Wednesday, 13 August 2014

‘Paymageddon’ shows it’s not yet time for higher interest rates

The Office for National Statistics (ONS) this morning released the latest set of UK labour market data, mostly covering the three months April to June 2014, while the Bank of England has also published its latest quarterly Inflation Report.

The ONS figures reinforce the conclusion that the ongoing labour market recovery will serve to re-write the economic textbook: a record number of people in work (up 167,000 in the latest quarter, mostly due to more full-time employees, to a total of 30.56 million) unemployment falling at an even faster pace of decline (down 132,000 to just over 2 million, a rate of 6.4%), yet all this combined with ever lower pay pressure (average weekly earnings including bonuses shrinking by 0.2% in the year to June). In other words the jobs data indicate a boom but a fall in the cash value of total average weekly earnings signal ‘Paymageddon’.  

What’s good news for the jobless is thus being offset by ever slimmer pickings for those already in work, giving the UK labour market a distinctly bitter-sweet flavour. No wonder then that Bank of England Governor Mark Carney, in his remarks at the Inflation Report press conference, commented at length on the consequences of what he and other members of the Monetary Policy Committee conclude has been a ‘labour supply shock’ to the UK economy.

Carney’s comments, which broadly reflect my own analytical perspective, is that a structural increase in the supply of people active in the labour market has dampened underlying wage pressure. This will in turn eventually enable the economy to sustain a higher rate of employment and lower rate of unemployment than was attainable prior to the recession but in the interim an abundance of relatively cheap labour has caused the UK to become a more labour intensive, low productivity economy. However, while this is currently very painful to people in work, at some point the large amount of slack currently still available in the labour market will be absorbed, putting upward pressure on pay and pushing businesses to raise productivity in order to counter rising unit wage costs.

What nobody knows, the Bank included, is precisely how long this process will take and thus also at which point stronger pay pressure might warrant a rise in interest rates since this will also be affected by what happens to productivity. The Bank’s position is that it bases its judgement on interest rate decisions on an assessment of the trend in all the available data, which obviously keeps us guessing. But judging by the latest ONS data the UK labour market doesn’t look as though it needs an interest rate rise to cool things down but, on the contrary, further strong sustained expansion to help workers desperate for a pay rise.

Wednesday, 16 July 2014

Latest UK jobs market data: employment rate equals record high, cash pay rises at record low, real wage squeeze bites harder

The Office for National Statistics (ONS) has released the latest set of UK labour market data, mostly covering the three months March to May 2014.

The state of Britain’s jobs market gets more puzzling by the month. The number of people in work has increased by a further 254,000 to 30.64 million and the employment rate – the proportion of the working age population in work – has reached a record equalling 73.1%, higher than the pre-recession peak, while the unemployment rate has fallen to 6.5% (2.12 million) even though more people are entering the market to look for work. Full-time employees account for the bulk of the latest increase. Underemployment (i.e. part-timers who want a full-time job), though still very high, fell by 61,000 to 1.360 million. As well as the overall fall in unemployment, the number of jobless 16-24 year olds has fallen by 64,000, long-term unemployment is down 33,000, and the count of jobless people in receipt of Jobseeker’s Allowance fell by just over 36,000 in May. Meanwhile the level of job vacancies continues to rise and is now only 48,000 lower than the pre-recession high.

However, whereas one would normally expect all this good news on jobs to be reflected in bigger pay increases as the labour market tightens, the annual rate of growth of total pay for employees in cash terms is still running at only 0.3%, while regular pay (stripping out the effect of bonus payments) is rising by just 0.7% per year, the slowest annual rate of growth since comparable records began in 2001, resulting in an even tougher bite on real earnings and living standards (the CPI inflation rate was 1.5% at the time the latest pay data were compiled in May, though the rate increased to 1.9% in June).

The British jobs market is therefore at present something of an oddity: a record equalling employment rate, yet with cash pay rises at a record low and a real wage squeeze that is still biting hard. We should be celebrating an economy clearly on the fast track back to full employment. But full employment without stronger growth in pay and productivity is not the kind of full employment to hang out the bunting for.

Thursday, 26 June 2014

Extended flexible work law could prove costly to UK workplace relations

Next Monday (30 June) Liberal Democrat MP Jo Swinson returns to her job as minister for employment relations in the Department for Business, Innovation and Skills (BIS) following a period of maternity leave. The timing is either fortuitous or an example of neat political calculation because Ms Swinson will be back on the very day one of the Lib Dem policy cause celebres, extension of the right of employees to request flexible working, which employers have a duty to consider in a ‘reasonable manner’, comes into effect .

