CONTROVERSY: EVOLUTION NOT REVOLUTION 167

New Economy CONTROVERSY

PETER ROBINSON R e ~ k l l o w , c ~ ~ E c M o m E c p e r / o n n a n c e

atLondor,khodofEconomEcs

Evo I u t io n not rev0 I u t io n Have UK labour market changes been vastly overstated?

The economic revolution is a global revo- ‘ ‘lution of finance, competition, skill and technology. The notion of a ’job for life’

has disappeared, and employment insecurity affects us all.” (Social Justice Cmmision report).

This statement represents the conventional wisdom about the labour market. The sugges- tion is, first, that we have seen ‘revolutionary’ changes in the labour market which are sup- posed to have raised the level of ’structural’ unemployment in Britain; and second, that the jobs being created are in some way unde- sirable. Both statements need challenging.

Many observers argue that ’good’ jobs - full time, permanent and well paid - have been re- placed by ‘bad’ - part time, temporary and low paid. There is also recogrution of the consider- able growth in ‘good’ professional, managerial and technical jobs. But because these tend to require higher qualifications, it is plausibly ar- gued that less well qualified men have been caught between two trends: a decline in reason- ably well paid, full time, permanent manual jobs, and on the one hand an increase in jobs they are not qualified for, or on the other an increase in part time, temporary and low paid service jobs which they will not or cannot take.

Economists are generally wary of using terms like ’revolutionary’, based on anecdotal evidence. Many people confuse short-term changes associated with recession with long- term trends. In fact, changes are always occur-

ring in the economy, and most should be seen as evolutionary: much of the change we see today is a continuation of decades-old trends. The ‘disappearance’ of jobs for life has also been exaggerated.

Admittedly, there are problems relating to interpretation of data - one economist will describe a milk bottle as half full while an- other insists it is half empty. Many have rightly wanted to emphasise that the distribu- tion of employment opportunities in the Brit- ish labour market has become more unequal since the late 1970s; but this should not cloud the fact that change may not have impacted so severely on the majority.

Two things, however, have changed sig- nificantly in the British labour market. One is that the overall level of unemployment since the late 1970s has been very high. The other is that the gap between the well paid and the low paid has widened considerably. Some people try to link these two phenomena. However, the fact that unemployment has risen in most OECD countries while pay in- equality has risen significantly only in Britain and the USA is warning enough that the two problems - higher unemployment and the wage gap -may have different causes.

‘Bad’ jobs for ’good’? The replacement of manual jobs primarily by professional, managerial and technical ones

~Q7Q-3535l95lQ3Q167 4- 06 508.0010 0 1995 THE DRYOEN PRESS

168 NEW ECONOMY

has been occurring throughout the post war period (see Chart). In 1951, only 15 per cent of jobs in Britain could be classified as profes- sional, managerial and technical; by 1991, one-third fell into this category. By contrast more than half of all jobs were manual in 1951 and just one-third by 1991. But it is not clear that the decline in the share of manual em- ployment acceler- ated significantly in the 1980s: rather the trends present for some time simply con- tinued. There has been no strong growth in the share of lower level service occu- pations, apart from a slight in- crease in personal services such as care assistants.

These trends are well matched in other OECD

It is no coincidence that the fastest growth in the 1960s was in female labour force partici- pation. In fact, the increase in part time em- ployment has facilitated the entry of women into the labour force. Since the late 1980s, most of the increase in male part time jobs has been among students.

There is legitimate concern about the inci-

1951 1961 I971 1981 1991

Sot.mz:C81aadpopllaion. 1951-1991

countries. It is simply not true, for example, that the USA saw disproportionate growth in so-called McJobs in the 1980s: jobs in catering as a share of total employment actually fell slightly between 1983 and 1992. Such trends in employment by occupation suggest there has been no growth in the share of ‘bad’ jobs in the western economies, only in ‘good’ jobs.

Casualisation of labour? The growth in the share of part time employ- ment in the British labour market has also been an evolutionary trend. In 1951, only 4 per cent of people in employment in Britain were in part time work. By 1961 it was 9 per cent, in 1971 16 per cent, in 1981 19 per cent and in 1991 22 per cent. The growth in the share of part time employment in the 1980s was no faster than in the 1970s; the fastest growth occurred in the 1960s.

dence of ’involun- tary’ part time em- ployment - people saying they work part time because they cannot find full time work. Over the period 1984-94, an aver- age of about 9 per cent of part time workers were working ’involun- tarily’, although it has swung with the economic cycle between 6 per cent in 1990 and 13 per cent in 1994. Yet in-

voluntary part time worlung is no higher in Britain than in other OECD countries.

