There's another puzzle, too. BDO produced a distinctly pessimistic report suggesting that business confidence was at an all-time low and we shouldn't expect recovery any time soon. But the Guardian reports that ICEAW & Grant Thornton have produced a similar report saying that business confidence is at a two-year high. I wonder how two accountancy bodies managed to achieve such different results, and what this inconsistency tells us about the real state of the UK economy.
The prevalence of temporary and part-time job creation, coupled with lack of capital investment, suggests businesses are uncertain about the future - which rather supports BDO's argument that business confidence is low. If that is the case, then maybe it is reasonable to assume that at some time in the future businesses will convert these into full-time permanent jobs. It would be nice to think so. But I'm not convinced.
Businesses like to have very flexible workforces. Just-in-time staffing - bringing in temporary or agency workers to meet staffing needs on a day-to-day basis - enables efficient use of financial, physical and human resources. And some workers are happy to meet this need. But not all are. The question is therefore how many of the people currently forced into temporary or contract working really want to work like that, and for those who don't, how we move the economy towards generating the full-time permanent jobs that they really want. This is a social engineering problem which would be anathema to free-market fanatics. And it may prove intractable anyway. I think there is another, much more fundamental problem here.
It seems to me that we have a labour market that is bifurcating - splitting in two. It's like a city in a developing country: there is a "core" of highly-skilled, highly paid and largely protected people for whom businesses compete internationally, surrounded by a growing "shanty town" of low-skilled, poorly paid and increasingly insecure workers. This applies in both the private and the public sector, by the way - in fact I think the trend has been evident in the public sector for longer. What seems to be disappearing is the middle - the routine, well-defined and fairly skilled jobs that are the bread-and-butter of the middle classes. Why is this happening?
AGCAS and the Work Foundation produced a fascinating report in 2011 called "The Hourglass and the Escalator". In this they postulate that increasing automation is eliminating routine semi-skilled jobs and forcing people into lower-skill, lower-paid jobs. This is contrary to the way we normally think about automation. It is usually assumed that automation first eliminates the low-skill jobs. But that doesn't seem to be the case. Low-skill jobs are being created in ever-greater numbers. It's the medium-skill ones that are vanishing.
Most of the temporary and part-time jobs currently being created are low skill, very low waged and extremely insecure. The Financial Times recently discussed (paywall) Amazon's warehouse operation in Rugeley. Amazon, it seems, is employing mainly temporary workers who can be dismissed without notice and offering the "carrot" of a permanent job if they are really, really good - which few are. Obviously this is only one large employer, but it seems likely that others are doing similarly. The interesting thing is that Amazon is using people to do a warehousing job that would seem an obvious candidate for automation. And Amazon is definitely not short of money. So why is it using low-wage, low-skill temporary workers instead of investing in cutting-edge automation?
Amazon says it is because people actually do the job better than robots. With the state of automation at present, this may well be true. In fact most of the low-skill, low wage jobs currently being created don't lend themselves particularly well to automation at the moment. A high proportion of them are service jobs, ranging from childcare to waitressing to supermarket checkout operators. And the fact is that people prefer to be served by people. They don't like dealing with machines. So the smiling barista who serves you coffee in Costa is an essential part of the business. But baristas, checkout operators, cleaners are substitutable. Lose one, you can just buy in another. They don't have unusual skills that are difficult to replace, and although getting on with customers is important, it is not a unique ability. I suppose these jobs too in due course will be automated - but we aren't there yet.
But this isn't the whole story. Your average barista is not paid a great deal and may be on a temporary contract. If he is, then he can lose his job tomorrow. And if he is actually self-employed - and the trend is towards self-employment for low-skill jobs - then there are no employment overheads either. He costs little to employ, you pay him only his wages and when you don't need him you get rid of him. You can't do that with a robot. Robots, like other plant, require up-front capital investment. Automating Amazon's entire warehousing operation would be extremely expensive. Why would they do that when they can use temporary workers on a just-in-time basis at much lower cost? To my mind it is no accident that they chose to site their warehouse in a depressed area with high unemployment due to collapse of the mining industry. They wanted a large pool of desperate people with obsolete skills.
So part-time and temporary jobs, and growing self-employment, may not be a transitional stage on the road to economic recovery. They may instead indicate a fundamental change in the labour market. Perhaps insecure working is the shape of things to come for the majority of people. If so, it raises fundamental questions about the way in which society operates. How do you plan for the future if your job can disappear at any time without notice? How do you get finance for a house, or a car, if you have no reasonable certainty of future income? In fact, if you don't know if you will have a job tomorrow, you aren't going to spend money unless you absolutely have to, are you? So I would expect the rise in temporary work and self-employment, particularly, NOT to be accompanied by a rise in GDP. People stuck in insecure work with frequent spells of "resting" don't spend money. They save it. Ask any actor.