From next week the right covers all employees after 26 weeks in their job, rather than only those with children under the age of 17 (18 if the child is disabled) and certain carers, albeit a qualifying employee cannot make more than one request in a year.  The right to request regulation as limited to employees with young children was initially introduced in 2003 by the then Labour Government and is generally considered to have been a success because employers have in most cases responded positively to requests. The extension to more employees is thus seen as fair and likely to further encourage employers to operate flexible work practices, which the government believes has the positive effect of both improving workplace well-being and business performance. 

Supporters of this kind of soft ‘nudge’ legislation reckon that employers who wouldn’t otherwise offer flexible work options to the majority of staff will see the light and decide to do so if requests cause them to review their ways of working.  It’s thus assumed that although requests, once reasonably considered, can be refused on one or more of eight business grounds (including additional cost and any detrimental impact on the quality or performance of the business) they will in most cases be accepted.  However, especially with regard to the extended right, this may prove to be a mistaken assumption.

Other than a plethora of individual case studies of how individual organisations have benefited from their own use of flexible working detailed research evidence is far more equivocal about the business case for flexible working than advocates of such working arrangements generally suggest. The most comprehensive published review concludes that available evidence ‘fails to demonstrate a business case for flexible working’ (de Menezes and Kelliher 2011). Similarly, analysis of the 2011 Workplace Industrial Relations Survey (WERS) finds that after allowing for the effect of organisational size and sector the number of flexible working arrangements available in an organisation is not significantly related to either better or worse than average financial performance. In other words there isn’t a business case for, or for that matter against, flexible working (Chanfreau, 2013).

The reason for this is that the benefits from flexible working accrue mainly to employees in the form of improved work life balance, job satisfaction, increased commitment and reduced absenteeism but there is no guarantee that this ultimately improves the business bottom line. The key factor appears to be the specific organisational situations in which flexible working practices operate and the fact that ‘flexible working’ is a catch-all term for a variety of practices - encompassing part-time working (the most common form), flexi-time, temporary reduced hours, regular working from home, compressed working week, annualised hours, job sharing and term-time working etc. – not all of which will be suitable for every business.

This explains why most employers’ bodies, while in general lauding flexible working as a means of helping organisations to recruit and retain staff and to increase staff satisfaction, believe that the decision to offer employees flexible work, and precisely which contractual arrangements to use, should be determined solely by organisations themselves without any regulatory push or nudge.  The reluctance of some employers to voluntarily introduce flexible working, especially among small and medium sized enterprises, revolves around organisational difficulties, inability to cover for or substitute some employee skills, and managerial complexity. Given this the business lobby argues that the right to request could prove costly in terms of time and money if employees challenge refusals, and might also disrupt otherwise harmonious workplace relations if some requests are accepted while others are refused.  

Advocates of flexible working nonetheless argue that success of the right to request law in the past decade – the introduction and gradual extension of which raised similar fears – suggests that most employers will respond positively, and next Monday will doubtless see many high profile bosses sitting alongside Miss Swinson to support the change. As someone who generally supports any move to improve the quality of working life I hope they are proved correct in this expectation. But we need to recognise that a right that was targeted at a particular segment of the workforce may not operate in the same way when applied more widely. The initial policy of giving parents and carers the right to request flexible working proved successful because it was pushing on an open door, with ever more employers seeking to attract mothers in particular into flexible work roles in fast expanding service sectors. There is no guarantee that the same business imperative will apply to employees across the board, raising the prospect that the extended law could indeed prove costly to business and disrupt workplace relations. The wisdom of this particular cause celebre is about to be put to the test.

De Menezes, L and Kelliher, C (2011) Flexible working and performance: a systematic review of the evidence for a business case, International Journal of Management Relations. Vol 13, issue 4, December 2011.

Chanfreau, J (2013) Is there a business case for flexible working? National Centre for Social Research (NatCen), July


Wednesday, 11 June 2014

A jobs recovery like never before

The Office for National Statistics (ONS) has released the latest set of UK labour market data, mostly covering the three months February to April 2014.

Britain’s jobs market is booming everywhere apart from in most people’s pay packets. The number of people in work increased by 345,000 (1.1%) to 30.54 million in the latest quarter on the household Labour Force Survey measure, with full-time employees accounting for almost two-thirds of the increase, altering the recent trend which has seen self-employment as the main driver of rising employment. Employment increased in every nation and region of the UK except Wales, which registered a fall of 17,000. The ONS’s alternative quarterly Workforce Jobs measure – based mainly on a survey of employers and covering the period January to March – shows a similar pattern, with the total number of jobs increasing by 380,000 (1.2%) to just over 33 million in the quarter.

