In this podcast we speak to Nita and Tony about the labour market in the UK. What the post-pandemic labour market recovery has looked like, how the UK is faring compared to other OECD countries and what needs to be done to help people into work.

Full transcript

Mubin: Welcome to the Financial Fairness podcast with me Mubin Haq.

In our new series, we’ll be exploring what policies the political parties are pitching in the run up to the election and what they should be offering to make our society financially fairer.

As usual we’ll have a range of experts to help us make an assessment of where we’re at, and where we need to be heading to.

You can subscribe to the series through your podcast platform of choice, and series one and tow are available now.

In today's episode, we’re focusing on employment. For years we’ve seen high rates of jobs growth, but post pandemic, we’ve experienced some significant labour shortages. Why do demographic changes mean that the rate our workforce is growing is now reducing? So how might we increase the number of people in work? And are our public employment services fit for purpose?

Joining me today is Tony Wilson, Director for the Institute of Employment Studies. Tony has been working on employment policy for many years and is leading the work of a commission on the future for employment services, which we at the Financial Fairness Trust are funding.

Also joining me is Nita Clark, Director of the Involvement and Participation Association. Nita has a long career in the trade union and labour movement.

Tony, can I come to you first. Can you give us a broad picture of what's been happening in the labour market?

Tony: I think it's a picture that's changing. The long-term story, I think, if we were talking about the labour market before the pandemic, would be a sort of glass half full and glass half empty one. And the glass half full one, actually, is that the UK has tended to be a really high employment country, a lot of people in work, a lot of people actually often in pretty high skilled work as well. And one where it's pretty easy, relatively easy to get a job but quite easy to lose your job as well. A flexible labour market, relatively high employment, fairly stable economy, but one that's been characterised by really significant inequalities between places and between different groups as well -  so a sort of high skilled economy, but one with quite a lot of low skilled, poorly paid insecure work.

You fast forward now, though, three years on, from the pandemic, and actually  the UK is still a pretty high employment country. But employment has suffered a lot more in the UK than nearly any other advanced economy in the world, we've had pretty much the weakest labour market recovery in the developed world. And, we're seeing some of these issues and challenges, that existed before the pandemic and really being brought into sharp relief around social exclusion, labour market exclusion, and I think widening inequalities between groups as well.

So yeah, our labour market has been in many respects, has been a real success story. But ones where people haven't always shared in that success, and quite significant challenges around how we share those.

Mubin: So can I just come back to this picture – you're saying we've been quite poor in terms of performance, sort of post pandemic. Is it that just other countries have caught up with where the UK was? Or is it actually more significant than that?

Tony: No, it's more significant. There's a bit of a misconception, actually, that the UK didn't really have much further to go on employment. So of course, our post pandemic performance has been worse than other countries and many other countries were further behind, and they've caught up with us. But that's not really the case, you know, we have the second highest employment in the G7 group of seven major economies, before the pandemic, we're now fourth. So, Japan was higher than us, it's now even higher, Germany was lower than us, it's now higher, Canada has gone from below to above.

Now, many countries with lower employment have seen bigger gains. But it's an almost uniquely UK story to see employment participation fall after the pandemic. You know, the challenges we're facing actually are very similar to many other developed economies, these challenges around skills and labour shortages coming out of the pandemic, a bit of a sort of fiscal splurge during the pandemic, increasing demand, and then, you know, the labour market running to catch up - this has sort of happened in lots of places. But in the UK, something isn't working, various things actually aren't working, which are conspiring to lead to actually lower employment, meaning we're not meeting demand, we're not filling the jobs that are available. And some of this is adding to some of the kind of current pressures we're seeing.

Mubin: Nita, what do you think's behind some of this? Why do you think we’ve fared so poorly?

Nita: Well, I think, you know, it's impossible to underestimate the huge challenge for UK employers at the moment. I mean, you've got the complex labour market that Tony has been describing. You've got labour and skill shortages in some absolutely key areas; you've got the external cost of living crisis, which is hitting everybody, but obviously, people on lower incomes even more; you've got growing inequalities, I mean, for example, the stress in organisations where some people can work from home, and others can't. And these are raising all sorts of issues of fairness within workplaces, and we've still got this underlying problem with poor productivity in the UK. And you've got the increasing evidence of the impact of ill health, on what was previously part of the working population. And the thing that I find incredibly frustrating is that so far as the current government is concerned, there is no attempt to bring some of these issues together in a holistic fashion, in a way that would help both employers but will also help employees.

