Labour Markets and Inclusive Growth - Homepage - Institute For Fiscal … · 2016-11-18 · Labour Markets and Inclusive Growth Richard Blundell Institute for Fiscal Studies and University

Labour Markets and Inclusive Growth

Richard Blundell

Institute for Fiscal Studies and University College London

Growth Commission Reprise

17th November 2016, LSE

Changes to total output, employment and hours worked since 2008Q1

90

95

100

105

110 2

00

8Q

1

20

08

Q3

20

09

Q1

20

09

Q3

20

10

Q1

20

10

Q3

20

11

Q1

20

11

Q3

20

12

Q1

20

12

Q3

20

13

Q1

20

13

Q3

20

14

Q1

20

14

Q3

20

15

Q1

20

15

Q3

20

16

Q1

20

16

Q3

Ind

exed

to

10

0 in

20

08

Q1

Output Employment Total hours

- in contrast to previous recessions, real output per hour has remained largely stagnant

Employment rates have rebounded (16 to 64 year olds)

© Institute for Fiscal Studies

60%

65%

70%

75%

80%

85% 2

00

5 Q

1

20

05

Q3

20

06

Q1

20

06

Q3

20

07

Q1

20

07

Q3

20

08

Q1

20

08

Q3

20

09

Q1

20

09

Q3

20

10

Q1

20

10

Q3

20

11

Q1

20

11

Q3

20

12

Q1

20

12

Q3

20

13

Q1

20

13

Q3

20

14

Q1

20

14

Q3

20

15

Q1

20

15

Q3

20

16

Q1

Emp

loym

en

t ra

te

All Male Female

Source: Office for National Statistics (Labour Force Survey) series LF24, LF25 and MGSV.

Particularly strong growth in private sector

© Institute for Fiscal Studies Source: Updated Fig 2.2 of Cribb and Joyce (2015) “Earnings since the

recession”

4

4.5

5

5.5

6

6.5

7

7.5

8

23

23.5

24

24.5

25

25.5

26

26.5

27

Pu

blic

se

cto

r e

mp

loym

en

t (m

illio

ns)

Pri

vate

se

cto

r e

mp

loym

en

t (m

illio

ns)

Private (LH axis) Public (RH axis)

Large falls in labour market earnings, followed by a partial recovery since mid 2014

400

420

440

460

480

500

520

540

560 M

ar 0

0

Oct

00

May

01

Dec

01

Jul 0

2

Feb

03

Sep

03

Ap

r 0

4

No

v 0

4

Jun

05

Jan

06

Au

g 0

6

Mar

07

Oct

07

May

08

Dec

08

Jul 0

9

Feb

10

Sep

10

Ap

r 1

1

No

v 1

1

Jun

12

Jan

13

Au

g 1

3

Mar

14

Oct

14

May

15

Dec

15

Jul 1

6

Rea

l mea

n w

eekl

y ea

rnin

gs o

f em

plo

yees

(£

per

wee

k)


Notes: Earnings deflated using the CPI and expressed in July 2016 prices. Each data point refers to the average real weekly earnings over the previous 3 months. Source: IFS calculations using ONS Average Weekly Earnings series KAB9

Inclusive? In terms of income inequality the 90:10 ratio and the top 1% share show very different trends

0%

1%

2%

3%

4%

5%

6%

7%

8%

9%

10%

0

1

2

3

4

5

6

7

8

9

10

Top

1%

sh

are

of

inco

me

90-10 ratio (left-hand axis)

top 1% share (right-hand axis)

=> 1995 – 2007 was a relatively inclusive growth period in terms of the 90:10 family income (less in terms of male earnings or the top 1%!) Mean real household income since 1961…

£0

£100

£200

£300

£400

£500

£600

£700 19

61

1964

1967

1970

1973

1976

1979

1982

1985

1988

1991

1994

1997

2000

2003

2006

2009

2012

Ave

rage

net

equ

ival

ised

hou

seho

ld

inco

me

(201

4–15

pri

ces

)

Recession years Mean income

Reductions in all forms of ‘inactivity’ other than being in education


0%

1%

2%

3%

4%

5%

6%

7%

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Pro

po

rtio

n o

f 1

6-6

4 y

ear

old

s w

ho

are

eco

no

mic

ally

in

acti

ve fo

r a

give

n r

eas

on

Retired Long term sick/disabled In education Looking after family Other

Source: IFS calculations using the Labour Force Survey. 2016 refers to 2016 Q1 and Q2

Big changes in other characteristics

10%

15%

20%

25%

30%

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Perc

enta

ge o

f th

e w

ork

forc

e

Born abroad Self employed Work part time Public sector


Source: IFS calculations using the Labour Force Survey. Public sector % from ONS Public Sector employment statistics, and excludes the effects of reclassifications.