But job insecurity and robots are only half the problem. The other half is skills. Businesses are constantly moaning that they can't get the skills they need, and blaming the education system for failing to provide workers with the right skills. Actually they have been doing this for as long as I can remember, so it is clearly an intractable problem. Now if there really was a skills shortage in the economy, shouldn't there be high vacancy levels? But vacancies have fallen considerably since 2007. So what are businesses really complaining about?
HR magazine notes that businesses expect to recruit in 2013. It is evident from the report that they mean highly skilled professional jobs. And businesses clearly worry about the availability of these skills. The HR article implies that businesses are competing with each other for "high performers", and increasingly the competition is international. But the definition of "high skill" is changing. We know that many graduates now are taking low-skill jobs because they are unable to find jobs that use their skill set. And professional recruitment sites for executive jobs show how high the bar has been set - no wonder most graduates don't measure up to it. Masters degrees, PhDs, professional qualifications, languages and years of experience - and contacts. You have to have contacts. Actually that's mainly why you need the qualifications and experience. Only by spending time at a top university and in the right businesses can you build up the network of key contacts that you must bring with you to a top job. Even today it is not what you can do that is really important - it is who you know
What businesses are really complaining about is the inability of the Government to provide them with a competitive edge. It is rent-seeking, pure and simple. They don't have the time to grow their own top talent, because jobs are no longer for life and top talent knows perfectly well that the way to build a career is to change jobs. So they are looking to the education system to do it for them. Next time you hear a business leader moaning about the broken education system and the lack of skills in the workforce, try to hear the fear underneath the rhetoric. "If I can't find and retain the best performers, I'm dead"......
Is it reasonable of business to expect the education system to provide it with specific job-related skills? I don't think so. Education is about developing the individual, not meeting business needs. And if business can't recruit the skills it needs at the price it wants to pay, what chance does education have of recruiting good teachers of those skills? Anyway, talented people do wonderful work in business whatever their academic background. I know very few people who still work in the field in which they did their first degree (I am currently an exception). It is the personal skills - critical thinking, time management, independence and so on - that develop in the course of advanced education that are of most importance to business. Focusing on job-specific skills misses the point and runs the risk that market changes will render these skills obsolete. We have far too many people already with obsolete skills.....
In fact obsolete skills are a large part of the problem. The world of work is changing very fast - faster than at any time since the Industrial Revolution. And just as in the Industrial Revolution those who couldn't change their ways suffered, so those who can't adapt to the information revolution and globalisation are suffering. The middle-class jobs of the past are not coming back. The question is, what will replace them? I don't think we can see clearly yet where the new jobs will come from, or in what ways work will change in the future.
What is clear to me already though, is that the boundary between education and work is blurring. Learning is becoming a life-long process: with the advent of the internet, it has never been so easy to research and study anything that takes your fancy, and use it not only to inform your mind but to improve your work performance and develop new lines of business. Business should be a partner in the development of lifelong learning strategies. At present it seems willing to provide learning opportunities for the core, but not for the increasing number of people in the "shanty town". That is why business is struggling to find the skills it wants - it has disengaged from the process of creating them.
Business re-engagement with the growing "shanty town" of low-skilled, poorly paid and insecure workers is essential for economic recovery. And it seems to me that fostering this re-engagement is the role of government. It seems a pity that at the moment government is only too happy to encourage business in its preference for insecure, low paid, short-term working for the majority coupled with excessive remuneration for a protected and increasingly international elite. There can be no recovery while government and business preside over the progressive impoverishment of large numbers of people. After all, business only prospers if the economy does, and the economy only prospers if people do.
The Hourglass and the Escalator - AGCAS
Private sector helps spur UK jobs growth - Financial Times (paywall)
Amazon unpacked - Financial Times (paywall)
Regional labour market statistics 23rd January - ONS
Labour market statistics, January 2013 - ONS
Perverse incentives and productivity - Coppola Comment
Business confidence "hits new low", says survey - BBC
Britain "should avoid triple-dip recession" - Guardian
UK directors predict job creation and slowdown in redundancies - HR magazine
Thousands of graduates forced to take menial jobs - Daily Mail
Unemployment and the labour market, 1870-1939 - Timothy Hatton