Mubin: So, this group, who are affected by ill health. Can we just unpack that a bit as to who that group is? And how well placed are we to support this group back into work?

Tony: Firstly, it's a long running issue, which has definitely got worse since Covid. Possibly, I mean, actually, almost certainly, in part because of the direct effects of the virus, but it's been a long running issue driven by other factors too, the most important I think, is that, you know, we're getting older as a society, and your likelihood of having a work-limiting health condition or an impairment increases really significantly after about your mid 40s and into your 50s. And, that's a much larger group now. So, 20 years ago, about one in five of our workforce were aged over 50. Now it's about a third. So partly, it's about us, as a population getting older.

And, because we've got more people in the workforce and more older people in the workforce, we've got more people managing chronic conditions in work. And it does appear to have been quite a significant increase in number of people with many with multiple health conditions, which again, might relate back to some of the things that have happened post pandemic, you know, people's mental health getting worse, during the pandemic, and people waiting for treatment, perhaps leading to other health conditions getting worse as well.

The one other thing I'd say, though, is although ill health has been rising for some time, or the number of people managing chronic conditions has been rising for some time, it's only really been the last five years that we've seen these very significant increases in the number of people out of work with health conditions. So, in other words like, although we've been getting sicker if you like, we've often been accommodating that - we've often been staying in work with those conditions. Whereas now it appears there’s more people are more likely to drop out of work, or people already out of work are finding it harder to get back in. So, part of the challenge here is about how we try and make work more supportive of good health and accommodate health conditions better in work.

Nita: I think Tony is absolutely right. But we're also in a position now where the National Health Service is finding it particularly challenging to respond to those sort of chronic conditions that Tony has been describing. You know, things like physiotherapy, support for mental health. And at the same time, whereas I think years ago, there were employers that took workplace health seriously, I think that the evidence is that there's been a decline in the workplace offer in terms of support for employees. And I know the government did say that they wanted to reward employers who develop further their occupational health services. But the fundamental underlying problem with that is that we don't have the staff available, and until we try and have a holistic approach which deals with all the kind of parts of this jigsaw, then the situation isn't going to improve.

Mubin: So just taking this a bit further, because I think this background is important to then talk about the policies that parties are going to be coming on to later. But, during the pandemic, we heard a lot from employers about being more supportive of their workforce, and this included huge growth in terms of flexibility in the workplace, especially for those working from home – which you’d expect would enable more with health conditions to remain in the workforce. So why haven’t these changes had more impact?

Tony: I think there's some really interesting evidence on this. One study that looked at retention of people over 50 in work, suggested that people with long term health conditions who had good relationships at work, who had high job satisfaction, were six times less likely to leave work due to their health than people with exactly the same characteristics, but who had poor quality - had poor job satisfaction, poor relationships at work. So, good relationships at work and good work generally, can be so protective of one's health.

But coming back to your question, why hasn't the kind of flexible working and hybrid working revolution led to better management of health at work? I think there's a lot of answers for that. But one is that more people still have to work in workplaces then are able to work at home. And it's many of those high contact jobs, some of which are sort of lower skilled, lower paid jobs as well, where we do have higher rates of long-term health and that's because there's a really important social gradient to health as well. People who are in lower incomes are more likely to have poor health, people in lower paid occupations, more likely to have poor health and so on, so that’s kind of challenge number one if you like.

But the second is, it's been a bit of a double-edged sword, the ability to work from home. So, it's definitely been beneficial for people with many different circumstances who need or want greater flexibility in their work. It hasn't always been better for people with health conditions, you know, it's not always the case that your physical health is better sitting in your home than sitting in an office for example, your mental health may not be better working on your own compared to working with others.

We've done quite a lot of research on this a few years back during lockdowns that actually suggested some quite counterintuitive findings. Like for example, the people who were naturally fairly introverted, actually saw their mental health get worse whilst working from home relative to people who might be more like extroverted for example. So I think there's a few different things going on. But fundamentally, it hasn't changed the underlying arithmetic that if you've got poor health, you're more likely to be out of work. And if you're out of work, you're more likely to have poor health.

