hourly wage distribution
2007-2015
© Institute for Fiscal Studies
Notes: “Decile 1” excludes the bottom 5% of male hourly wage earners. Source: IFS calculations using Labour Force Survey
Very different to the change seen for women
-2%
0%
2%
4%
6%
8%
10%
1 2 3 4 5 6 7 8 9 10
Cu
mu
lati
ve c
han
ge in
me
an p
aid
h
ou
rs w
ork
ed
, 20
07
to
20
15
Decile of female hourly wage distribution
2007-2015
© Institute for Fiscal Studies
Notes: “Decile 1” excludes the bottom 5% of female hourly wage earners. Source: IFS calculations using Labour Force Survey
Proportion of 25-29 year olds with a degree by birth cohort
© Institute for Fiscal Studies
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
1965-69 1970-74 1975-79 1980-84 1985-89
Male
Female
Human capital trends show a rapid increase in the % of workers who are highly educated.
With little evidence of a drop in the education premium. Ratio of BA (equiv.) median wage to that of A-level (equiv.) by birth cohort
Source: Blundell, Green and Jin (2016)
Age and Generation: Bigger falls in earnings for younger employees
-12%
-10%
-8%
-6%
-4%
-2%
0%
22-29 30-39 40-49 50-59 60+ All
Ch
ange
in r
eal m
edia
n e
arn
ings
Ap
ril
20
08
to
Ap
ril 2
01
5
© Institute for Fiscal Studies
Notes: Earnings deflated using the CPI. Source: IFS calculations using Annual Survey of Hours and Earnings
Higher employment rates for older people
© Institute for Fiscal Studies
0%
10%
20%
30%
40%
50%
60%
70%
80% 2
00
5 Q
1
20
05
Q3
20
06
Q1
20
06
Q3
20
07
Q1
20
07
Q3
20
08
Q1
20
08
Q3
20
09
Q1
20
09
Q3
20
10
Q1
20
10
Q3
20
11
Q1
20
11
Q3
20
12
Q1
20
12
Q3
20
13
Q1
20
13
Q3
20
14
Q1
20
14
Q3
20
15
Q1
20
15
Q3
20
16
Q1
Emp
loym
en
t ra
te
Age 55-59 Age 60-64 Age 65-69 Age 70-74
Source: IFS calculations using the Labour Force Survey.
Translates into real income changes: Real median household income since 2007–08 (UK), by age group
80
85
90
95
100
105
110
115
2007–08 2008–09 2009–10 2010–11 2011–12 2012–13 2013–14 2014–15
Real
med
ian
inco
me
inde
xed
to le
vel i
n 20
07–0
8 22–30 (BHC) 31–59 (BHC) 60+ (BHC)
Large generational differences in income growth,
pension wealth and house ownership.
Percentage of private sector employees who are active members of a DB pension scheme by age, for people born in different decades
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
50%
25 30 35 40 45 50 55 60
1950
1960
1970
1980
Prospects and Policies
• Real wages and productivity have been very slow to pick up
– ‘buoyant’ employment,
– changes in key characteristics: older people, immigrants, private sector, part-time work, self-employment.
• Unprecedented expansion of higher education has paid off
– education premium maintained but signs of falling back recently,
– new growth coming from post-graduate education/ returns,
– limits to further degree level expansion?
• Male earnings and, in particular hours, have been driving the fall in earnings for young families with low educated parents
– rises in women’s employment and education has not done much to help reduce inequality between households due to assortative partnering,
– continuing ‘strain’ on the tax-credit and benefit system.
© Institute for Fiscal Studies
-14%
-12%
-10%
-8%
-6%
-4%
-2%
0%
2%
4%
Poorest 2 3 4 5 6 7 8 9 Richest All
Ch
an
ge
as
a p
erc
en
t o
f n
et
inco
me
Income Decile Group
Working-age with children
Working-age without children
Pensioner households
Impact of tax and benefit reforms May 2015 – April 2019 (including universal credit)
Assumes full take-up of means-tested benefits and tax credits
and all changes fully in place
Summary, Prospects and Policies (cont.)
What should be the response at the bottom for inclusive growth?
• Minimum/living wage
• useful but not enough to solve the growth or inclusion problem
• Human capital and mobility
• little evidence of earnings progression for lower skilled and part-time workers – employment (especially part-time) is not enough!
• re-think vocation education; non-cognitive skills;
• early years investment, low ed. parents their kids opportunity is key.
• Efficient re-design of tax/benefit system
• ‘universal credit’ plus; contribution based social insurance;
• age-based/intergenerational taxes.
• Innovation and work?
• developing clusters outside London.
Extra Slides (may be useful in dsicussion)
Labour Markets and Inclusive Growth by Richard Blundell Pre-talk notes: Growth, the labour market and inequality in the UK
• First the big picture, very briefly.
Then unpicking the parts of the picture. What is the role of:
• employment and inactivity?
• hours vs wages? (Bell and Machin note political implications of local variation and Brexit)
• labour earnings versus taxes and benefits?
• gender differences and earnings within the family?
• human capital, sector and immigration?
• age and cross generation differences?
• Finally, and briefly: prospects and policies?
Earnings for employees and the self employed
© Institute for Fiscal Studies
0%
5%
10%
15%
20%
25%
Pe
rce
nta
ge o
f e
mp
loye
es
/
self
-em
plo
yed
ind
ivid
ual
s
Earnings (per week, April 2014 prices)
Self-employed Employees
Source: Figure 2.14 of Cribb and Joyce (2015) “Earnings since the recession”
Proportion in each birth cohort with post-graduate degrees
© Institute for Fiscal Studies
And generational differences: Median net equivalised household income (before housing costs are deducted) by age, for people born in different decades
5
10
15
20
25
30
25 30 35 40 45 50 55 60 65 70
1910s 1920s 1930s 1940s 1950s 1960s 1970s Early 1980s
Source: Cribb, Hood and Joyce, 2016
Homeownership by age, for people born in different decades
20%
30%
40%
50%
60%
70%
80%
90%
25 30 35 40 45 50 55 60
homeowner1930 homeowner1940 homeowner1950
homeowner1960 homeowner1970 homeowner1980
Source: Cribb, Hood and Joyce, 2016
Employment rates of older men over time
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
1975 1980 1985 1990 1995 2000 2005 2010 2015
Per
cen
t em
plo
yed
or
self
-em
plo
yed
Year
All
55 to 59
60 to 64
65 to 69
© Institute for Fiscal Studies Source: Labour Force Survey.
Increases in female state pension age continue to push up employment rates
10%
20%
30%
40%
50%
60%
70%
20
03
Q1
20
03
Q3
20
04
Q1
20
04
Q3
20
05
Q1
20
05
Q3
20
06
Q1
20
06
Q3
20
07
Q1
20
07
Q3
20
08
Q1
20
08
Q3
20
09
Q1
20
09
Q3
20
10
Q1
20
10
Q3
20
11
Q1
20
11
Q3
20
12
Q1
20
12
Q3
20
13
Q1
20
13
Q3
20
14
Q1
20
14
Q3
20
15
Q1
20
15
Q3
Emp
loym
ent
rate
age 59
age 60
age 61
age 62
age 63
State pension age rises from: Age 60 to 61 Age 61 to 62 Age 62 to 63
© Institute for Fiscal Studies
Source: Labour Force Survey.
90:10 ratio for male hourly wages and net household income 1994 to 2014
3.8
4
4.2
4.4
4.6
4.8
1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
90
:10
rat
io
Net household income 90:10 Male hourly wage 90:10
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