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Labour Market Studies : United Kingdom Series ΝΊ Labour Market Studies UNITED KINGDOM Employment & social affairs European Commission Labour Market Studies United Kingdom By Peter Robinson Centre for Economic Performance, London School of Economics December 1996 This report was financed by and prepared for the use of the European Commission, Directorate-General for Employment, Industrial Relations and Social Affairs. It does not necessarily represent the Commission's official position. A great deal of additional information on the European Union is available on the Internet. It can be accessed through the Europa server (http://europa.eu.int) Cataloguing data can be found at the end of this publication Luxembourg: Office for Official Publications of the European Communities, 1997 ISBN 92-827-8751-6 © ECSC-EC-EAEC, Brussels · Luxembourg, 1997 Reproduction is authorized, except for commercial purposes, provided the source is acknowledged Printed in Belgium This study was prepared by Peter Robinson, Research Officer at the Centre for Economic Performance. Senior Adviser on the project was Richard Jackman, Director of the Human Resources programme at the Centre for Economic Performance. Research assistance was proved by Donna Brown and assistance with constructing the tables by Caroline Travers and Helen Durrant. CONTENTS Page Executive summary i Introduction 1 I. Labour market analysis and forecasts 1.1 Demographic and labour force trends 3 1.2 The structure of the workforce: employment 5 unemployment 12 1.3 Main trends in job creation and job loss 2 0 1.4 Wage and salary trends 22 1.5 Analysis of the principal causes of the trend in unemployment since 1980 28 1.6 Macroeconomic policies and forecasts 33 II. Labour market institutions 11.1 Public Institutions 38 11.2 The system of industrial relations - collective institutions 42 III Labour market legislation and individual employment rights 111.1 Individual employment rights 52 111.2 Nature and regulation of working time 56 111.3 Minimum wage regulation 59 Conclusions on the role of labour market legislation 62 IV Labour market policies IV.1 Passive labour market policy 65 IV.2 Active labour market policy 68 IV.3 Evaluations and discussion of labour market policy 71 V Other policies having an impact on the labour market V.l Education and training 78 V.2 The tax and benefits system 8 3 V.3 Industrial policy 90 VI The national debate: policy perspectives 94 Endnotes 103 Tables 111 Figures 137 References 169 1 Study on the labour market in the United Kingdom Executive Summary The UK Government's labour market reforms since 1979 have often been described as constituting a policy of 'deregulation' designed to foster a more 'flexible' labour market. The UK already had a less regulated labour market than many other European countries in 1979 and it is by no means obvious that all labour market policy since then has been in the direction of 'deregulation'. The experience of the UK labour market is perceived to be out of line with the experience of other member states of the EU, as such this study may be particularly illuminating with regard to the debate in the EU over the directions in which labour market policy should go. I. Labour market analysis and forecasts Employment trends Employment and unemployment in Britain have fluctuated markedly since 1979 with two major recessions in the early 1980s and early 19 9 0s punctuated by a sharp upturn in employment in the late 1980s. On a peak-to-peak basis (1979-90) employment rates rose marginally. Employment-population ratios are significantly higher in the UK than in most of the other member states of the EU. However, this was already apparent in 1979. Labour force participation rates for women have been on a strongly rising trend over the whole post-war period. The increase in female participation rates between 1979-96 did not represent any sharp change in trend. Male participation rates have been on a declining trend over the post-war period, but the decline since 1979 has been somewhat faster than in earlier decades. Since 1993 employment has been rising at a slightly faster rate for men than for women. Growth in 'atypical' employment? It is frequently asserted that a distinctive feature of the post-1979 UK labour market is the growth in so-called 'atypical' or 'flexible' forms of employment. This is usually defined as any kind of job which is not full-time and permanent. The share of part-time employment in the UK has been rising steadily since 1951, when it stood at just four per cent of total employment. The fastest rate of growth in part-time employment occured in the 1960s when its share in total employment rose by seven percentage points. Between 1984 and 1996 the share of part-time employment increased by just over four percentage points. The steady increase in the share of part-time employment over the post-war period largely reflects the growth in female labour force participation. Most part-time work in the UK is voluntarily entered into although the incidence of involuntary part-time work has increased since 1990. Part-time employment has long represented a higher share of total employment in the 11 UK than in most other EU countries, but the incidence of involuntary part-time employment as a proportion of the labour force has not been higher. Between 1984 and 1991 there was no increase in the proportion of employees in temporary jobs. Between 1991 and 1996 there was an increase in the share of temporary employment. The share of temporary employment in the UK in the mid-1990s was still low in comparison with other EU nations despite the UK having a relatively deregulated labour market. Firms may have the incentive to employ workers on non-standard contracts if the regulations covering standard contracts are perceived as burdensome. The fact that the share of temporary employment is so low in the UK and has not increased significantly is indirect evidence that the burden of employment protection on regular forms of employment in Britain is not heavy. One break in trend in the structure of employment in Britain after 1979 was the sharp increase in the share of self- employment. This share had been broadly flat over the post-war period, but between 1979 and 1989 the share of self- employment rose from 7.3 per cent of total employment to 13.1 per cent. However, in the recession of the early 1990s the share of self- employment fell slightly and has been flat since. The shift from manufacturing to services Between 1979 and 1984 there was an unprecedented and precipitous decline in the share of manufacturing employment. However, this is the only example of a significant acceleration in the pace of change in the structure of employment by industry. In more recent years the decline in the share of manufacturing employment has slowed down markedly. Within the 'service' sector it is the business and financial services and the public and social services which have increased their shares of total employment rather than distribution, hotels and catering. This means that the growth in service sector employment has been concentrated in those sectors where relatively well paid managerial, professional and technical jobs are concentrated and not in the sector where less skilled and lower paid service jobs are concentrated. Over the whole post-war period there has been an ongoing decline in the share of manual jobs in total employment and a rise in the proportion of jobs falling into the managerial, professional and technical category. The only less skilled occupations to have increased their share more recently have been the personal services. The decline in the share of skilled manual employment has been as rapid as the decline in the share of unskilled manual employment. The share of semi-skilled manual occupations has declined more slowly. It is strictly incorrect to talk about the decline in unskilled employment rather than the decline in manual employment. Trends in unemployment In 1979 the unemployment rate in Britain, as measured by the number of people registered for unemployment benefit, consistent with current coverage, stood at four per cent of the workforce. In the first half of 1996 the claimant unemployment rate stood at just under eight per cent of the workforce. The difference iii between the ILO unemployment rate derived from the Labour Force Survey and the unemployment rate as measured by the claimant count seems to move over time in a predictable fashion consistent with an added/discouraged worker effect. When aggregate unemployment as measured by the claimant count or the ILO measure, is on a firmly downward (upward) trend all other measures of un- or underemployment are also on a firmly downward (upward) trend. Most significantly, when aggregate unemployment is on a firmly downward trend the unemployment rates for all the most disadvantaged groups in the labour market also fall, at rate which is at least as fast. The argument that there is some asymmetry in that unemployment rates for disadvantaged groups rise sharply in recessions but do not decline in the same way during recoveries is not borne out by the evidence in the UK. This applies to youth unemployment, ethnic unemployment and most notably to long-term unemployment. If we could be confident that aggregate unemployment could be reduced to a reasonably low level we could be reassured that unemployment rates amongst these disadvantaged groups would also fall significantly. In the first half of the 1990s regional differences in unemployment rates in the UK were narrower than at any time in the last 70 years. There is also no clear sign that the relative unemployment rates of the less well qualified have deteriorated significantly.
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