The Bottom Line: private sector subsidised employment

Readers based in the UK might want to check out the Mary Portas documentary series on Channel 4 at present (also on 4OD catch-up).   If you have been put off by the presence of Portas, or the Channel 4 marketing guff for the series, it is still worth watching.

In summary, Portas is a very well-known retail consultant in the UK, who has re-opened an old garment factory in the North of England.  This area's industry was largely based on textiles and has been devastated by competition from imports.  The documentary typically suffers a bit from the "dramatic editing" that seems to blight most UK factual TV output these days, but it does give a real voice to the people in these communities and the effect long-term joblessness has had on them and their families.  In amongst the "oh no, we've run out of lace!", there is one of the most damming, hard-hitting and brutal depiction of the psychological effects of unemployment I have seen on UK TV since the '80s.

Over 300 queued for just 8 minimum-wage, temporary machinist jobs.  Many had never had a job in their lives.  One 20-year-old spoke of how money had always been "given" to him - it was a genuinely moving experience to buy food with money he had earned for the first time in his life.  Others spoke of the boredom of unemployment and wanting to do something. The town is run-down and dilapidated; there are people standing around idle.

The project appears to be an example of a private-sector employer with public subsidy funding.  I think the trainees' wages were being paid for via one of the UK govt's apprenticeship programmes, with Channel 4 and probably some other private sources stumping up the rest.  So, probably not a true "job guarantee" in a sense, more of an apprenticeship with government funding.

I would underline the demand for these jobs: over 300 seeking textile work for less than £6 per hour.  I think we have a very, very long way to go before hitting NAIRU or any other "optimal" rate of unemployment.  

Many of the trainees were so damaged by joblessness, the concept of turning up at a fixed time and place to carry out set tasks was totally alien to them.  The private sector would struggle to hire these people, even on a subsidy (in last night's show, one machinist had to be fired).  This is where social sector employment comes in.  The unemployed have been damaged by a pervasive culture of joblessness and will need "fixing" before they can hold down a private sector job.  

In the UK, the NHS offers medical assistance even though it may not be "optimal" or "productive" in some economic models.  Helping the long-term unemployed build the skills to find private sector work is an "NHS for jobs".

This is not the same as Workfare or work experience.  A job is a reciprocal arrangement - I give you some of my time and labour, you give me some money.  Schemes like the Work Programme miss out this crucial link.  It's like learning to drive without turning the engine on.

The Mary Portas scheme, the government reports into the Future Jobs Fund and countless studies show that being paid for a day's work is central to the commitment and success of the schemes.  It's not the only requirement for contentment in a job, and it isn't always essential otherwise there wouldn't be volunteers.  But here we are re-training a group of people to understand the most basic processes of employment - that it is the means of self-support in exchange for labour.  To fully appreciate the meaning of this process, a job is the only option.  There is no substitute.

Programme Home Page: http://www.channel4.com/programmes/marys-bottom-line

Interview with Mary Portas: http://www.telegraph.co.uk/finance/newsbysector/retailandconsumer/9120973/Mary-Portass-bottom-line.html

Jobs are up, but the private sector still fails to make up the difference

Today (Wednesday, 14 March 2012) the UK's Office of National Statistics released the latest figures for the jobs market. Some commentators have noted the net increase in private sector employment over the last quarter. From September to December 2011, public sector employment decreased by 37,000 and private sector employment increased by 45,000. Does this increase back up the claims made by business leaders in October 2010 that they could "the private sector should be more than capable of generating additional jobs to replace those lost in the public sector"?

On the face of it, yes, the private sector has created more jobs and filled the gap. But this is just for the three months running up to the Christmas period, a time traditionally associated with higher levels of short-term private sector employment. We would need to see this pattern repeated over the next two quarters at least to see if this represents a real trend.

The figures given in Table 4: Public and Private Sector Employment shows that from September 2010 (i.e. the figures immediately before the Telegraph letter), public sector employment stood at 6,262,000 and the total employed in the private sector stood at 22,858,000. At December 2011, this had changed to 5,942,000 employed in the public sector, a reduction of around 320,000. Private sector employment had increased over the same period to 22,947,000, a net increase of 89,000. Clearly, since October 2010, the uptake in private sector employment has failed to keep up with the loss of public sector jobs.