But same proportion in full time employment as in 2005


40%

42%

44%

46%

48%

50%

52%

54% 2

00

5 Q

1

20

05

Q3

20

06

Q1

20

06

Q3

20

07

Q1

20

07

Q3

20

08

Q1

20

08

Q3

20

09

Q1

20

09

Q3

20

10

Q1

20

10

Q3

20

11

Q1

20

11

Q3

20

12

Q1

20

12

Q3

20

13

Q1

20

13

Q3

20

14

Q1

20

14

Q3

20

15

Q1

20

15

Q3

20

16

Q1

Pro

po

rtio

n o

f w

ork

ing

age

ad

ult

s w

ho

are

fu

ll-ti

me

em

plo

yee

s

16-64 year olds 22 to 64 year olds

Source: Office for National Statistics (Labour Force Survey) series LF24, LF25 and MGSV.

In terms of ‘inclusion’ there has been a key role for benefits and tax credits: Household income growth for working households 07/08 to 14/15

-3.0

-2.0

-1.0

0.0

1.0

2.0

5 10 15 20 25 30 35 40 45 50 55 60 65 70 75 80 85 90 95

Av

erag

e a

nn

ua

lise

d r

eal

gro

wth

(%

)

Percentile

Gross labour income Net income

Notes: Includes self employment income and self employed households. Family Resources Survey. All income measures are equivalised. Source: Belfield, Blundell, Cribb, Hood and Joyce (2016)

And a role for hours Weekly earnings and hourly wage growth, men and women, 1994–95 to 2014–15

-1.0

-0.5

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

5 10 15 20 25 30 35 40 45 50 55 60 65 70 75 80 85 90 95

Aver

age

annual

ised

rea

l gro

wth

(%

)

Percentile

Female weekly earnings Female hourly wages

Male weekly earnings Male hourly wages

Source: Belfield, Blundell, Cribb, Hood and Joyce (2016)

Note: assortative partnering implies this has not improved between family inequality

Partly explained by fall in hours worked for lower wage men (a secular shift in the UK)

-8%

-7%

-6%

-5%

-4%

-3%

-2%

-1%

0%

1%

2%

3%

1 2 3 4 5 6 7 8 9 10

Cu

mu

lati

ve c

han

ge in

me

an p

aid

h

ou

rs w

ork

ed

, 20

07

to

20

15

Decile of male hourly wage distribution

2007-2015


Notes: “Decile 1” excludes the bottom 5% of male hourly wage earners. Source: IFS calculations using Labour Force Survey

Very different to the change seen for women

-2%

0%

2%

4%

6%

8%

10%

1 2 3 4 5 6 7 8 9 10

Cu

mu

lati

ve c

han

ge in

me

an p

aid

h

ou

rs w

ork

ed

, 20

07

to

20

15

Decile of female hourly wage distribution

2007-2015


Notes: “Decile 1” excludes the bottom 5% of female hourly wage earners. Source: IFS calculations using Labour Force Survey

Proportion of 25-29 year olds with a degree by birth cohort


0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

1965-69 1970-74 1975-79 1980-84 1985-89

Male

Female

Human capital trends show a rapid increase in the % of workers who are highly educated.

With little evidence of a drop in the education premium. Ratio of BA (equiv.) median wage to that of A-level (equiv.) by birth cohort

Source: Blundell, Green and Jin (2016)

Age and Generation: Bigger falls in earnings for younger employees

-12%

-10%

-8%

-6%

-4%

-2%

0%

22-29 30-39 40-49 50-59 60+ All

Ch

ange

in r

eal m

edia

n e

arn

ings

Ap

ril

20

08

to

Ap

ril 2

01

5


Notes: Earnings deflated using the CPI. Source: IFS calculations using Annual Survey of Hours and Earnings

Higher employment rates for older people


0%

10%

20%

30%

40%

50%

60%

70%

80% 2

00

5 Q

1

20

05

Q3

20

06

Q1

20

06

Q3

20

07

Q1

20

07

Q3

20

08

Q1

20

08

Q3

20

09

Q1

20

09

Q3

20

10

Q1

20

10

Q3

20

11

Q1

20

11

Q3

20

12

Q1

20

12

Q3

20

13

Q1

20

13

Q3

20

14

Q1

20

14

Q3

20

15

Q1

20

15

Q3

20

16

Q1

Emp

loym

en

t ra

te

Age 55-59 Age 60-64 Age 65-69 Age 70-74

Source: IFS calculations using the Labour Force Survey.

Translates into real income changes: Real median household income since 2007–08 (UK), by age group

80

85

90

95

100

105

110

115

2007–08 2008–09 2009–10 2010–11 2011–12 2012–13 2013–14 2014–15

Real

med

ian

inco

me

inde

xed

to le

vel i

n 20

07–0

8 22–30 (BHC) 31–59 (BHC) 60+ (BHC)

Large generational differences in income growth,

pension wealth and house ownership.