Mubin: So, we’ve got quite a serious problem in relation to numbers in the workforce. But demographic changes are set to make this a very challenging situation. Tony, can you just say a bit more about the future growth of the labour market?

Tony: Well, this would be my one - if listeners sort of leave with one takeaway, I'd want it to be this - that what we've seen in the last few years, isn't a result of the pandemic, these are long running changes, which are going to be the shape of things to come actually. We've seen really significant changes in labour force participation over the last few years. But those are, those are changes that were happening and that will accelerate over the next two decades. In particular, that’s because our population is going to continue to age.  We've got quite a lot of people now in their 50s, who will be entering their 60s over the next decade. We've got fewer young people now than we had before, than we've had in the past, there's half a million fewer young people in the labour force now than just a decade ago. And that's because there have fewer young people full stop, but it's also people are staying in education longer. And we've got lower labour market migration, we've still got quite high levels of migration overall, but we've got fewer people coming to the UK and settling here and working here.

So, all of this means that they're going to see a really significant slowdown in the growth of the labour force. And just putting some numbers on that, for the last two decades - so twenty years before the pandemic - employment grew by on average, 300,000 every single year. Every year, we added a city the size of Brighton to the labour force - every single year through thick and thin, recession and recovery.

In the next two decades, that's going to fall to we estimate about 130,000 to 140,000. Most of the growth in next two decades will be growth amongst people aged over 50. And that means we have to get better at raising participation of people out of work and being more productive in work. Nita made the point earlier, this is fundamental to it, we've not had to make big gains in productivity over the last two decades, because we've relied on participation. We can't do that anymore. We've got to be more productive, and also help more people into the labour force.

Nita: And I think, I think Tony is absolutely, absolutely right. And the pressure that this is going to put on employers for the offer that they make to employees to be able to recruit, and to be able to retain, and it’s going to need exactly the kind of step change that Tony is talking about. Because it is also the case that many people's expectations of work, are now far more substantial than they were before. They want to be treated fairly against their colleagues; they want to feel that they can grow at work - all of these things. And people say that this is the younger generation, but I think increasingly, actually, it's true of the people you know, towards the upper age limit, people are becoming more picky. And when you have some choices about where you work, that means that employers are going to have to think really, really in a sort of transformational way about how they approach the workforce. And I think this is going to require a mindset from, from employers about how they treat and develop and approach their staff that's very different from that, that we've seen up to now. Any organisation that doesn't take engagement, in its broadest sense, employee engagement, seriously, is going to be on a hiding to nothing.

Mubin: Okay, so how seriously are the political parties taking this? How much is this on the radar? Because we have heard some things coming out from government, for example, in relation to the NHS workforce and it's got quite ambitious plans there in terms of the skills agenda. We've also had that childcare plan recently as well from the government - how much that will deliver, it'll be interesting to hear your views. So, if I come to you Nita first in terms of how seriously they’re taking it and what ambitions they’ve got?

Nnita: Well, in some instances, they talk a good talk. I mean, increasing access to childcare, okay, for, for younger children, pre-nursery. It's a wonderful strategy, and nobody could disagree with it. Where are the plans to develop the workforce to enable them to be able to provide the additional services? Preschool childcare at the moment is in crisis. Partly because of costing but also because it's not got the status and prestige of some other employment group.

Again, if you take the NHS. Yes, there's some very sensible plans for increasing the numbers of nurses and doctors and also professionals allied to medicine. But given the state of morale in the NHS at the moment, and the numbers that are leaving the NHS, you know, it's fine to say we want to recruit more people, but against a background of very low morale, it’s difficult, isn’t it? It’s not enough for government to have pious hopes about - ‘yes, we'd like to do this, yes, we'd like to do that’. Where is the underlying strategy that is actually going to deliver in these cases the workforce to deliver the aspiration?

Mubin: Tony, what's your take on, you know, the sort of government understanding, and not just government, but of other political parties understanding the problem and having some plans in place?

Tony: Well, I think, just picking up on Nita’s point first, because I think this points to a really important issue here that any kind of service delivery needs to be accompanied by a really clear workforce plan as well. And it's a really good example of how government often isn't joined up, you know, that we, we talk about trying to address some of the barriers to work or participation, but we don't think through some of those workforce implications and how we can do better on that.

