LSE Business Review Fri, 07 Feb 2020 06:00:44 GMT language
UK’s labour market continues to show resilience – but all is not as rosy as it seems. A recent analysis of labour market trends by The Institute for the Future of Work reveals strengths and weaknesses that should help plans to ‘level up’ the regions. The analysis supports the case for increased devolution; ‘mega-city’ networks connecting cities with surrounding rural areas in each region; the development of local social contracts within these networks to solve local problems; and multiple ‘powerhouses’ with beefed-up remits to stimulate different types of economic activity, alongside regional initiatives to boost the quality of work in growing, sustainable, low paid sectors. This analysis is supported by a new index of labour market resilience.
Trends for 2020
The UK has maintained labour market resilience at a national level, fielding disruptions over last decade.
We are now the 9th most resilient labour market in the world. At a national level, our diversified economy and innovation ecosystem sets us up well for a base level of resilience this decade, even with our stagnating productivity growth rates. However, policy activism will be needed this year to maintain or exceed our current rating.
The UK’s high rating masks structural problems and regional disparities that are set to become more pronounced.
Version 1.0 of the UK index reveals a range of structural and policy problems, manifest in striking regional variations, across the dimensions of the index. We think these have given rise to insecure labour market outcomes, lower quality work, and stagnating growth over the last decade. These must be addressed as part of plans to ‘level up’ the regions.
- High levels of labour market polarisation are set to continue across geographies at a regional, as well as national, level. The consistent growth of high pay, high quality occupations, alongside low pay, low quality occupations, suggests that polarisation will survive the 2020s. For now, this confounds some predictions that AI capabilities and pervasive applications across skillsets and sectors will reverse polarisation trends.
- Labour market polarisation is linked to increasing income inequality, which reduces social cohesion and holds back resilience at an individual, regional and national level. Our analysis suggests we need to think about different types of, and measurements for, inequality. We recommend a systematic, cross-department approach that takes into account underlying drivers and outcomes, including health, to promote equality across the dimensions of the index. Gender and socio-economic disadvantage demand immediate, targeted attention in the UK. It is unfortunate and surprising that the UK ranks only 46th for gender equality in the index.
- The UK’s strengths in entrepreneurship and innovation are not consistent or evenly spread. The UK has had consistently high ratings in innovation products, research outputs, and business creation rates over the last decade. However, these ratings mask distinct weaknesses in the success of intellectual property and patent protection, R&D applications and access to patient capital. The UK is full of ideas but is not good at hanging on to, or spreading, them. Further, we rank only 51st in the affordability of ICT infrastructure in the index and are still underperforming in digital skills, both of which would help. The new Government will also want to watch out for falling technology indicators, including outputs (such as ICT trade and high-tech exports) and share of high-tech activities (for example in manufacturing) which threaten the UK’s overall ratings in this area.
Support for SME’s in these areas and incentives to encourage a spread of economic activities (including complex and high-tech activities) should be baked into plans for ‘levelling up.’ Priority should be given to sustainable growth areas.
- Levels of insecure and atypical work are increasing at notably higher levels than OECD comparators. With London acting as a bell-weather, we expect this trend to continue in the 2020s. Our analysis points to a connection with the UK’s lower educational scores in vocational and in-work training and poor scores in skills-matching, with almost 30% graduates occupied in a job not adapted to their skill levels. Further, part-time workers on an involuntary basis represent 5% of the active population, the 5th highest share among EU countries. With vocational training and skills-matching key to building a future of good work, we think that improving the quality of insecure and atypical work has become a social and economic imperative in the UK.
In addition to boosting the basic floor of statutory protections, this means regional initiatives to boost work quality, including access to training; and national initiatives to introduce active labour market policies, and to ensure that work benefits are portable.
- UK’s population is ageing more rapidly compared to peers, especially in rural areas. This means a higher dependency ratio and working age population that may shrink by three million workers by 2030. So, we anticipate longer working lives this decade across the country.
Authors’ note: This year IFOW will be undertaking in-depth work on regional and sectoral variations, and practical applications of the principles in our Charter for Good Work, in collaboration with the CIPD and others. IFOW will be publishing a ‘conditions of good work monitor’ in March 2020, with the UCL Health and Opinium teams.
- The UK Index has been developed as an offshoot of the Global Labour Resilience Index. IFOW co-designed the UK index, co-authored the UK Chapter, and was a Knowledge Partner for the Whiteshield 2020 GLRI.
- An earlier version of this blog post was published on the site of the Institute for the Future of Work.
- The post expresses the views of its author(s), not the position of LSE Business Review or the London School of Economics.
- Featured image by skeeze, under a Pixabay licence
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Sir Christopher Pissarides is the Regius professor of economics at LSE, a professor of European studies at the University of Cyprus, chairman of the Council of National Economy of the Republic of Cyprus and the Helmut & Anna Pao Sohmen professor-at-large of the Hong Kong University of Science and Technology. Sir Christopher specialises in the economics of labour markets, macroeconomic policy, economic growth and structural change. He was awarded the 2010 Nobel Prize in Economics, jointly with Dale Mortensen of Northwestern University and Peter Diamond of MIT, for his work in the economics of markets with frictions.
Anna Thomas is founding director of the Institute for the Future of Work. She was formerly a barrister from Devereux Chambers, specialising in employment law and appointed Counsel to the Equality and Human Rights Commission. Anna was head of future of work policy for the Future of Work Commission and is a fellow of IPR and RSA.