Percentage of private sector employees who are active members of a DB pension scheme by age, for people born in different decades

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

50%

25 30 35 40 45 50 55 60

1950

1960

1970

1980

Prospects and Policies

• Real wages and productivity have been very slow to pick up

– ‘buoyant’ employment,

– changes in key characteristics: older people, immigrants, private sector, part-time work, self-employment.

• Unprecedented expansion of higher education has paid off

– education premium maintained but signs of falling back recently,

– new growth coming from post-graduate education/ returns,

– limits to further degree level expansion?

• Male earnings and, in particular hours, have been driving the fall in earnings for young families with low educated parents

– rises in women’s employment and education has not done much to help reduce inequality between households due to assortative partnering,

– continuing ‘strain’ on the tax-credit and benefit system.


-14%

-12%

-10%

-8%

-6%

-4%

-2%

0%

2%

4%

Poorest 2 3 4 5 6 7 8 9 Richest All

Ch

an

ge

as

a p

erc

en

t o

f n

et

inco

me

Income Decile Group

Working-age with children

Working-age without children

Pensioner households

Impact of tax and benefit reforms May 2015 – April 2019 (including universal credit)

Assumes full take-up of means-tested benefits and tax credits

and all changes fully in place

Summary, Prospects and Policies (cont.)

What should be the response at the bottom for inclusive growth?

• Minimum/living wage

• useful but not enough to solve the growth or inclusion problem

• Human capital and mobility

• little evidence of earnings progression for lower skilled and part-time workers – employment (especially part-time) is not enough!

• re-think vocation education; non-cognitive skills;

• early years investment, low ed. parents their kids opportunity is key.

• Efficient re-design of tax/benefit system

• ‘universal credit’ plus; contribution based social insurance;

• age-based/intergenerational taxes.

• Innovation and work?

• developing clusters outside London.

Extra Slides (may be useful in dsicussion)

Labour Markets and Inclusive Growth by Richard Blundell Pre-talk notes: Growth, the labour market and inequality in the UK

• First the big picture, very briefly.

Then unpicking the parts of the picture. What is the role of:

• employment and inactivity?

• hours vs wages? (Bell and Machin note political implications of local variation and Brexit)

• labour earnings versus taxes and benefits?

• gender differences and earnings within the family?

• human capital, sector and immigration?

• age and cross generation differences?

• Finally, and briefly: prospects and policies?

Earnings for employees and the self employed


0%

5%

10%

15%

20%

25%

Pe

rce

nta

ge o

f e

mp

loye

es

/

self

-em

plo

yed

ind

ivid

ual

s

Earnings (per week, April 2014 prices)

Self-employed Employees

Source: Figure 2.14 of Cribb and Joyce (2015) “Earnings since the recession”

Proportion in each birth cohort with post-graduate degrees


And generational differences: Median net equivalised household income (before housing costs are deducted) by age, for people born in different decades

5

10

15

20

25

30

25 30 35 40 45 50 55 60 65 70

1910s 1920s 1930s 1940s 1950s 1960s 1970s Early 1980s

Source: Cribb, Hood and Joyce, 2016

Homeownership by age, for people born in different decades

20%

30%

40%

50%

60%

70%

80%

90%

25 30 35 40 45 50 55 60

homeowner1930 homeowner1940 homeowner1950

homeowner1960 homeowner1970 homeowner1980

Source: Cribb, Hood and Joyce, 2016

Employment rates of older men over time

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

1975 1980 1985 1990 1995 2000 2005 2010 2015

Per

cen

t em

plo

yed

or

self

-em

plo

yed

Year

All

55 to 59

60 to 64

65 to 69

© Institute for Fiscal Studies Source: Labour Force Survey.

Increases in female state pension age continue to push up employment rates

10%

20%

30%

40%

50%

60%

70%

20

03

Q1

20

03

Q3

20

04

Q1

20

04

Q3

20

05

Q1

20

05

Q3

20

06

Q1

20

06

Q3

20

07

Q1

20

07

Q3

20

08

Q1

20

08

Q3

20

09

Q1

20

09

Q3

20

10

Q1

20

10

Q3

20

11

Q1

20

11

Q3

20

12

Q1

20

12

Q3

20

13

Q1

20

13

Q3

20

14

Q1

20

14

Q3

20

15

Q1

20

15

Q3

Emp

loym

ent

rate

age 59

age 60

age 61

age 62

age 63

State pension age rises from: Age 60 to 61 Age 61 to 62 Age 62 to 63


Source: Labour Force Survey.

90:10 ratio for male hourly wages and net household income 1994 to 2014

3.8

4

4.2

4.4

4.6

4.8

1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

90

:10

rat

io

Net household income 90:10 Male hourly wage 90:10

Labour Markets and Inclusive Growth - Homepage - Institute For Fiscal … · 2016-11-18 · Labour Markets and Inclusive Growth Richard Blundell Institute for Fiscal Studies and University

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