Presentation to defence college 13 january 2015
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Economic and employment trends to 2020 and beyond
Mark Beatson
Chief Economist
HR lecture to Defence College of Logistics, Policing and Administration, 21 January 2015
Economic and labour market trends to 2020 and beyond• The economy will grow more
slowly in 2015 than it did in 2014
• The labour market will continue to expand but wage growth growth likely to remain in 1-2% corridor – but lower inflation means real terms increase?
• Wage and productivity growth expected to be higher in 2016 – but not a given
• Europe remains a risk
• Population ageing and technology have visible effects
Why HR has to become more strategic
There is a gap in perception between business leaders and HR leaders
HR is seen as lacking strategic capability
The UK economy
7
UK economic growth is expected to continue
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019-5
-4
-3
-2
-1
0
1
2
3
4
5GDP growth
% c
hang
e p.
a.
Sources: Past data OECD, forecasts from OBR Autumn Statement 2014 Economic Forecast.
Forecast
Emerging economies continue to support global economic growth
World USA Euro Zone Japan UK China India0
1
2
3
4
5
6
7
8
GDP growth
2014 2015 2016
% c
hang
e p.
a.
Source: IMF World Economic Outlook., January upate.
Business confidence remains positive but has dipped slightly since the summer
Capital investment now exceeds pre-recession levels but there is a potential backlog
1998
Q1
1999
Q2
2000
Q3
2001
Q4
2003
Q1
2004
Q2
2005
Q3
2006
Q4
2008
Q1
2009
Q2
2010
Q3
2011
Q4
2013
Q1
2014
Q2
0
5000
10000
15000
20000
25000
30000
35000
40000
45000
50000
Investment by sector, £ million)
Business investmentGeneral government investment
1998
Q1
1999
Q2
2000
Q3
2001
Q4
2003
Q1
2004
Q2
2005
Q3
2006
Q4
2008
Q1
2009
Q2
2010
Q3
2011
Q4
2013
Q1
2014
Q2
0
5 000
10 000
15 000
20 000
25 000
30 000
Investment by asset, £ million)
Transport equipmentOther machinery & equipmentDwellingsOther buildngs & structuresIP products
Source: ONS.
Intangible investments may have held up better than tangibles
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
0
20
40
60
80
100
120
140
Tangibles Intangibles
£ bi
llion
Source: NESTA Innovation Index 2014
Fiscal consolidation – more to come
12
32
34
36
38
40
42
44
46
48
50
1948-49 1958-59 1968-69 1978-79 1988-89 1998-99 2008-09 2018-19
Per c
ent o
f GDP
Current receipts
Total managed expenditure
Forecast
Source: ONS, OBR
Shrinking public sector employment – more to come
2010-11 2011-12 2012-13 2013-14 2014-15 2015-16 2016-17 2017-18 2018-19 2019-200
1
2
3
4
5
6
General government employment (millions)
Source: OBR
The UK labour market
The labour market continues to expand
2009
Q1
2010
Q1
2011
Q1
2012
Q1
2013
Q1
2014
Q1
2015
Q1
2016
Q1
2017
Q1
2018
Q1
2019
Q10
1
2
3
4
5
6
7
8
9
ILO unemployment
% o
f lab
our f
orce
2009
Q1
2010
Q1
2011
Q1
2012
Q1
2013
Q1
2014
Q1
2015
Q1
2016
Q1
2017
Q1
2018
Q1
2019
Q125
26
27
28
29
30
31
32
33
Employment
Mill
ions
Source: Office for Budget Responsibility
Employers still expect to recruit
Spring 200
9
Summer 20
09
Autumn 2009
Wint
er 200
9/10
Spring 201
0
Summer 20
10
Autumn 2010
Wint
er 20
10/11
Spring 201
1
Summer 20
11
Autumn 2
011
Wint
er 20
11/12
Spring 201
2
Summer 20
12
Autumn 2012
Wint
er 201
2/13
Spring 201
3
Summer 2013
Autumn 2013
Wint
er 20
13/14
Spring 2
014
Summer 20
14
Autumn 2
014
-19
-10-3 -5
5 211
-3
3
-1 -3-8
6 5 7 59
14
2416
26 2330
Three months ahead employment expectations
Net
em
ploy
men
t bal
ance
The net employment balance is the difference between the % of firms expecting to recruit over the next three months and the % expecting to make redundancies.Source: CIPD Labour Market Outlook.