The share of part time work in total em- ployment tends to rise during recessions as downturns in the economy mainly eliminate full time jobs. The sharp increase in the share of part time employment, from about 22 per cent of those in employment in 1991 to 24 per cent in 1994, almost certainly reflected the state of the cycle. In fact, part time jobs look less vulnerable to recession than full time jobs.

Part time employment should not be equated with ’casualisation’ of the labour market. In 1993, two-thirds of women in part time work had been with their employer for more than two years and two-fifths for longer than five.

Temporary jobs From 1984 to 1992, there was no growth at all

CONTROVERSY EVOLUTION NOT REVOLUTION 169

in the share of temporary jobs in total em- ployment. Despite a great deal of discussion about this aspect of ’casualisation’, the avail- able data did not pick it up. Between 1992 and 1994 there wzs, however, a significant in- crease in temporary jobs from about 5.5 per cent of all employees (a level unchanged from 1984) to about 6.5 per cent.

Self employment For most of the post war period until the 1980s, the self employed made up a steady 8 per cent of all employment. However, self employment as a proportion of all employment grew from about 7.5 per cent in 1979 to 13 per cent in 1990. The sharp increase in self employ- ment in the 1980s marked Britain out from other compa- rable industrial countries which did not witness similar growth.

In Britain, the construction in- dustry accounted for about one-third of the increase in self employment in the 1980s and more than two-fifths of the decline be-

sibly marginal businesses is in fact a legiti- mate area of concern if they offer work that is, for instance, involuntarily entered into, low paid and unstable.

The Table summarises some of the key changes in the British labour market since 1979, based on categories as set out in Will Hutton’s The State We’re In (1995). The in- crease at the bottom end of the labour market reflects the sigruficant growth in unemploy- ment. At the top, the Thatcher recession of the early 1980s saw the e h a t i o n of many full time jobs. The modest increase in the middle

A casualisation of the labour market? Percentage of all adults 16-59/64

1994 1984 1979

The top ‘40’ per cent Full time 2 years+ tenure (-those below 50% median earnings) Full time self employed 2 years+ Part time 5 years+ tenure

The middle ‘30‘ per cent Full time 2 yean (+those below 50% median earnings) Full time self employed 2 years (+ part time self employed) Parttime 5years Temporary

The bottom ‘30’ per cent Unemployed Inactive Training programmes (+ unpaid family workers)

31 33 5 5 6 5

42 43

12 12

4 3 7 6 4 3

27 24

8 9 22 23

I I 31 33

Source: Caregones as set at in Hutton The Stcne Weie h (1995). Fipm cdcubted using LFS & NES.

41 3 4

48

14

2 6

25

4 21

I 26

(3)

tween 1990 and 1993. The recession of the early 1990s also saw a sharp decline in self employment in the distribution, hotels and catering sector.

So the self employed are especially vulner- able to recession. Many people on the Left have been reluctant to question the growth in self employment, worried perhaps at being seen to be hostile to ’enterprise’. But the growth in the number of people running pos-

of the labour mar- ket reflects the growth in various forms of ’atypical’ employment.

It is misleading to lump together all part time, tempo- rary and self em- ployment as ‘cas- ual’. Many part time jobs, espe- cially for women, offer stable em- ployment, volun- tarily entered into and with many of the same employ- ment rights as full timers. Some self employed are in well remunerated and reasonably sta- ble professional

and managerial jobs; others are in industries vulnerable to cyclical downturns such as con- struction; and some are scraping a living in marginal businesses. Within each of these groups, then, there is a range of jobs - some ’good’ and some ‘bad’, just as there is a range of jobs among permanent full time employ- ees, some of whom are in well paid and stable employment and some of whom are in low paid and vulnerable jobs.