But coming back to your question, though, about how seriously is the government taking these issues around employment - and Labour too. I would say, both political parties are definitely taking this seriously. I would expect the Conservatives, the government, will quite possibly lead on how we raise participation or how we support higher employment, and possibly also how we can make work more productive and invest more in skills and workforce development - measures that will improve economic output too. And we're seeing in particular, I think more of a focus on how we can support people with long-term health conditions. We might see more around investment in occupational health, we might see more around employment support for disadvantaged groups or better joining up across local services. So there's definitely focus in government.

I think, though, inevitably, we're seeing increasingly within government a focus on narrow dividing lines and areas where they can make political gains or, or create clear dividing lines in advance of an election. And so in practice, a lot of the debates around employment get reduced to debates around conditionality around the benefit system. And around whether it's right or not for people to be out of work. But I think looking through some of that, I think there is a real focus too on how do we support people with health conditions and how do we raise employment.

For Labour, I think plans are at an earlier stage. But there's a very clear commitment from the shadow team at the Department for Work and Pensions from Liz Kendall and also from Alison McGovern, the Shadow Minister for Employment - very clear statements already made about the importance of investing in employment support, about the need to reform how we do that to make job centres and employment services more accessible, and to try to take steps to raise participation in work.

From the [shadow] Treasury team, it’s been less about that so far. But I think this growth mission, one of these five missions that Kier Starmer has talked about starts to be unpacked, I think we will see more of a focus around skills, economic development and employment support as being together, you know, really important drivers of economic growth, but also extending opportunity and reducing some of the disadvantages that we face. So, I'd say, I think this will be a really defining challenge in the next parliament, whoever wins. But I think actually, both parties are quite focused on it.

Mubin: Okay, so let's just start unpacking some of those big areas that you talked about, let's take employment participation, so the employment support services that we've got. What's the offer that we've got at the moment in terms of public employment services? Is it any good?

Tony: It kind of pains me to say what I'm going to say but I don't think it's, it's that good at the moment. It pains me because I have spent sort of 20 years in this space, including working in government and outside it.

I feel like we don't really have a public employment service at the moment. We've got a claimant monitoring service really. Day-to-day, the majority - the vast majority of time in Jobcentre Plus - is spent seeing the same people again and again and again, and making sure that they're spending all of their time looking for work. And that same group of people is about one and a half million people out of the eight or nine million who are out of work at any point in time. So, it's a very narrow service, it's also not one that's open to the public - it's a public service that the public can't use.

So even as late as 2009, there were half a million people walked into a job centre every single week without an appointment, and spoke to somebody or use the service. Now, you can't walk into a job centre, if you're not there for an appointment.

So, it's not an open service, it's a very narrow service for the most part, it's focused on compliance, not support. And a really important aspect of that compliance piece is that it's one that sanctions people a lot. So, half a million people are sanctioned every single year. And virtually all of those - they're not being sanctioned, because they're not looking for work - virtually all have been sanctioned because they've missed an appointment - 98% of sanctions are for missing an appointment. And that, for me, is just clearly a system that is failing, there's no way that we can say a system that cuts benefit for half a million people every year for missing an appointment is a successful system as things stand.

And it also ties up hundreds of people's time in administering a sort of street level bureaucracy of sanctioning people on low incomes. So, there’s a lot we can do I think there's what we need to do to improve that service for the public and for people out of work.

Mubin: So, are employers getting a good offer from Jobcentre Plus and the public employment services Nita? You engage with employers a lot, what do you think of what's on offer?

Nita: I think broadly speaking, employers are very critical of what's on offer, because in some parts of the country, there is a local ecosystem that has developed where all the different agencies, both Third Sector, public sector and indeed employers, are acting to try and create this local ecosystem, which does what we're describing, you know, but that requires local political will. The problem here is that employers can only do so much. And I think many of them are trying very hard. But if there isn't that central support and focus and a desire to pull the different agencies together, then it's very difficult for employers.

Mubin: And Tony, who's not being catered for? So we’ve got one and a half million people who are getting some form of support. And then we've got this eight, nine million people who aren't getting anything but who aren't in work, what needs to happen there?

