Figures for employment and unemployment give an incomplete picture of the state of the labour market. Just because a person is employed, that does not mean that they are working the number of hours they would like.
Some people would like to work more hours, either by working more hours in their current job, or by switching to an alternative job with more hours or by taking on an additional part-time job. Such people are classed as ‘underemployed’. On average, underemployed workers wanted to work an additional 11.3 hours per week in 2014 Q2. Underemployment is a measure of slack in the labour market, but it is not picked up in the unemployment statistics.
Other people would like to work fewer hours (at the same hourly rate), but feel they have no choice – usually because their employer demands that they work long hours. Some, however, would like to change to another job with fewer hours even if it involved less pay. People willing to sacrifice pay in order to work fewer hours are classed as ‘overemployed’.
Statistics released by the Office for National Statistics show that, in April to June 2014, 9.9%, or 3.0 million, workers in the UK were underemployed; and 9.7%, or 2.9 million, were overemployed.
The figures for underemployment vary between different groups:
|
|
| • |
11.0% of female workers |
8.9% of male workers |
| • |
19.6% of 16-24 year olds |
9.9% of all workers |
| • |
21.1% of people in elementary occupations (e.g. cleaners, shop assistants and security guards) |
5.4% of people in professional occupations (e.g. doctors, teachers and accountants) |
| • |
11.5% of people in the North East of England (in 2013) |
9.2% of people in the East of England (in 2013) |
| • |
22.1% of part-time workers |
5.4% of full-time workers |
As far as the overemployed are concerned, professional people and older people are more likely want shorter hours
The ONS data also show how under- and overemployment have changed over time: see chart (click here for a PowerPoint). Before the financial crisis and recession, overemployment exceeded underemployment. After the crisis, the position reversed: underemployment rose from 6.8% in 2007 to a peak of 10.8% in mid-2012; while overemployment fell from 10.5% in 2007 to a trough of 8.8% in early 2013.
More recently, as the economy has grown more strongly, underemployment has fallen back to 9.9% (in 2014 Q2) and overemployment has risen to 9.7%, virtually closing the gap between the two.
The fact that there is still significant underemployment suggests that there is still considerable slack in the labour market and that this may be acting as a brake on wage increases. On the other hand, the large numbers of people who consider themselves overemployed, especially among the professions and older workers, suggests that many people feel that they have not got the right work–life balance and many may be suffering consequent high levels of stress.
Articles
Rise in number of UK workers who want to cut back hours, ONS says The Guardian, Phillip Inman (25/11/14)
Data reveal slack and stretch in UK workforce Financial Times, Sarah O’Connor (25/11/14)
Will you graduate into underemployment? The Guardian, Jade Grassby (30/9/14)
Three million people would take pay cut to work shorter hours: Number who say they feel overworked rises by 10 per cent in one year Mail Online, Louise Eccles (26/11/14)
ONS: Rate of under-employment in Scotland lower than UK average Daily Record, Scott McCulloch (25/11/14)
ONS Release
Underemployment and Overemployment in the UK, 2014 ONS (25/11/14)
Questions
- Distinguish between unemployment (labour force survey (LFS) measure), unemployment (claimant count measure), underemployment (UK measure), underemployment (Eurostat measure) and disguised unemployment.
- Why is underemployment much higher amongst part-time workers than full-time workers?
- How do (a) underemployment and (b) overemployment vary according to the type of occupation? What explanations are there for the differences?
- Is the percentage of underemployment a good indicator of the degree of slack in the economy? Explain.
- How is the rise in zero hours contracts likely to have affected underemployment?
- How could the problem of overemployment be tackled? Would it be a good idea to pass a law setting a maximum number of hours per week that people can be required to do in a job?
- Would flexible working rights be a good idea?
One of the key battle grounds at the next General Election is undoubtedly going to be immigration. A topic that is very closely related to EU membership and what can be done to limit the number of people coming to the UK. One side of the argument is that immigrants coming into the UK boost growth and add to the strength of the economy. The other side is that once in the UK, immigrants don’t move into work and end up taking more from the welfare state than they give to it through taxation.
A new report produced by University College London’s Centre for Research and Analysis of Migration has found that the effect on the UK economy of immigrants from the 10 countries that joined the EU from 2004 has been positive. In the years until 2011, it has been found that these immigrants contributed £4.96 billion more in taxes than they took out in benefits and use of public services. Christian Dustmann, one of the authors of this report said:
“Our new analysis draws a positive picture of the overall fiscal contribution made by recent immigrant cohorts, particularly of immigrants arriving from the EU … European immigrants, particularly, both from the new accession countries and the rest of the European Union, make the most substantial contributions … This is mainly down to their higher average labour market participation compared with natives and their lower receipt of welfare benefits.”