Employers find that most vacancies attract sufficient applicants
Low skill Medium skill High skill
3225
14
20
15
8
Mean number of applicants for each vacancy advertisedNot suitable Suitable
Source: CIPD Labour Market Outlook survey, Autumn 2014.
Employers’ pay expectations remain modest
Wint
er 20
09/10
Spring 201
0
Summer 20
10
Autumn 2010
Wint
er 20
10/11
Spring 201
1
Summer 20
11
Autumn 2011
Wint
er 201
1/12
Spring 201
2
Summer 20
12
Autumn 2012
Wint
er 201
2/13
Spring 201
3
Summer 201
3
Autumn 2
013
Wint
er 20
13/14
Spring 201
4
Summer 20
14
Autumn 2014
1.5 1.6 1.5 1.51.3
1.6 1.5 1.51.7
1.5 1.6 1.7 1.8 1.7 1.7 1.6
2 2 2 2
Average predicted annual pay award (% p.a.)
Based on all employers expecting to have a pay review in the following 12 months.Source: CIPD Labour Market Outlook.
Jan 0
1Ju
l 01
Jan 0
2Ju
l 02
Jan 0
3Ju
l 03
Jan 0
4Ju
l 04
Jan 0
5Ju
l 05
Jan 0
6Ju
l 06
Jan 0
7Ju
l 07
Jan 0
8Ju
l 08
Jan 0
9Ju
l 09
Jan 1
0Ju
l 10
Jan 1
1Ju
l 11
Jan 1
2Ju
l 12
Jan 1
3Ju
l 13
Jan 1
4Ju
l 14
-1
0
1
2
3
4
5
6
Average regular pay CPI
% c
hang
e p.
a.Average earnings growth and CPI inflation
Source: Office for National Statistics.
The ‘cost of living crisis’ is largely a pay and productivity issue
2001
Q1
2001
Q4
2002
Q3
2003
Q2
2004
Q1
2004
Q4
2005
Q3
2006
Q2
2007
Q1
2007
Q4
2008
Q3
2009
Q2
2010
Q1
2010
Q4
2011
Q3
2012
Q2
2013
Q1
2013
Q4
2014
Q3
80
85
90
95
100
105
110
Output per hourReal earnings deflated by CPI
2008
Q1
= 10
0
Earnings data are the Average Weekly Earnings index, GB, seasonally adjusted. The middle month is used for each quarter, e.g. Q1 uses the February observation.Source: Office for National Statistics.
Official forecasts show little growth in real earnings until at least 2016
2013 2014 2015 2016 2017 2018 2019-2
-1
0
1
2
3
4
5
Nominal earnings growth Real earnings growth (deflated by CPI)Real earnings growth (deflated by RPI)
% c
hang
e p.
a.
Source: Office for Budget Responsibility, Autumn Statement 2014 forecast.
Europe remains a source of concern
The Euro Zone is growing - just
EuroZone Germany France Italy Spain-1
0
1
2
3
IMF forecasts of GDP growth2014 2015 2016
% c
hang
e p.
a.
Source: IMF World Economic Outlook, January update.
Is potential deflation in the Euro Zone a worry?
BulgariaSpain
CroatiaCyprus
HungaryPortugal
DenmarkLuxembourg
SwedenCroatia
LithuaniaFrance
Czech RepublicLatvia
United KingdomRomania
-2.5 -2 -1.5 -1 -0.5 0 0.5 1 1.5 2
HICP inflation rate (% change p.a., November 2014)
Jan-14
Feb-14
Mar-14
Apr-14
May-14
Jun-14
Jul-14
Aug-14
Sep-14
Oct-14
Nov-14
Dec-14
0
0.2
0.4
0.6
0.8
1
1.2
1.4
1.6
1.8
2
HICP “core” inflation for Euro area (% change p.a.)