Tony: Yeah, so I think there’s a couple of things really. One is that if we had a meaningful public employment service that was available for people who might be thinking about work, might be looking for work, or even who might be in work and might want better work. I think that that becomes the kind of magnet around which you can then build other services, too.

I think it's important though, that needs to be seen as a service people engage with without fear that it will affect their benefits. Now, for those people then who are sort of more disadvantaged or outside the labour force who aren't in day to day or week to week, contact with the DWP or Jobcentre Plus, they might be receiving employment support through other programmes or provision, some of it is contracted out by government or a lot of it is delivered in other settings , there's quite a lot now of investment in employment advice through health services and health support. So, it's not like - it's not a complete desert - it's just, there's not really a forest of provision. It's, very, very patchy. And it very much relies on individuals being able to navigate their way to services, rather than services being where they are, or being designed around to meet their needs.

What we're looking at in the commission is what are those ways that we can have a more open and inclusive approach to employment support in general, but also one where it can be easier for people to access the right support for them, which might be a bit more specialised, which might be linked with other services too, and might be delivered in different settings, so that they can get the right help when they need it. 

Mubin: Do current plans from our political parties have the ambition that's needed?

Tony: So at the moment, I don't think anyone has got the answers on this. I would say, for the Conservatives, for the government, I think inevitably where we are in the electoral cycle, they are very focused on relatively short-term changes and things that don't require legislative change or major sort of machinery of government changes. We’re not going to see transformational changes that bring employment and health closer together, we’ll see incremental change. We're not going to see a radical change to the delivery of employment services through Jobcentre Plus, we're not going to see any significant new investment either would be my hunch.

For Labour, I think the prospect of forming a government in a new parliament and potentially with a significant majority means that they may feel they have got the opportunity to make more radical transformational changes. They certainly haven't spelled that out yet. But I think I'm sort of hopeful that I think both parties as they approach the next election will be thinking more radically about how we can reform employment support, and more radically about how we can reform public service delivery in local areas as well.

Mubin: One significant are of concern has been insecurity in the workplace. We did have an employment bill that was going to address this, but that’s not progressed. What’s happening in relation to insecure work?

Tony: Look, it really depends how you define insecurity, to be honest, because I think on many measures, we have less insecurity at work now than we have had in the past. So, we've got fewer people self-employed, for example, more people are on employee contracts. Temporary employment is falling as well. And a lot of zero hours contracts actually reflect - not all by any means, but significant minority - reflect people who are choosing their hours arrangements because of the nature of their work. Sometimes that's because it might be kind of white-collar professional work. Sometimes it might be because they're students, for example. So, it's quite a mixed picture.

What we do know though, is that there's really significant numbers of people probably in the low millions, who are in pretty precarious employment, who don't have very good employment protection at all. So they may be on permanent contracts, but have virtually no recourse if they're treated unfairly by their employer, or indeed, you know, if their employer just chooses to lay them off within the law, and are often on low paid work and don't know when what hours are going to get. And it particularly affects people in certain industries, certain lower paid occupations, like in hospitality, like in care services and some other parts of the economy.

Mubin: What you seem to be saying there, Tony, is that people might have access to some rights, but actually enforcing them is quite difficult. Is that right?

Tony: Well, that's definitely the case. So actually, a lot of people are on permanent contracts. But the  trouble is, you don't have very much employment protection your first year or so, the first couple of years as an employee. And if you were, if you are unfairly dismissed, and if you're not a member of a union, or your workplace doesn't recognise unions, you've got very little recourse to decent protection.

Now this gets to the heart of actually a really important part of what Labour are looking at is how do we both raise the floor, strengthen employment protection, but also, how do we address some of those barriers so things like union recognition in workplaces or employee voice. And I think those are really important. But I think Nita will have views on this to have worked in this in this space a lot more than I do. But I think that we have to do much more than just change legislation

Nita: Labour has definitely got a, a more substantial offer in terms of job security. What's interesting is that, you know, over the last few years, I mean, this government, particularly under Theresa May, was very interested in trying to address some of these issues at the bottom end of the labour market. And you'll recall that she asked Matthew Taylor to produce this report on good work, which had some excellent recommendations in it. There was also an attempt by some in government to make sure that the enforcement mechanisms at the bottom end of the labour market, in other words, enforcing the minimum wage, anti-slavery and so on, were brought together so there was much stronger enforcement of legislation.