Adjusting for changes to statistical classification, private sector employment increased by 355,000 (1.4%) in the quarter, dwarfing a relatively modest fall of 11,000 (-0.2%) in public sector employment. The latter fall suggests a slower pace of public sector employment downsizing compared to recent years, in part accounted for by a quarterly rise of 10,000 (0.2%) in NHS employment. Within the private sector there was a notable quarterly increase in employment of 43,000 (4.7%) in ‘arts, entertainment and recreation’.     

Total unemployment on the LFS measure is also down sharply (by 161,000 to a rate of 6.6%), while long-term unemployment has fallen below 800,000 and youth unemployment (down 59,000 to 853,000) is now clearly on a sharp downward path.  Total unemployment in the quarter fell in every region and nation of the UK except the North East which registered an increase of 6,000. The count of people unemployed on Jobseeker’s Allowance meanwhile fell by 27,000 in May. Underemployment as measured by the number of part-timers unable to find a full-time job has fallen by 39,000 though remains high at 1.4 million.

Yet despite all this very good news the rate of growth of average earnings has slowed, and not just because of the statistical effect arising from the unusual pattern of last year’s spring bonus payments. Although growth in total pay has fallen from 1.7% to 0.7% between April and May, growth in regular pay excluding bonuses has fallen too, down from 1.3% to 0.9%, which means the underlying squeeze in average real earnings has resumed (the comparable CPI rate of price inflation is 1.8%). This is therefore a jobs recovery like never before, loads more work but no greater reward, an economy that looks much healthier but feels little better in the workplace.

Tuesday, 10 June 2014

Blow the whistle on control freak management and enjoy the World Cup

There are so many ‘occasions’ nowadays I find it increasingly difficult to get excited by the prospect of any particular event. But the boy in me still thinks of the World Cup as something special. 1966 was the first tournament I can properly remember, my nine year old self never doubting an England victory, though 1970 and the brilliance of the Pele generation of Brazilians remains my internal default setting for what the World Cup is, or at least should be, all about. Personally speaking, the adrenaline level has dropped in recent years simply because globalised televised sport means we regularly see all the top players, eliminating the surprise factor that competitive international matches once brought. Nonetheless, I anticipate a month of late nights and bleary eyed mornings as events in Brazil unfold.

Judging from the usual welter of ‘how to manage staff through the World Cup’ reports in recent weeks, British bosses expect many of their employees will be similarly footie focused between now and July 13th. The general tenor of this stuff is apocalyptic: without effective management, absence rates will soar while lateness, hangovers and time spent at work checking out news on the latest England injury scare will hit productivity. But is this really likely, or leastways is it really worth worrying about? I doubt it.

For one thing, people nowadays are used to combining work with increasingly active social lives which are jam packed with the enjoyment of entertainment of various kinds. Most behave sensibly, which is why employers don’t have to develop policies to manage staff through the Glyndebourne season or Glastonbury week. But more importantly, indulgence in a bit of collective interest not directly focused on the daily grind may well make staff more, not less, engaged and productive in their jobs.

Casual empiricism has always suggested that sporting achievement or excitement lifts the mood in both the nation and the workplace. Evidence for this in the form of an economic dividend is less apparent (for example, whatever the legacy of the 2012 London Olympics it clearly didn’t do anything to boost the UK’s dire labour productivity performance). However, the good workplace is not measured by short-term financial indicators alone but also by the immediate and long-term wellbeing of the workforce.  Far sighted employers will recognise this and offer a bit of slack to staff to live a little and enjoy the World Cup with family, friends and work colleagues. The short-sighted will instead issue memos on proper behaviour and conduct of the type that have turned so many UK workplaces into rules driven target obsessed fiefdoms that inspire control freak managers but turn staff into disengaged stress victims.  Society should blow the whistle on this type of management and kick-off toward a new way of working for the UK.  

Monday, 9 June 2014

Talent ain't what it used to be

I don’t routinely watch ITV’s Britain’s Got Talent but caught the end of this year’s Final on Saturday having switched on ahead of England’s World Cup warm up match with Honduras. As it turned out, the Simon Cowell franchise show was more entertaining than the weather interrupted goalless draw in Miami, though what struck me most was just how old fashioned the basic format was. To all intents and purposes BGT is Opportunity Knocks with chirpy Geordie duo Ant and Dec instead of Hughie Green, plus Botox, a bit more cleavage and audience telephone voting rather than the once famed ‘clapometer’.  Also interesting was the underlying assumption of the show  that ‘talent’ is a plentiful resource that exists throughout the land and simply waiting to be tapped. This notion of a ‘talent pool’ is nowadays widespread throughout society, shared by politicians and business people as well as those in entertainment and sport, yet it differs from how we thought about talent in the past and raises some intriguing issues.

