Friday, 28 March 2014


It's Friday. It's financial. It's Friday Financial with JULIAN SAYER.

Any healthy economy needs a full and skilled workforce. It benefits employers and more importantly, gives a lot of spending power to a service driven economy.

Five years of austerity and we owe roughly £69,000,000,000 more than we did, while the
average income fell from £24,100 to £23,200, a percentage drop of 3.8%! In the meantime we are being told the economy is recovering and unemployment is coming down. This is true, unemployment has been reduced from its peak of 2.7 million in 2011 (2008-2014) to today's figure of 2.33 million. I could argue about how these figures have been compiled, but in today's article I want highlight the effects of these changes in our economy and then discuss future trends.

New figures from the Office for National Statistics reveal the depths of low pay and the grotesque chasm between a rich one per cent and the other 99% of the country.
Four in five new jobs are in sectors averaging under £16,640 for a 40-hour week. Working full-time on the £6.31 hourly minimum wage would gross just £13,124 in a year, and an explosion of part-time jobs shows millions of workers can’t even earn that pittance. This isn't good for a consumer based economy. Remember, in the UK 78% of our entire GDP is service based, and any fluctuations in our spending habits has huge ramifications.

Then comes the issue of the kind of jobs that are being created? Part time and zero hour contracts have ballooned since the start of this recession. The scale of the use of zero-hours contracts has been revealed after official figures showed that nearly 583,000 employees – more than double the government's estimate – were forced to sign up to the controversial conditions last year. Almost half of zero-hour contract workers have had their shifts cancelled without any notice, according to the first in-depth study of the way more than 1 million people on the controversial contracts are treated.

Two out of five workers on the contracts said they had been informed only hours before starting work that a shift had been cancelled. A further 6% had been told as their shift was about to begin. The study also found that 20% are sometimes or always docked wages or penalised in some way if they are not available for work. These contracts, which allow an employer to hire staff without an obligation to provide any minimum working hours, are used widely in the care industry, hotel and leisure sector and by many retailers. In the last two years public sector organisations have transferred staff to zero-hour rotas.

Next let's compare how this increase in the number of jobs created has had on productivity in the UK. Output per hour worked fell by 0.3% over the middle part of 2013. In production industries, it’s down 1.2%. This means whatever economic growth occurred over the last year was not the result of people working better, or more efficiently. It was the result of an increase in the total number of hours worked. Productivity, over the whole year, barely improved. Why does this matter?

Productivity matters hugely to the kind of economy we live in. Competition amongst firms creates an imperative to growth. Each firm has to grow to survive. For government, charged with overseeing the process, GDP becomes their number one economic target. When GDP goes up, it means an economy is expanding. And when the economy is expanding, it should mean there is more wealth available for everyone in it. Of course, that wealth can be unevenly distributed, as I have previously said it's the wealthy getting richer while the rest have to work harder.

What this means is there is very little scope for the economy to deliver increases in real earnings. With productivity remaining low, there is huge pressure on firms to also keep their costs low – and that means holding down wages and salaries. If productivity does not pick up, wages and salaries will not pick up either; at least, not without a fight. Those pressures will worsen as time goes on. To the extent that British firms seek to operate globally, they face competitive pressure. Other countries have lower costs than here, or are more productive – or indeed both.

Then bring in age to the argument of employment. People are living longer and working longer. The number of people aged 65 or over in work increased by 30,000 to more than a million, according to the latest figures from the Office for National Statistics – and this is set to rocket over the coming years. Between 2010 and 2030, it is predicted there will be a staggering 50% increase in people aged 65 and over to 15.5 million.

Please be clear on what is happening, people are having to work harder, for less money, with less benefits, with less certainty, and for a lot longer.

Now, if all of the above isn't enough for you to question what is happening, let's consider the BIG question. What will happen to employment in the future, what will be the job prospects for our children? When I read the following article I was truly "gob smacked” just thinking about the consequences.

Just think about the consequences on society, Government, benefits, pensions, and you can see the problems that not only the UK has, but the world as a whole. In the short term you have seen how industry is coping and adapting to this new economic world of huge debts, stagnant or slow demand. A key factor in adapting to these forces is investment. For individuals, businesses, educational institutions, and governments in advanced countries, broad-based, elevated, and efficient investment in education and skills is critical. Closing wide information gaps in the market for skills would also increase the efficiency of these investments. However, since the financial crisis investment has plummeted to an all-time low. Banks are mired in bad loans and not lending to businesses. Businesses are scared to invest because there is little or no demand for their products.

If you really want a good grasp of what is happening, this is as good an article as any, it also gives you an idea what career you should be advising your children;

There are two stats that worry me regarding the fanfare of the great economic recovery this Government wants you to believe. The first is that consumer spending has led a lot of the economic activity in the UK, PPI cash will have had a considerable effect in this, and that cannot last. I also wonder how many unsustainable jobs were created on the back of this.

The second is this; British house prices have risen by around 10 percent over the past year, and the central bank said mortgages were higher as a share of home-buyers' income than at any point since 2005, although other indicators remained weaker than average. The boost an improving house market is considerable in the UK, fees, builders, tax, and DIY means a lot to our economy.

It's the sixth week of writing articles for Harry's blog, and people often say my outlook for the world is grim and depressing. I look at it in a different way. I look at the world realistically, and hope by illustrating these trends, people will realise things have to change. Each week I choose a different area to highlight the problems within the current system and the short comings of Government policy. After I have covered each of the areas I feel make up this glorious global economic system, I will bring them all together and hope to offer a solution. If you ever want any subjects covered please just ask. The current problems in our world will not change by people voting for the same policies just under a different banner. Something has to give.

Next week: the EU.


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