Mubin: So are you saying that we're actually seeing some clear water between the Conservatives and Labour in relation to employment rights, and that, you know, we had this period before where, as you said, Theresa May was quite concerned about this, had the employment Bill,  had the Matthew Taylor review, but actually that's now dissipated?

Nita: Well, it disappeared, didn't it? And I think, you know, all the evidence was that she was sincere in trying to, in recognising particularly issues around modern slavery and wanting to do something about them, but I'm afraid that that disappeared off the agenda.

I mean, Labour's published documents the moment are very clear about the fact that they want to strengthen and update rights at work and empower workers to organise collectively through trade unions. I mean, this is very much more of a model of Joe Biden, and the Democrats in America. And while I don't think anybody is suggesting that trade union recognition is going to be the solution to all the problems that we've been talking about today. And of course, there are other forms of voice at work, which are also extremely important.

Mubin: And just not to leave out any other smaller parties. Are they offering anything that you've heard what's interesting?

Tony: I suppose to extend that to look at the main parties in the devolved administration, I think there, we do see some really interesting things, actually.

So we're obviously not even halfway through the current Scottish Parliament and they've made really clear commitments which they're going to start to implement in April to devolve employment support to local authority level partnerships.

In Northern Ireland, Mubin you and I visited Northern Ireland last month, that's fascinating over there. And really important because they have fully devolved responsibility for employment support and services and the administration of Universal Credit. And they haven't had a functioning government for a couple of years now. But the last orders before the government dissolved, were to implement these local labour market partnerships. And when the government comes back - if and when it comes back - I think we'll see more momentum behind that these partnerships that also have much more control, but also clear accountabilities for local planning and partnerships around employment.

The other good thing and devolved nations is they also have national employer engagement mechanisms, Invest NI, Scottish Enterprise, and Business Wales. And that's a model we don't have in England. So there are actually the tools there to have a more coherent conversation with business across multiple different ways that we can make work better, and help businesses to be more effective.

Mubin: I mean, this is such a broad area in terms of what we could have covered, and there's lots that we've missed out, but what's the one thing you would really like to see happen in the next parliament, whichever government is in place? And Nita, why don't we start with you?

Nita: I'd like to see a recognition that encouraging good workplaces where people can develop, grow and thrive is an important aspect of government policy, both in terms of delivery of public services, and the quality of public services, but also a clear sense of responsibility - of social responsibility. Because work is so important in people's lives, that good work matters, and the government should be encouraging what we know good work looks like - in other words, moving away from toxic cultures, having far more employee voice being listened to at work,  organisations that are, that have trust and integrity. I think all of these things really matter. I mean, obviously, the mechanics of what we've been talking about today, matter, too, but at the end of the day, it’s an individual’s experience of their workplace,  that really lies at the heart of some of this.

Mubin: Great, Tony - your chance to be PM.

Tony: I think making a clear and unambiguous offer that if you're out of work, and you want help to get into work, you will be able to get it would be probably the single most important change, I'd like to see.

And actually, if you're in a job, and you want help to change your job, or to make your work better, we'll offer you that too. That then I think that could be the driver of a reformed employment service offer, that is open to more people, it's more inclusive, more accessible.

And of course, we can't offer everything to everyone. So it might be a predominately online service, it might be a relatively light touch offer for many people. But it could also be the way in then to having a much more structured approach locally, and through other services to provide a more tailored support, to people are more disadvantaged. I think we need a clear and unambiguous offer or guarantee that can then drive those local partnerships, those national services around like a kind of common endeavor about improving the quality of services and the offer of support.

Mubin: Brilliant. Nita, Tony – thanks so much for your time.  That's been a great list of issues and solutions that political parties need to address and the next government needs to deliver on.

Tony: Yeah, thanks Mubin.

Nita: Thank you very much for asking me to contribute

Mubin: Thanks again for listening to the Financial Fairness podcast. If you liked this episode please like and share and don’t forget you can subscribe to the series through your platform of choice. And series one and two are also available now.

Join us for our next episode as we continue looking at the key issues the political parties will be addressing in the run up to the general election.