1

Full employment and what it will take us to

get us therePaul Gregg & Laura Gardiner

Resolution Foundation

July 2015

2

Full employment and current labour market performance

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The journey towards full employment is about both the quantity and quality of jobs

• Partly because a tight labour market increases competition among firms – shifting pay and conditions upwards

• But also because full employment involves inducing increased labour force participation (for ‘low-activity’ groups), for which both job availability and attractive employment terms are necessary

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In terms of job quantity, the recent UK experience has been outstanding…

UK employment

growth stands in contrast to

the experience in the US, and the UK is now

has the 3rd highest

employment rate among G7

economies (behind

Germany and Japan)

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…but in terms of job quality, the UK’s wage (and productivity) performance has been dismal…

Real pay is now rising again, but it is still

only back at its 2004 level

More normal pay and

productivity patterns

should be restored soon,

though a question over

productivity and therefore

longer-run wage growth

remains

6

…other aspects of job quality have received somewhat less attention than wages in recent debates

• A need to focus on the security and stability of employment, as well as the sheer number of jobs and the state of the wage bargain…

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The UK’s record on labour market security and stability in this century

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A received narrative that insecurity and precariousness are a growing problem

• Recent trends such as growth in zero hours contract working seen as emblematic of rising insecurity

• An idea that took root long before the recession: – Will Hutton’s 30:30:40 society (The State

We’re In)– The decline of the ‘job for life’ (e.g. Gregg

& Wadsworth)– Guy Standing’s ‘precariat’ class

• We map insecurity (30:30:40) and instability (job flows and tenure) since 2000: isolating trends from cyclical swings, and looking across genders and the generations

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On Hutton’s broad definition, there is limited evidence for rising insecurity overall…

The rise in employment through the

1990s reduced the share of

disadvantaged, but the growth

is exclusively among the

insecure

However, in the early 2000s

the insecure group plateaus

and the privileged grow

steadily

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…but for men and young people, trends are less positive…

1994 2000 2007 2010 2014

"Privileged" 42% 42% 44% 45% 45%

"Insecure" 30% 34% 33% 30% 32%

"Disadvantaged" 28% 24% 23% 25% 23%

"Privileged" 54% 52% 53% 53% 53%

"Insecure" 23% 29% 29% 26% 29%

"Disadvantaged" 23% 19% 18% 21% 18%

"Privileged" 31% 32% 36% 38% 38%

"Insecure" 36% 39% 36% 34% 35%

"Disadvantaged" 33% 30% 28% 28% 27%

"Privileged" 32% 28% 27% 28% 26%

"Insecure" 40% 50% 50% 45% 50%

"Disadvantaged" 28% 22% 23% 27% 24%

"Privileged" 49% 49% 51% 52% 53%

"Insecure" 29% 32% 31% 28% 30%

"Disadvantaged" 22% 19% 18% 20% 17%

"Privileged" 42% 43% 48% 49% 48%

"Insecure" 20% 23% 23% 21% 23%

"Disadvantaged" 38% 34% 30% 30% 29%

The 30:30:40 labour market by age and gender, UK (16-state pension age excluding full-time students)

30-49 year olds

50+ year olds

All

Men

Women

18-29 year olds

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…atypical or undesirable employment may signal new forms of precariousness for a minority

Involuntary temps and

part-timers, the insecurely self-employed,

zero hours contract

working and other atypical

forms have grown

If the breadth of insecurity

hasn’t changed much, the

depth may have for

pockets of workers

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The long-term trend is towards rising employment tenure…

Removing cyclical effects,

tenure has been rising by

roughly one-third of a

month per year

This is entirely driven by women –

tenure for prime-age men

has been in secular decline

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…driven by stable job entry…

While job entry has recovered

quickly overall, it

lags behind the pre-

downturn norm for men

and particularly

young people

By gender By age

Employment entry (16-state pension age)

Employment entry: proportion of the unemployed or inactive moving into employment each quarter

