The latest ONS figures need proper interrogation to understand what they really reveal about Britain’s labour market
The fall in the number of people in Britain claiming jobseekers allowance reported in the Department of Work and Pensions press release on 20th October 2013 appears to be welcome news. However, the focus on aggregate statistics about the quantity of jobs masks a whole range of potential issues related to the quality of the jobs being created.
Over the last few decades, the concept of job quality has increasingly attracted the attention of labour economists. Seminal contributions have been made by researchers in so-called ‘job search theory’ seeking to link the decision-making of the unemployed to macroeconomic outcomes such as unemployment. These economic models allow for the fact that both jobs and workers are heterogeneous – people differ and jobs differ. From this perspective, therefore, such a large fall in the reported number of individuals claiming jobseekers allowance leads naturally to questions about what types of jobs are currently being created in the UK and who precisely is securing them.
For example, the types of jobs on offer may lead to the phenomenon of ‘underemployment’, whereby individuals want to work more hours than they are contracted to do. In such cases individuals seeking full-time employment opt for part-time employment rather than remain out of work; or those in employment are restricted in the amount of overtime they are offered. Conversely, individuals concerned about retaining their jobs may find themselves working more hours than ideally they would choose. Such constraints in the labour market lead to individuals working sub-optimal hours with associated adverse impacts, not only on their take-home pay and living standards but also on their job satisfaction and career progression (which is likely ultimately to impinge upon the future productivity and growth of the economy as a whole). Indeed, evidence from the British Social Attitudes Survey 2010 indicates that approximately one-third of employees surveyed are not happy with their hours of work.
In addition, recent labour market trends are consistent with individuals lowering what labour economists like me call their ‘reservation wages’ – the lowest wage at which they are willing to work. This is a key concept in job search theory. It suggests that unemployed individuals may accept jobs they would not take up in a more favourable economic climate: such as graduates accepting posts typically associated with non-graduates. In the current economic climate in Britain, finding ‘a job’ seems to be more important than finding ‘the ideal job’, defined in terms of remuneration and other aspects of the job package. Understandably, because of pessimism about labour market prospects, many individuals are currently behaving cautiously. In such circumstances, accepting job offers that fall short of their expectations are decisions which are entirely understandable.
Trends in falling reservation wages are also generally associated with increases in labour supply, inevitably leading to intensified competition for jobs. Those in the labour market with the least education and the lowest skills are unlikely to fare well and secure employment in such a competitive environment.
With living standards eroding and many households facing decreases in real income, it is crucial that we also consider measures of the quality of jobs, as well as the basic statistics relating to the quantity of jobs. This is recognised by the European Commission’s employment strategy which ‘seeks to create more and better jobs throughout the EU’. Note both the ‘more’ and the ‘better’ in that quote! Undoubtedly, measuring the quantity of jobs is relatively straightforward compared to measuring the quality of jobs. The latter also happens to be a concept less amenable to grabbing headlines….
Job quality is in fact a multidimensional concept, with researchers from many academic disciplines, including economics, debating how it can and should be measured. It’s obviously not just about wages. In fact, labour economists have found that job security is one of the most valued aspects of a job, albeit something that, unfortunately, seems to be currently enjoyed by increasingly fewer employees. Evidence suggests that young adults attach great importance to this. For example, evidence from the second wave of Understanding Society, a UK Household Longitudinal Survey, covering 2010-11, indicates that 57% of individuals aged 16 to 21 surveyed regard future job security as being ‘very important’ when deciding what type of occupation to follow. This needs to be recognised and remembered when we consider trends in the number of temporary and fixed-term jobs lately being created.
The point is surely this: if we want to understand what is really happening in the labour market in Britain today, it is crucial that we place figures relating to aggregate levels of, and trends in, unemployment into proper context by also looking hard at the types of jobs on offer and then working through all of the genuine difficulties that exist in measuring job quality. Looking at trends in the number of individuals claiming jobseekers allowance is only a start. It raises a whole host of questions about the nature of contemporary job creation in the British economy, not to mention the future of the economy as a whole and the society that depends upon it for its well-being.