The report also found that in the 11 years to 2011, migrants from these 10 EU countries were 43 per cent less likely than native Britons to receive benefits or tax credits, and 7 per cent less likely to live in social housing. This type of data suggests a positive overall contribution from EU immigration. However, critics have said that it doesn’t paint an accurate picture. Sir Andrew Green, Chairman of Migration Watch commented on the choice of dates, saying:
“If you take all EU migration including those who arrived before 2001 what you find is this: you find by the end of the period they are making a negative contribution and increasingly so … And the reason is that if you take a group of people while they’re young fit and healthy they’re not going to be very expensive but if you take them over a longer period they will be.”
However, the report is not all positive about the effects of immigration. When considering the impact on the economy of migrants from outside of the EEA, the picture is quite different. Over the past 17 years, immigration has cost the UK economy approximately £120bn, through migrant’s greater consumption of public benefits, such as the NHS, compared to their contributions through taxation. The debate is likely to continue and this report will certainly be used by both sides of the argument as evidence that (a) no change in immigration policy is needed and (b) a major change is needed to immigration policy. The following articles consider this report.
Report
The Fiscal effects of immigration to the UK The Economic Journal, University College London’s Centre for Research and Analysis of Migration, Christian Dustmann and Tommaso Frattini (November 2014)
Articles
Immigration from outside Europe ‘cost £120 billion’ The Telegraph, David Barrett (5/11/14)
New EU members add £5bn to UK says Research BBC News (5/11/14)
UK gains £20bn from European migrants, UCL economists reveal The Guardian, Alan Travis (5/11/14)
EU immigrant tax gain revealed Mail Online (5/11/14)
Immigration question still open BBC News, Robert Peston (5/11/14)
EU migrants pay £20bn more in taxes than they receive Financial Times, Helen Warrell (5/11/14)
Questions
- Why is immigration such a political topic?
- How are UK labour markets be affected by immigration? Use a demand and supply diagram to illustrate the effect.
- Based on your answer to question 2, explain why some people are concerned about the impact of immigration on UK jobs.
- What is the economic argument in favour of allowing immigration to continue?
- What policy changes could be recommended to restrict the levels of immigration from outside the EEA, but to continue to allow immigration from EU countries?
- If EU migrants are well educated, does that have a positive or negative impact on UK workers, finances and the economy?
On my commute to work on the 6th May, I happened to listen to a programme on BBC radio 4, which provided some fascinating discussion on a variety of economic issues. Technological change is constant and unstoppable and the consequences of it are likely to be both good and bad.
In this programme some top economists, including Joseph Stiglitz offer their analysis of the impact of technology and how the future might look, by considering a range of factors, such as youth unemployment, the productivity of labour, education, pensions and inequality. The benefits of new technology can be seen as endless, but the impact on inequality and how the benefits of technology are being distributed is a concern for many people. The best introduction to the programme and its content is simply to reproduce the description provided by BBC radio 4.
The baby boom generation came of age when it was accepted knowledge that innovation and productivity would always lead to higher standards of living. The generations which followed assumed this truth would continue into the future indefinitely. With the crash of 2008 the upward mobility the middle classes assumed was their right evaporated, and it is unlikely to return.
Martin Wolf, chief economics commentator of the Financial Times, asks how the work force of the future will be changed by the advancements of technologies. How should governments respond to a jobs market which is hollowing out opportunities for traditional educated professions and how will rewards for innovation and income for labour be distributed without creating a society plagued by endemic inequality?
We will speak with optimists and pessimists on both sides of the argument to find out how the repercussions of these changes will affect the way we all live now and well into the future.
It is well worth listening to and provides some interesting insights as to what the future might look like, as the inevitable technological change continues. The link for the programme is below.
The future is not what it used to be BBC Radio 4 (6/5/14)
Questions
- What are the expected costs and benefits of technological change?
- Which factors are discussed as being the main obstacles to upwards mobility? Why have these become more prevalent in recent decades?
- Using a diagram, explain how technology can improve economic growth. To what extent is the multiplier effect important here?
- How is technology expected to affect the labour market? Use a diagram to help your explanation and make sure you consider both sides of the argument.
- What is meant by the idea that the benefits of new technology are likely to be felt in the long run?
- How important is education in creating equal opportunities?
- What is meant by secular stagnation? Is it seen as being a problem?