Traditionally, talent referred to a person’s innate ability at performing a given task or tasks.  A talent might be used for personal profit or the common good but – as, for example, espoused in the New Testament ‘parable of the talents’ - there was a clear moral imperative to use it wisely. Every person was deemed to have some talent or other. Some talents were fairly widely spread throughout the populous, others relatively rare. Exceptional talent might bring fame and fortune though it was not necessarily marketable (we’ve all heard of Pavarotti, the planet’s greatest yodeller is less well known). However, it was generally accepted that while a talent could be honed it could not be acquired. Each individual had a well of aptitude from which to draw. All the individual could do was identify their particular talents, develop them and make the most of them – ideally with a helping hand from parents, teachers, and employers. But attempts to conjure up silk purses from sows’ ears were generally seen as futile.

However, this traditional concept has gradually been diluted by a growing tendency to confuse the availability of talent with the supply of acquired skills. When government ministers and business leaders talk of ‘unlocking talent’ they more often than not mean providing people with education and training that offers a qualification as a route to a job or better pay. In some cases this can indeed help develop and validate people’s innate aptitudes. There is undoubtedly a waste of potential in our society, especially amongst the most disadvantaged young people who deserve greater opportunity to show what they’re capable of. But increasing skill acquisition is not the same as giving vent to genuine talent. Public policy and business practice can raise the supply of useable skills and, if effective, add to the flow of observable talent into the market – it can’t easily, if at all, boost the underlying reservoir of talent. 

Ironically, the more we try to unlock talent in this rather crude way the harder it becomes to identify and properly manage talent.  As more people acquire academic or vocational qualifications the proportion whose acquired skill fits a genuine natural aptitude tends to fall. One can detect this from the observation that the pay gap between higher and lower earners is getting wider within skilled occupations as well as between occupations. This might to some extent be explained by the superior soft skill (itself usually a personality trait) some people display in their jobs but it also suggests that people whose acquired skills are most attuned to their aptitude enjoy a wage premium (particularly in economies such as the UK and the United States where pay rates are more likely to be matched to individual performance). But in a labour market awash with qualifications the genuinely talented are becoming harder to pinpoint by means of a simple scan of those with a given formal skill set – which is why recruiters and managers are eager to develop more acutely attuned talent spotting antennae.  

Organisations must take care, however, that in the rush to share in the understandable vogue for talent acquisition and talent management they don’t fall into a related trap. A common error is to simply attach the talent label to existing recruitment and development practice. At best this treats talent as if synonymous with skill and at worst merely uses talent management as a sexier alternative to people management. This may be good for book sales – count the number of bog standard HR publications in the past decade with talent in the title to add a bit a gloss – but ultimately causes confusion. The successful organisation, by contrast, will be that which knows what genuine talent is and what it isn’t and is able to identify pearls of talent within the increasing mediocrity of formal skill.

Wednesday, 4 June 2014

Sense of perspective needed on trend toward working from home

The Office for National Statistics this morning published its latest analysis of the incidence of people working at home, which shows a substantial rise since the late 1990s. In my experience, the tendency of many commentators will be to leap on these figures as evidence of a revolution in the British way of work. However, while there is certainly a clear trend toward homeworking, the phenomenon needs to be viewed with a sense of perspective.   

Although home working in the UK has risen to a record high of 4.2 million (up from 2.9 million in 1998) the share of home working in total employment (13.9%, up from 11.1% in 1998) has yet to grow by as much as ‘future of work’ gurus have commonly predicted, with many suggesting that the home working rate might one day exceed 50%.

The key factors behind the increase are digital technologies which allow people to work at home or to use home as a base while regularly on the move between various work locations (the latter group of nomadic home based workers accounting for two-thirds of all home workers), the rise of self-employment with people establishing offices at home, and an ageing population with more older people seeking to avoid the daily commute and the stresses of office life (the home working rate for the over 65s, 38.3%, is almost three times higher than the overall rate). All these factors are likely to further increase home working in the coming decades but one should be wary of forecasts suggesting that the vast majority of people will in the future be mainly working at home.  While home working is set to be a far more common feature of the UK’s flexible employment landscape, work in the office, at the factory or on the service front line will remain the norm for the vast majority of people.