The total labour force has also increased by around 400,000 over this period. The participation rate of the overall workforce has fallen by around 0.2%.

In table EMP0, over the 12 months to the January 2012, the ONS notes a rise in the temporary workforce of around 110,000. This may also account for the rise in private sector employment seen above. The latest figures state that nearly 40% of those now working in temporary jobs are doing so because they cannot find permanent work. Over the same period, part-time working has increased by some 178,000 employees, with around 18% of these wanting but unable to find a full-time job. Nearly 350,000 more employees are working shorter hours than they would prefer than a year ago. This represents real under-employment, and has serious implications for the economic wellbeing of households. It also represents a real, irreplaceable loss of output for the economy.

It is also worth considering that swapping a public sector job for a private sector one may not be a like-for-like exchange. The public sector has a much higher proportion of female workers than most parts of the private sector. This is probably partly due to the nature of work carried out by the public sector in the UK, but public sector organisations can often offer much more flexible working arrangements and better benefits, particularly compared to the lower levels of the private sector. Many decide on careers in Health, Social Care and Education as a positive choice; the classic vocational motivation. Even where public sector employees earn less, these benefits to the employee may not be reflected in the hourly pay rate.

As noted above, there has been a substantial increase in both temporary and part-time working, not all of it voluntary. Exchanging a full-time teaching assistant post at £6.50 an hour for a part-time store assistant job at £6.08 an hour can hardly be considered a move into the “lucrative” private sector. Trade Unions representing public sector workers stick to the line that public sector workers are “underpaid”, to the point where even those in the higher-rate tax band have been know to proclaim themselves “low paid”. The latest ONS figures show that average Public Sector pay (excluding the banks) is higher than Private Sector pay, and has remained constant in recent months while Private Sector pay has fallen. Economics professors may still earn less than their City counterparts, but that is unlikely to elicit much sympathy from those on the Work Programme. Using this logic, the austerity measures are “liberating” armies of workers from the yoke of public sector drudgery for the bountiful pastures of shelf-stacking at Poundland.

The private sector has yet to increase the numbers of employed to make up for the full loss of public sector jobs announced so far, plus the overall increase in the workforce. This has resulted in an increase in the percentage of the workforce economically inactive. Even if the private sector can create sufficient opportunities, these jobs may not be of the same overall pay and conditions available in the public sector and represent a real fall in welfare. If the trade unions choose their battleground from the starting point that public sector workers are always worse off, they will be entering a quagmire.

Unemployment is being used to discipline both public and private sector employees. Workers are being forced to take whatever employment is available, even if that means accepting a degree of “flexible working” that they do not want. Employers would not be able to demand this level of unwilling flexibility if there were sufficient jobs available in the economy. This represents a loss of potential output and real hardship. So, the real question remains: why are there not enough jobs?

Notes - Full ONS tables and datasets are available from:

http://www.ons.gov.uk/ons/publications/re-reference-tables.html?edition=tcm%3A77-222482

Why hasn't big business kept its half of the bargain?

Remember this?

35 business leaders back Osborne's cuts (Robert Peston's blog, BBC website, 17 October 2010)

In mid-October 2010, 35 high-profile business leaders in the UK wrote an open letter to the Telegraph newspaper calling for the government not to delay the deficit reduction programme in order to “deliver a healthier and more stable economy”.

In spite of concerns at the time of rising unemployment, the business leaders stated that "the private sector should be more than capable of generating additional jobs to replace those lost in the public sector".

So influential was this view, that the economy was exiting recession and the private sector was poised to pick up the excess labour, that it found its way into the House of Commons Select Committee for Work and Pensions as they considered the Coalition government's decision to end the Future Jobs Fund:

Professor Gregg: “The Connexions service isn’t working well in terms of getting people from deprived backgrounds into work at the first stage. As the economy picks up, some of that will be solved.”ⁱ

At this date, the Employment Rate in the UK stood at 70.6%.

One year later, in October 2011, the Employment Rate was 70.3%, a fall of some 14,000ⁱⁱ in the number of employed. Moreover, as the total workforce increased from 40,045,000 to 40,181,000, for the employment rate to have remained stable, the total number of employed would have had to increase by around 150,000 over the period.