In the blog Effects of raising the minimum
wage, the policy of an above-inflation rise in the minimum wage was discussed, as this had been advocated by political leaders. Over the past 5 years, the minimum wage has fallen in real terms, but from October 2014, the national minimum wage will increase 19p per hour and this rise will be the first time since 2008 when the increase will be higher than inflation.
The National Minimum Wage is a rate applied to most workers in the UK and is their minimum hourly entitlement. For adults over the age of 21, it will be increased by just over 3% to £6.50. Rises will also occur for 18-20 year olds, though their increase will be lower at 10p and will take the hourly wage to £5.13 an hour, representing a 2% rise. 
Those aged 16 and 17 will also see a 2% rise, taking their wage up by 7p to £3.79. With inflation currently at 1.9% (as measured by the CPI), these rises outstrip inflation, representing a real increase in the minimum wage. Undoubtedly this is good news for workers receiving the minimum wage, and it is thought that millions of workers will benefit.
Vince Cable said:
The recommendations I have accepted today mean that low-paid workers will enjoy the biggest cash increase in their take home pay since 2008…This will benefit over one million workers on national minimum wage and marks the start of a welcome new phase in minimum wage policy.
While this rise has been praised, there are still suggestions that this minimum wage is too low and does not represent a ‘living wage’. The General Secretary of Unison said:
Across the country people are struggling to make ends meet. The sooner we move to a Living Wage the better. The real winners today will again be payday loan sharks who prey on working people, unable to bridge the financial gap between what they earn and what their families need to survive.
(Click here for a PowerPoint of the above chart.)
The Chancellor eventually wants to increase the minimum wage to £7 per hour, but there will undoubtedly be an impact on businesses of such a rise. Is it also possible that with the national minimum wage being pushed up, unemployment may become a problem once more?
Market wages are determined by the interaction of the demand and supply of labour and when they are in equilibrium, the only unemployment in the economy will be equilibrium unemployment, namely frictional or structural. However, when the wage rate is forced above the equilibrium wage rate, disequilibrium unemployment may develop. At a wage above the equilibrium the supply of labour will exceed the demand for labour and the excess is unemployment.
By increasing the national minimum wage, firms will face higher labour costs and this may discourage them from taking on new workers, but may also force them into laying off existing workers. The impact of the minimum wage on unemployment doesn’t seem to be as pronounced as labour market models suggest, so perhaps the increase in the minimum wage will help the lowest paid families and we won’t observe any adverse effect on businesses and employment. The following articles consider this story.
National minimum wage to rise to £6.50 The Guardian, Rowena Mason (12/3/14)
Minimum wage up to £6.50 an hour BBC News (12/3/14)
Minium wage to increase by 3% to £6.50 an hour Independent, Maria Tadeo (12/3/14)
Minimum wage rise confirmed Fresh Business Thinking, Daniel Hunter (12/3/14)
Ministers approve minimum wage rise London Evening Standard (12/3/14)
Government to accept proposed 3% minimum wage rise The Guardian, Rowena Mason (4/3/14)
Londoners do not believe minimum wage is enough to live on in the capital The Guardian, Press Association (9/3/14)
Minimum wage: The Low Pay Commission backs a 3% increase BBC News (26/2/14)
Questions
- Using a diagram, illustrate the impact of raising the national minimum wage in an otherwise perfectly competitive labour market.
- How does your answer to question 1 change, if the market is now a monopsony?
- To what extent is elasticity relevant when analysing the effects of the national minimum wage on unemployment?
- How might an increase in the national minimum wage affect public finances?
- Why is an above-inflation increase in the national minimum wage so important?
- What is meant by a Living Wage?
- What do you think the impact on business and the macroeconomy would be if the minimum wage were raised to a ‘Living Wage’?
Conservative Party leaders are considering the benefits of an above-inflation rise in the minimum wage. This policy has been advocated by both the Labour Party and the Liberal Democrats as a means of helping the lowest paid workers. From 2008 to 2013, minimum wage rates fell 5.2% in real terms: in other words, nominal increases were less than the increase in both the RPI and CPI (see UK minimum wage: a history in numbers).
Advocates of a real rise in the minimum wage argue that not only would it help low-paid workers, many of whom are in severe financial difficulties, but it would benefit the Treasury. According to Policy Exchange, a free-market think tank closely aligned to the Conservative Party, increasing the minimum wage by 50p would save the Government an estimated £750m a year through higher tax revenues and lower benefit payments.
But even such a rise to £6.81 would still leave the minimum wage substantially below the living wage of £8.80 in London and £7.65 in the rest of the UK, as estimated by the Living Wage Foundation (see The cost of a living wage). Although many businesses are now paying at least the living wage, many others, especially small businesses, argue that a rise in the minimum wage above the rate of inflation would force them to consider cutting the number of employees or reducing hours for part-time workers.
