Pavement, Penthouse and the Quintile Question: How labour market inequality is the heart of the matter

10 years on from the global financial crisis there has been a jobs rich recovery in U.K but not a recovery of rich jobs. I addressed this in my last blog post as the “recovery-less jobs” phenomenon in the context of Scotland. As two noted academics explained even prior to the global financial crisis, the labour market is highly segregated.

‘People can have lovely jobs with lots of stimulation, variety autonomy and high rewards or lousy jobs with poor variety, poor prospects and often pitiful pay’ Goos and Manning - 2007.

Many of these issues are being tackled through living wage initiatives and a boosted minimum wage. At the other end of the labour market there’s an attempt to rein in excessively high pay. A recent CIPD report with the High Pay Centre tackles that issue head on. The report looks at how CEO pay in the UK’s largest firms has changed between the 2015 and 2016 financial years. It finds that over this period, FTSE 100 CEO remuneration has fallen by 17%, from £5.4 million in 2015 to £4.5 million in 2016.

However, it would still take the average UK full-time worker on a salary of £28,000 (median full-time earnings) 160 years to earn what an average FTSE 100 CEO is paid in just one year. Although the average pay packages of the 25 highest paid CEOs have dropped by 24% to £9.4m in 2016, rewards for the 32 lowest paid chief executives in the FTSE 100 have increased as firms ‘chase the median’. Yet whatever we do with wage floors there are still going to be a lot of people on the pavement while others are in the upper floors and a small minority in the penthouse (to misquote an old Heaven 17 song!).

The Quintile Question

Polarisation has become even starker - we may be looking at a quarter of workers perpetually employed on low paid and “lousy” jobs. That has massive impacts on the economy, productivity and the tax base. Data also shows that we face what I would term a ‘quintile question’. The lowest fifth of jobs are getting lower paid and the highest fifth are getting higher paid (Warhurst 2016). With Zero Hours Contracts (ZHC's) growing tenfold in one year and accounting for 2.8% of the UK workforce (ONS 2017), that trend is set to continue. As is often the case it is increasingly young, part time, female and minority ethnic workers who are on a ZHC. Around a quarter of jobs are part time. Half of employees in the UK want to work more hours but don’t have the option.

Labour market economists tell us that firms will value time in the job (‘tenure’) and therefore invest in training and skills for full time workers more than they will for part time workers. The theory which I learned in the 1990s at university comes from Nobel Prize winning economist Gary Becker, basically it says that if you invest in your own human capital through schooling and ‘in work’ learning, employers will judge you are more likely to be productive than someone who invests less. There are many quibbles with this theory and its assumptions. Rich kids get better education through the luck of inheritance, for example Donald Trump went to Harvard and Wharton. But the theory plays out in that those with less schooling get poorer jobs and training. A Joseph Rowntree Foundation (JRF) report from 2014 demonstrates this with evidence from actual low paid workers and their employers.

Technology and demographics may alleviate this effect somewhat. Digital forms of learning for example could smooth out the inequalities in access to training, and demographics might shift part time work to the old and full time work to the young. Emerging trends such as a reduction in regional labour mobility may further reduce wages and tenure. A report by the Resolution Foundation shows that regional job moves have reduced by a quarter since 2000 and that those choosing not to move to the highest paid “out of region jobs” give themselves an average 15% pay cut, offset by lower living costs. But unless we improve productivity in the regions outside London that trend will have a further negative effect on an economy already challenged by impending Brexit. Incidentally the report shows that only EU migrants are mobile, another argument for a more sensible approach on free movement.

There are no easy answers to these challenges, but it’s certain that most of the answers are going to be found in the labour market and the workplace. That’s a big new challenge for HR and L&D. Which is why the CIPD have invested in key research to bring new light to such issue. The defining issue in the workplace and one where we can make a difference is job quality and next week we will start to look at that key issue in detail. This matters to everyone whether they live on the penthouse or the pavement.

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