Where have all these private sector jobs gone? If the private sector is “more than capable” of making up for public sector job losses, why isn't the Employment Rate stable? And given that the government has diligently followed the business leaders advice of October 2010, and remained on its path of austerity, where is the improved “business and consumer confidence” promised?

Although the Commons Select Committee seemed to be working on an assumption that the private sector could create jobs, there were notes of caution even then:

Neil Carberry: “I also echo the point made about labour conservation. There has been a strong stream across the private sector- probably based on the experience of the ’90s recession when some executives felt that the axe was taken a bit far, a bit early and the firm was not then prepared for the recovery [...] That means that there is quite a lot of excess capacity in terms of human resources within members. That is one of the factors that is driving lower hiring. […] lower hiring does affect the issue.”ⁱⁱⁱ

At this time, many businesses were implementing a shorter working week to avoid redundancies. In effect, they were “hoarding” surplus labour, waiting for an upturn in demand. If workers are on short hours or reduced overtime, employers will generally look to increase capacity with the current workforce before taking on additional employees.^iv

The claim that the private sector would take up the slack has turned out to be based on ideology rather than fact. The government has kept its half of the bargain, but the private sector has been placed under no obligation to reciprocate. As noted in this edited exchange between the Government Minister, Chris Grayling, and Glenda Jackson MP of the Select Committee^v regarding the Work Programmes, the private sector was never expected to make up the difference:

Glenda Jackson: “Could I just take you back to the Marks and Spencer experience? Is this something that other retailers are participating in? I am thinking of those, for example, who wrote that letter saying that the private sector would be able to create the jobs necessary. Are they all participating in this, and are they actually coming to you and saying, "We can guarantee to create this number of jobs for this number of young people."?”

Chris Grayling: “We’ve been very encouraged by the response so far to the work experience initiative we launched three months ago […] Certainly we have found bigger retailers and bigger employers very co-operative.”

Amazingly, large retailers, in the run up to Christmas, were happy to have large numbers of “work experience” people at minimal cost to themselves:

Glenda Jackson: “So you are not actually pushing those companies that are engaging in the work experience programme to give you some kind of numbers of the jobs that they can guarantee to create? In that work experience, is there any cost to the employer that the Government have to cover?”

Chris Grayling: “Beyond some core costs of just people’s time organising it, no. This is something that employers will be doing themselves and we are looking at employers on a large scale and a small scale.”

But would this equate to new jobs?

Glenda Jackson: “But you’re not asking the private sector to guarantee an increase in jobs?”

Chris Grayling: “The private sector will never guarantee to recruit a certain number of people, but the point is we have to ensure that those people who are [on] benefits are ready to take advantage of the opportunities that arise.”

So, private sector businesses, including many retailers, asked the government to reduce the deficit, leading to the axing of paid-work schemes to be replaced by “work experience” schemes, for which they had to contribute minimal resources and offer no guarantees of employment.

Why is nobody asking why the private sector employers who signed that letter have failed to deliver their half of the bargain?

i Uncorrected Transcript of Oral Evidence to House of Commons Work and Pensions Committee, 27 October 2010 ref: HC472-i Q94 http://www.publications.parliament.uk/pa/cm201011/cmselect/cmworpen/uc472-i/uc472i.htm . Professor Paul Gregg is Professor of Economics at the University of Bristol.

Note: This document references quotations from the above document. Neither witnesses nor Members have had the opportunity to correct the record. The transcript is not an approved formal record of these proceedings.

ii Source: ONS Labour Market Survey February 2012

iii See (i) Q95. Neil Carberry is Director of the CBI

iv http://news.bbc.co.uk/1/hi/england/derbyshire/7856022.stm An example of negotiated “short hours”. Production did return to normal, only to be reduced again in this case following the 2011 Japanese earthquake and tsunami.

v http://www.publications.parliament.uk/pa/cm201011/cmselect/cmworpen/uc472-ii/uc47201.htm See (i) Q125-130 . See also Note for (i). Glenda Jackson MP is a member of the House of Commons Work and Pensions Select Committee. Rt Hon Chris Grayling MP is the Minister of State for Employment, Department for Work and Pensions.