All

Male

Female

6%

7%

8%

9%

10%

11%

12%

13%

14%

1994 1998 2002 2006 2010 2014

All

18-29

30-49

50+2%

4%

6%

8%

10%

12%

14%

16%

18%

1994 1998 2002 2006 2010 2014

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…a long-term decline in job exit…

The employment exit rate for

young people currently

stands around 15

per cent below its

1994 level, whereas for those aged

30 and over it is 30 per cent below

By gender By age

Employment exit (16-state pension age)

Employment exit: proportion of those in employment moving to unemployment or inactivity each quarter

All

Male

Female

2.5%

3.0%

3.5%

4.0%

4.5%

5.0%

1994 1998 2002 2006 2010 2014

All

18-29

30-49

50+

1.5%

2.0%

2.5%

3.0%

3.5%

4.0%

4.5%

5.0%

5.5%

6.0%

1994 1998 2002 2006 2010 2014

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…and falling job to job moves, potentially a more worrying development

Job-to-job moves are

the primary mechanism

for pay progression and career

advancement, and

therefore are likely to have

implications for pay and

also productivity

growth across the economy

By gender By age

J ob-to-job moves (16-state pension age)

J ob-to-job moves: proportion of those in employment moving to another job each quarter

AllMale

Female

1.5%

2.0%

2.5%

3.0%

3.5%

4.0%

1994 1998 2002 2006 2010 2014

All

18-29

30-49

50+

0%

1%

2%

3%

4%

5%

6%

7%

1994 1998 2002 2006 2010 2014

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Secure and stable? Concluding remarks

• The true picture on security and stability is more complex than the public narrative gives credit for, with limited evidence for a substantial increase in insecurity and particularly instability

• The overall direction of travel masks big differences between the genders and generations, with particular concerns around young people’s long-term prospects

• These concepts are important to the dual labour market goals of full employment and sustained productivity growth

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The concept of full employment and the policy response

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Full employment has no standard definition – some possible approaches:

• Unemployment-vacancies ratio• Target rates for employment or

unemployment:– Historical– International– The ‘low-activity’ workforce

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Full employment = a one-to-one match between potential workers and job openings?

Driving this ratio down so

there is a one-to-one match

between vacancies and unemploymen

t would require a 1.1

million swing in the mix of unemployme

nt vs vacancies

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Full employment = surpassing the UK’s past employment or unemployment record?

An unemploymen

t rate of around 4 per

cent would imply

reducing unemploymen

t by around 550,000

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Full employment = matching international competitors?

An employment rate of 79 per cent would be equivalent to

raising employment by

around 2.3 million

An unemployment rate of around

3 per cent would require a reduction in the

number of unemployed by

900,000

15-64 year-old employment rates are presented here in the main because this is the measure more commonly used in international comparison and on which international data is more readily available

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Full employment = maximising the labour market participation of ‘low-activity’ groups?

Raising the activity rates

among groups with typically

lower levels of labour market

participation towards those

in the best performing

areas would add around

900,000 extra people to the

workforce

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Full employment: a framework for development

Population growth

‘Nearslack’

‘Low-activity’

workforce participation

Unemployed550,000 to 900,000?Hours increases? (emp. equiv)

c.1.1 million by 2020?

Regional gaps 900,000?

Further trend improvements? by 2020

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The policy challenge: planned research

• Policy to be assessed or simulated include:– Higher minimum wages– Youth (RPA and rising HE participation,

apprenticeships/traineeships)– Mothers and single parents (shift to JSA, Work

Programme, UC work incentives, childcare)– Ill-health and disability (Work Programme,

sickness absence and connections to previous employer)

– Adult low skilled (apprenticeships/traineeships)– Ethnic minorities (work incentives, qualification

penalties)– Older (over-SPA) workers (removal of DRA,

differential NI treatment)

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Full employment and what it will take us to

get us therePaul Gregg & Laura Gardiner

Resolution Foundation

July 2015