Transcript - Episode 14: How can the UK harness the full potential of its labour force?

Freddie Martin: Hello and welcome to the latest edition of the economics in business podcast. My name is Freddie Martin and I am your new regular co-host. Today, I am joined by John Hawksworth, the chief economist at PwC, to discuss a recent article published by PwC as part of our July UK Economic Outlook report. This article takes an in depth look at the UK labour market, in particular how well it includes older workers, younger workers, and female workers, and comparing this performance to the rest of the OECD.

Thank you for joining me today, John.

John Hawksworth: Pleased to be here.

Freddie: I was wondering first if we could talk more generally about the UK economic outlook and how the UK labour market performance fits into this.

John: Well the UK economy has been continuing to grow over the last couple of years, but it has certainly slowed down, perhaps recently reflecting the uncertainty around what’s going to happen around Brexit. That has obviously deterred business for investing, and has meant that overall GDP growth actually even dipped in the negative territory in the second quarter.

That has also been affected by global factors. We’ve had all of the US – China trade disputes, which have tended to slow down growth globally, and also in other European countries like Germany, and that has obviously affected our exports as well. But the bright spot for the UK is that the consumer has kept on spending, and a key factor that’s driving that is actually that the jobs market has remained relatively strong.

Freddie: Right, in terms of the labour market we are actually performing better?

John: Yeah one of the remarkable features of the UK economy over the last seven years is that we have seen exceptional jobs growth. In fact, the employment rate is actually probably at an all-time high. There is some analysis by the Bank of England, goes back as far as 1860, so 150 years, and we are pretty much now the highest we’ve ever been, maybe the last time was in 1943 at the height of the second world war mobilisation. In terms of the proportion of the population that’s in employment is pretty much at a record high at the moment.

Freddie: Are there any particular demographics that are driving this?

John: One key factor is that this actually also record proportion of women in working age that are actually in employment at the moment. We’ve seen a very steady outward trend in that over time, particularly actually for older women, maybe partly because the female state pension age is going up and that’s encouraging women to work for longer, but also because of improvements in child care provision, and perhaps also broader cultural changes in society, which have actually favoured women being more inclined to work. Whereas for men, employment rates are high, but they are nothing like the kind of record highs that we would have seen 30 or 40 years ago.

Freddie: These sound like quite a general trends that will be affecting the rest of the OECD. How does the UK’s current performance compare when you look at the countries in OECD?

John: Well, our performance is certainly not bad, and has been improving all the time, but we are still only middling when we look at the OECD. Our employment rate, record high for the UK, but only 13th amongst the OECD countries. We’ve also updated in this latest report three indices that look at the Golden Age Index, which is for all the workers aged 55 and above, a Youth Employment Index for the under 25s, and also include the results from our earlier Women In Work index.

Now in all of those three sub-indices, if you like, those three demographic groups, we are just middling, we are not in the top 10, we are not in the bottom, but nor are we one of the best performers internationally.

Freddie: Actually the fact that we have been growing recently, everyone else has been growing as well…

John: Yes generally, we’ve probably been improving slightly faster than the average, so, we’ve been nudging up the rankings a little bit, but we are still, as I said, not in the top 10, and if you look at older workers, for e.g., you see the countries like Iceland, Sweden, New Zealand tend to top the rankings. They also tend to do quite well in the rankings in terms of female employment, perhaps reflecting strong child care provision, and other such measures. Whereas if you look at youth employment, and yes we have seen youth unemployment come down quite a lot in the last seven years, but we are still not on the par with countries like Germany and Switzerland, which have very strong vocational education schemes, which tend to get lot of people into either work or education and training for the under 25s.

We’ve improved, but we are still not a world beater, and we are either for older workers or younger workers.

Freddie: Yeah, something that I find interesting is that often countries that do well on the Golden Age Index actually also do well on the Youth Employment Index and that does seem to go against the idea that keeping older workers in employment longer will actually displace younger workers.

John: People think of this perhaps in terms of a company, where there is a lot of old fogeys up at the top blocking the way for the younger people to move up, but when you look at that in the national level, you just don’t see that relationship. The countries that have more older people in work also tend to have lower youth unemployment rates. That’s probably because that contributes to a wealthier economy, the older people in work, they are spending money that creates job opportunities for the younger people, so it’s a win-win situation. When you look at it in terms of the hard data, you just say that generally speaking, there is no trade-off between youth employment and older employment rates.

Freddie: In terms of policy, given that we are currently middling, do you see there are big economic gains to be had from improving our results across these indices?

John: Well absolutely, we could potentially raise our overall employment rate from around 75% where it has been recently to more like the 80% level you see in countries like Sweden. We estimate that if we were to match with this performance for women workers, and for younger, and older male workers, then we could actually boost our GDP by as much as 12%, which in cash terms would be equivalent to about 250 billion pounds a year.

Freddie: Wow, so very significant.

John: Very significant gains that we can make. That is not going to happen overnight, because the gaps in performance with countries like Sweden are built up over many decades, but there is still quite a bit of improvement we could do and a big prize if we can realise those benefits.

Freddie: How do you recommend we actually achieve these benefits? Are there any key policies that businesses and governments can take away?

John: There are number of areas where we can make further improvements. As I said before, we have been improving, so we are building on success here, but for example, we’ve got strong laws now that prevent age and gender discrimination, but sometimes you still can get implicit discrimination that maybe doesn’t break the law, but they are still implicitly acting against, for example, older workers or women workers. There is still more to do for both business and government to actually implement the law, not just the letter of the law, but also the spirit of the law, and actually change cultures to actually combat the last vestiges of age and gender discrimination.

Vocational training is increasingly seen as important. I’ve mentioned countries like Germany and Switzerland, very good for younger people, with things like apprenticeships. The government has been trying to do more on that, but I think it’s early days to match that performance. For older workers, this issue is about retraining in new digital technologies, for example, which in some cases may displace jobs, and so it’s quite important to have a lifelong learning culture in business, but also supported by government, and you can see that some of the top performing countries, like Sweden, New Zealand, Singapore, are very good in terms about lifelong learning agenda.

There are things that we can learn from those top performers in those sorts of areas.

Freddie: In terms of looking at female workers, are there any specific policy implications? I know there is a lot of talk about introducing flexible working policies, such as working from home.

John: Well some kind of flexible working policies that can make it easier to work around care responsibilities, whether that be for children, whether that be for older relatives, can still be helpful. The government has made progress on that over the last two decades, but again we are still not at the level that we see in some of the Scandinavian countries in terms of the degree of child care provision, early education provision. Those things could also have other benefits in terms of social mobility, for example. So, there is still potentially further we could go down the road to improve our performance in those areas.

Freddie: It seems like, if businesses decide to implement policies at their level, there is a lot that they can gain from trying to better include their workers.

John: What we see is that the top companies are obviously very often leading the way in terms of producing more diverse workforces with more women, people representative of different age groups, and just generally a more diverse workforce. There is evidence that it just does actually improves company performance certainly in the median-to-long term by introducing a greater range of ideas and perspectives.

These are investments that can really pay off in the long term for companies as well as for countries.

Freddie: Overall it seems that actually there is a lot that UK can be doing right now to see some real tangible long-term impacts.

John: Yeah there is a platform of success in terms of what is being achieved over the last six or seven years, but yes there is more to be achieved if we then go further down this road and really become one of the top 10 and ultimately maybe top 5 performers in the world on these criteria.

Freddie: Thank you very much for joining me today, John. It was a very interesting discussion.

John: Thanks very much.

Freddie: If you would like to learn more about the PwC’s UK Economic Outlook report, there will be a link in description to our website.

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