170 NEW ECONOMY

Over the 1980s, men were only slightly more likely to be unemployed than women (see Chart opposite). In 1979-90 the unem- ployment rate for men averaged 9.5 per cent and for women 9 per cent. It was only in the

No more jobs for life? Perhaps the most common assertion about the British labour market is that, in contrast to some golden age, it can no longer offer lifetime jobs. In 1975, the ’average’ man could look for- ward to a job lasting about 19 years; by 1992 this expected tenure had fallen to about 17 years. The ’average’ woman in 1992, by contrast, could expect a job to last about 12 years, around the same as in 1975. So, for the average man, changes in employ- ment have become

Average tenure of employment in 6 OECD countries, 1979-9 I

Average tenure of those in a job (years) 1979 1985 1989 1991

United Kingdom Men Women

United States

Canada Australia Finland

Japan

9.1 8.7 8.1 8.0 10.6 10.3 9.4 9.3 6.8 6.6 6.4 6.4 6.4a 6.7b 6 . 8 ~ 6.7 8.9 10.3 10.8 10.9d 7.3 7.6e 7.4 7.8 6.5 6.6 6.5 6.0 7.8 8.4 8.0 9.0

Notes: Msm tewre. Thiindudespeopkwta have mtybeen in ajcbashortwhik. a-1978;b- 1983;~-1987;d-1990;e-I986.

OI+W mmbies - C K D brplqment oldook 1993. Sam: W-Burgenind Ree(1594). Gened H o u s e h o k l ~ .

more likely and for the average woman there has been little change (the figures in the Ta- ble, though on a slightly different basis, show the same trend).

These averages conceal a lot. There have always been a lot of men with permanent full time jobs which will last them most of their working lives and for them little has changed. There have always been men with unstable employment records, moving from job to job. For them, the job market does appear to have become more unstable.

In the USA there is also no indication of any overall increase in job instability (see Table). In 1979,30 per cent of Americans had been in their job for more than eight years; in 1991 the equivalent figure was 31 per cent.

Men not at work? There is a view that men’s employment has taken a battering recently partly because of a shift to part time and service sector work, and partly because of the benefits system. But a closer look at the evidence suggests the situ- ation is more complex.

recessionary period of 1990-93 that the two rates diverged.

The Thatcher and Major recessions had a similar impact on employment, in that both saw male employment fall more sharply than female employ- ment. But because in the early 1980s the total labour force was growing strongly, a given drop in employ-

ment translated into a sharper increase in un- employment for both men and women. In the early 1990s, by contrast, there was little growth in the labour force and a given em- ployment loss translated into a more modest rise in unemployment, especially for women.

The divergence in male/female unem- ployment rates in the early 1990s appears to be explained by these demographic patterns. The more rapid fall in unemployment follow- ing the Major recession is also explained by the fact that the labour force had not been growing as strongly as in the early 1980s.

Many observers also draw attention to the increase in the number of men inactive owing to long term sickness and disability. Cer- tainly, 250,000 more men were absent from the labour force in 1991 than in 1981 for these reasons. However, numerically the increase has been the same for women, though dis- guised by the overall upward trend in female activity. Increased inactivity through long- term sickness is not solely a male phenome- non.

One should also note that economic activ-

CONTROVERSY: EVOLUTION NOT R E V O L . 0 N 171

ity is heavily influenced by the cycle. The de- cline in male Iabour force participation halted during the late 1980s boom and again in 1994 as economic activity picked up sigmficantly.

Finally, the role of the benefits system in excluding male heads of households from employment may have been exaggerated.

of men with higher qualifications. In the 1970s, men without qualifications were about three times as likely to be unemployed as men with higher qualifications, a ratio largely unchanged by the early 1990s.

There is no doubt, however, that demand for less well qualified men and women has

Unemployment is, in fact, dispro- portionately con- centrated on men without depend- ent children. In 1992, fewer than three in 10 unem- ployed men were married with de- pendent children, compared with nearly four in 10 in 1975. So male unemployment in the 1990s is less concentrated on. those men most

1979 I984 I989 I994

Source: Labcur Force Sum

likely to face any unemployment benefit trap. The benefits system has, however, im-

pacted more on the partners of unemployed men. Only one-third of women married to unemployed men in 1994 were themselves in employment, compared with nearly three in four women whose partners were employed. Women with unemployed partners face a constraint in taking up work, in that any pay will result in their spouse’s benefit being re- duced by an almost equal amount. However, as soon as their partner finds work the trap is immediately sprung. The problem is more to do with a lack of jobs than the benefit system.