Meanwhile, in the USA 13 states have raised their minimum wage rates from the 1st January 2014 (see). Some of the rises, however, were tiny: as little as 15 cents. In a couple of cases, the rise is $1. Currently 21 states and DC have minimum wage rates above the Federal level of $7.25 (approx. £4.40); 
20 states have rates the same as the Federal level; 4 states have rates below the Federal level. At $9.32 per hour, Washington State has the highest state minimum wage; the lowest rates ($5.15) are in Georgia and Wyoming. In 5 states there is no minimum wage at all. As the ABC article below states:
The piecemeal increases at the local level are occurring amidst a national debate over low wages and income inequality. Fast food and retail workers have been staging protests and walking off work for more than a year, calling for better pay and more hours. Currently, fast food workers nationally earn an average of about $9 per hour.
Workers from McDonald’s, Wendy’s, Burger King and other fast food joints are calling for $15 per hour. Wal-Mart workers organizing as part of the union-backed OUR Walmart aren’t asking for a specific dollar amount increase, but they say it’s impossible to live on the wages they currently receive.
President Obama has been throwing his weight behind the issue. Earlier this month, the President said in a speech that it’s “well past the time to raise the minimum wage that in real terms right now is below where it was when Harry Truman was in office.” But such legislation has a bleaker outlook if it reaches the Republican-led House of Representatives. House Speaker John Boehner has said that raising the minimum wage leads to a pullback in hiring.
So what are the costs and benefits of a significant real rise is the minimum wage on either side of the Atlantic? The articles explore the issues.
Articles: UK
Lib Dems accuse Tories of ‘stealing’ their policy as George Osborne prepares to approve above-inflation rise in minimum wage Independent, Andrew Grice (7/1/14)
Lib Dems accuse Tories of ‘nicking’ party’s policy on low wages The Guardian, Nicholas Watt (7/1/14)
Cut housing benefit? A higher minimum wage would help The Guardian, Patrick Collinson (6/1/14)
Miliband prepares to wage war The Scotsman, Andrew Whitaker (8/1/14)
Increasing the minimum wage is only a half answer to poverty New Statesman, Helen Barnard (8/1/14)
Raise the bar: Economically and socially, Britain needs higher wages Independent (7/1/14)
Another Tory says there’s a ‘strong case’ for raising the minimum wage The Spectator, Isabel Hardman (8/1/14)
Fairness and the minimum wage Financial Times (7/1/14)
Osborne wants above-inflation minimum wage rise BBC News (16/1/14)
George Osborne backs minimum wage rise to £7 an hour The Guardian, Nicholas Watt, (16/1/14)
Minimum wage: in his efforts to defeat Labour, Osborne risks mimicking them The Telegraph, Benedict Brogan (16/1/14)
Minimum wage announcement is not just good economics The Guardian, Larry Elliott (16/1/14)
Articles: USA
13 states raising pay for minimum-wage workers USA Today, Paul Davidson (30/12/13)
Minimum wage increase: Wage to rise in 13 states on Jan. 1 ABC15 (30/12/13)
NJ minimum wage sees $1 bump on Jan. 1 Bloomberg Businessweek, Angela Delli Santi (31/12/13)
Minimum wage hike a job killer ctpost, Rick Torres (7/1/14)
A Business Owners Case For Raising The Minimum Wage Grundy Country Herald, David Bolotsky (7/1/14)
Raising the Minimum Wage Isn’t Just Good Politics. It’s Good Economics, Too. New Republic, Noam Scheiber (31/12/13)
Minimum wage rises across 13 US states Financial Times, James Politi (1/1/14)
Information
National Minimum Wage rates GOV.UK
UK minimum wage: a history in numbers Guardian Datablog
List of minimum wages by country Wikipedia
Questions
- Draw two diagrams to demonstrate the direct microeconomic effect of a rise in the minimum wage for two employers, both currently paying the minimum wage, where the first is operating in an otherwise competitive labour market and the other is a monopsonist.
- What is meant by the term ‘efficiency wage rate’? How is the concept relevant to the debate about the effects of raising the minimum wage rate?
- What are the likely macroeconomic effects of raising the minimum wage rate?
- What is the likely impact of raising the minimum wage rate on public finances?
- Is raising the minimum wage rate the best means of tackling poverty? Explain your answer.
Figures for employment and unemployment give an incomplete picture of the state of the labour market. Just because a person is employed, that does not mean that they are working the number of hours they would like.