“Core” HICP excludes energy, food, alcohol, tobaccoSource: Eurostat.
Most Euro Zone governments are heavily in debt
Euro Zon
e
German
y
France Ita
lySpain
Portuga
l
Irelan
d
Greec
e
Cypru
s0
20406080
100120140160180200
General Government debt/GDP ratio2014 2015 2016
% o
f GD
P
Source: European Commission, autumn 2014 forecast.
Unemployment will remain high in much of Europe
Germany UK EU Euro Zone
Spain Italy Portugal Greece Cyprus0
5
10
15
20
25
30
Unemployment as % of labour force
2014 2015 2016
Source: European Commission, autumn 2014 forecast.
Slow growth in Europe affects the UK because of trade links
USA
German
y
Netherla
nds
France
Irelan
d
Belgium
/Luxe
mbour
gChin
aIta
lySpa
inUAE
13.2
108.5
6.96.1
4.6 4.32.9 2.9
2
UK top ten goods export markets, 2013 (% of total exports)
Source: Office for National Statistics.
Labour market conditions in Europe are likely to continue to affect migration patterns
YE Dec
03
YE Jun 0
4
YE Dec
04
YE Jun 0
5
YE Dec
05
YE Jun 0
6
YE Dec
06
YE Jun 0
7
YE Dec
07
YE Jun 0
8
YE Dec
08
YE Jun 0
9
YE Dec
09
YE Jun 1
0
YE Dec
10
YE Jun 1
1
YE Dec
11
YE Jun 1
2
YE Dec
12
YE Jun 1
3p
YE Dec
130~
20
40
60
80
100
120
140
69
48
Work-related migrants into UKEU15 A8
Tho
usan
ds
Source: Office for National Statistics.
Impact of long-term trends
Emerging economies will become bigger global players
23%
7%
16%
3%15%
18%
7%
12%
Global GDP 2012
USAJapanEuro AreaUKOther OECDChinaIndiaOther non-OECD
18%
4%
12%
2%
13%
28%
11%
12%
Global GDP 2030
USAJapanEuro AreaUKOther OECDChinaIndiaOther non-OECD
Source: OECD, “Looking to 2060: Long-term global growth prospects”, OECD Economic Policy Paper No. 3, November 2012.
15-24 25-49 50-64 65+
-677
-94
1,387
770
-305
186
1,235
1,956
Illustrative projections of change in employment by age group from 2012 baseline, thousands
2022 2032
Sources: CIPD calculations based on ONS 2012 Principal population projections and revised mid-year estimates for 2002 and 2007 , employment rates for May-Jul 2002 and 2012 based on the Labour Force Survey and CIPD assumptions for employment rates for 2017 onwards.
Population ageing means the workforce will in future contain more over 50s
32
The “hourglass” labour market? Jobs growth strongest in highly skilled occupations (and some low skill ones)
Source: UKCES “Working Futures 2012-22”
Elementary
Process, plant operatives
Sales and customer services
Caring, leisure and other services
Skilled trades
Admin and secretarial
Associate professional and technical
Professional
Managers and senior officials
0 1000 2000 3000 4000 5000 6000 7000 8000
Employment by occupational group (millions)2022 2012 2002
And just for fun … Who will stay ahead of the machines?Job Probability that total employment will
fall in next 20 years
Recreational therapists 0.003
Dentists 0.004
Athletic trainers 0.007
Clergy 0.008
Economists 0.43
Technical writers 0.89
Retail salespersons 0.92
Accountants and auditors 0.94
Telemarketers 0.99
Source: Frey and Osborne, 2013
To find out more and join the debate
• Visit our website http://www.cipd.co.uk/cipd-hr-profession/whats-new/megatrends.aspx
• Read the Megatrends report and our five follow-up reports
• Watch the video, listen to the podcast, look at the infographic
• #megatrends
What does it mean?
• Impact on HR practitioners:• Little scope for pay rises (especially in public sector)• Will recruitment become more difficult?
• Impact on the policy debate:• More public expenditure cuts/tax increases• Low pay/productivity• Migration/Europe
Thank you
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