Poorer prospects for less skilled men? There is no strong evidence that unemploy- ment has become more concentrated on less skilled men in Britain, as measured by the ratio of the unemployment rate of men with no qualifications to the unemployment rate

declined. This gradual process was probably has- tened during the shake-out of the early 1980s reces- sion, thus worsen- ing the relative un- employment rate of the less well qualified. But the supply of less well qualified men and women has also been falling signifi- cantly as older less well qualified peo- ple have retired

and been replaced by better qualified younger people. In 1979, about half of all adult men reported having no qualifications; by 1993 this had fallen to one-quarter. This improve- ment, accelerated by significant increases in further and higher education enrolment after 1988, has helped relative unemployment rates to even out again.

In 1986-87, just 47 per cent of 16 year-olds stayed on in full time education in England and just 15 per cent of the age group entered higher education. By 1993 these figures were 73 and 31 per cent respectively. This is one trend which does spell a transformation within the labour market. Meanwhile, unem- ployment rates are high across all qualifica- tion groups. So increased enrolments have produced nothing more than a much better qualified dole queue.

Where’s the feel-good factor? The absence of a feel-good factor and a pre-

172 NEW ECONOMY

vailing sense of insecurity are probably a hangover from the job losses associated with the recession. The general gloom is also caused by having a recovery based on ex- ports which, while virtuous, is not as much fun as a recovery based on consumer spend- ing and rising house prices. The fall in dispos- able income brought about by increases in taxation has also contributed to the loss of the feel-good factor. People may confuse these issues with the ongoing changes in the types of jobs available in the labour market.

Longer term, the lack of a feel-good factor may persist, but only because any sustainable recovery will be one in which consumer spending and the housing market should not be allowed to take off again. Norman Lamont’s and Kenneth Clarke’s virtuous ap- proach to re-balancing monetary, exchange rate and fiscal policy in the aftermath of Brit- ain’s exit from the ERh4 may turn out to par- allel Roy J e n h s ’ achievement in the after- math of the 1967 devaluation. Labour must hope the electorate will reward Clarke in the same way that Jenkms was rewarded in 1970.

Policy without revolution In the 1980s, it became fashionable to dismiss the role of macroeconomic policy as a key determinant of the level of unemployment. All the stress was put on suppfy side policies such as strategies for training and for encour- aging R&D, which implicitly accepts that most unemployment is structural. Labour’s current economic strategy appears to have accepted this orthodoxy.

The labour market has not changed so radi- cally that most British unemployment can be regarded as ’structural’ in nature. The recent fall in unemployment is the result of an ideal combination of macroeconomic policy foster- ing a reasonable rate of growth of demand and output. It is not primarily the result of supply side reforms.

There is a case for being relatively sanguine about the prospects for a continuing gradual decline in unemployment in Britain, provided

that monetary policy remains supportive of a steady expansion of aggregate demand, and in the absence of any further shocks.

And there’s the rub. It seems likely that the Bank of England and the Treasury will over tighten monetary policy so that unemploy- ment does not fall below its so-called natural rate. Labour needs to challenge this orthodox framework for determining macroeconomic policy.

Room for improvement Supportive supply side policies are also nec- essary. Further incremental improvements can be made to the tax and benefits system so as to deal with the most significant disincen- tive problems, most of which affect women. The unemployed can benefit from small, high-quality training programmes, although there is clear evidence that large-scale pro- grammes do not work; post-16 education has been transformed by young people deciding to stay on in schools and colleges, although many issues in this sector remain to be re- solved; and part timers are now on a more equal footing with full timers with respect to employment rights, although further im- provements in individual employment rights are of equal relevance to all types of workers.

A continued gradual decline in unemploy- ment requires this combination of demand and supply side policies. Consideration also needs to be given to how Britain will cope with future shocks to the economy. Unem- ployment increased sharply in Britain be- cause of the economy’s inability to respond to shocks. There is no reason to think the British economy is any better placed today to deal with a shock with inflationary implications. Labour - like the government - has no policy instrument to prevent the re-emergence of the pay-price spiral whose suppression always involves such a terrible cost in terms of higher unemployment. Everyone knows what that policy should be - greater co-ordination of pay bargaining 0