Category: Economy

Bringing back manufacturing jobs?


The UK is not an industrial economy in the traditional sense, despite what some politicians try and persuade us -remember George Osborne’s ‘march of the makers’. Like other countries, the proportion of the GDP devoted to manufacturing has dwindled as consumers become richer and spend a larger proportion of their income on services.  Though it is also true that the process of ‘deindustrialisation’ has been more acute and taken place more quickly than elsewhere. 50 years ago, around 8 million people were employed in manufacturing and the sector absorbed about a third of school leavers. Even as recently as 1982 the sector continued to employ 22% of the workforce. Today 2.6 million earn a living working in manufacturing – barely 8% of all workers, while the sector contributes 10% of national output –down from 14% in 1997.

The decline of manufacturing has been blamed on specific events, or even specific people – for example, during Mrs Thatcher’s first term of office, almost 1 in 4 jobs in the sector disappeared, while more recently, ‘deindustrialisation’ has been linked to the increased ‘outsourcing’ to countries with lower labour costs –  President Trump has pledged to both reintroduce protectionism and to punish American companies that relocate abroad. Unlike in other countries, UK manufacturing has also been hindered by the lack of any real national Industrial Strategy, or anything resembling a National Investment Bank.

Despite all this and despite representing a declining share of GDP, the UK continues to be the world’s 11th largest manufacturing nation – and ONS figures show UK industry has continued to increase on average by about 1.5% a year since 1948 with the sector still accounting for 44% of all exports. Productivity growth in the manufacturing sector has also been stronger than in most other sectors (3.4% compared to a 0.2% increase for the economy generally). Advanced production techniques, mean that three cars roll off the UK’s production lines every minute and output in 2014 was 25% than in 1990, yet employment has fallen from 502,000 in 1971 to the current total of 142,000.

The main reason for both the increase in productivity and the decline of employment in manufacturing has been the introduction of new technology. According to 2015 survey by the Manufacturer on-line journal,koncir_milan-1024x576 little under half of respondents said that they are in the process of implementing a major project, and 21% said that they last did so in 2014. This means that just under two-thirds of UK manufacturing businesses committed to major automation projects in the past two years. Investment in information and communications technology (ICT) continues an upward trend; 61% said they are spending more that year than last.

Even so, the speed at which automation will be introduced should not be overstated – investment in robotics by British manufacturing companies for example, continues to trail that elsewhere. Governments have continued to complain about a shortage of skills, but the number of apprenticeship vacancies posted by the manufacturing sector in 2015/16, was under 30 000 – the majority of these being at a relatively low (skill) level. 

Capital’s  new ‘reserve army’?

Though UK unemployment continues to fall, more significant has been the much greater increase in the size of the workforce. For example, the most recent monthly Office for National Statistics data shows a fall in unemployment of  just over 200 000 over the year, but  a  400 000 plus rise in those working.

ONS data shows  a   325,000 increase in employment of non-UK nationals during the last year compared with 120 000 UK nationals, with the  latest CIPD labour market survey reporting   a fifth of its sample intending  to recruit migrant labour in the last quarter of 2015 – and reporting  difficulties in recruiting UK born workers for ‘unskilled and semi-skilled’ roles such  as factory workers (33%), kitchen assistants  and  retail assistants. Almost one in five care workers are migrants (Independent 17/11/15)download

Karl Marx used the term ‘reserve army’ to describe the pool of semi-employed or unemployed workers who were the consequence of ‘overproduction’ and also the rising organic composition of capital (the replacement of labour by machines) so while the concept might be a useful one, the nature of this modern reserve is rather different. Rather than being part of Marx’s impoverished ‘lumpen’ workforce, research shows that  migrant workers are likely to be overqualified  (compared with UK nationals,  a greater proportion have degrees) for the jobs they are recruited to  and in many cases, will have given up more highly skilled –though not better paid – employment in their home country.

It’s now also being  argued  that as the labour market tightens,   employers are increasingly recruiting more young people, the group that have suffered most in the period since the downturn. As a result, there’s optimism about a future increase in the number of apprentices.  The number of 18–24 years that work  is up nearly 80,000 over the year,   but half of these are full-time students (the largest increase in employment for young people has been among 16-17 year old students). Classifying young people as a reserve army is therefore problematic. But on the other hand if education’s  main role is now primarily to delay young people entering the labour and reduce official unemployment figures, the reserve army   analogy fits very well!

Labour and the Fiscal Charter    ( ‘Living within our means’ Part 2)

jeremy-corbyn-john-mcdonnellPredictably, in the run up to the Parliamentary vote on the Fiscal Charter,   media attention focused on the fall-out from John McDonnell’s sudden   ‘U-turn’ and the way Labour MPs opposed to the Corbyn leadership sought to exploit the situation.

Much of the confusion has arisen from the Shadow Chancellor’s attempt to ‘out Osborne, Osborne’ (his own words) arguing  that a balanced budget  applied only to current expenditure and that Labour’s emphasis on capital spending would, in sharp contrast to Osborne’s policies,  enable the economy to grow generate the extra taxation necessary to reduce debt.  But it’s now clear that Osborne’s Charter is intended to apply to all expenditure, forcing   McDonnell to backtrack, citing deteriorating economic prospects as the reason for his change of policy. (Not to mention a little pressure from Scottish activists perhaps?)

McDonnell’s performance   in the Commons   might not have been exactly convincing, but Labour now has the beginnings of  a clearer line on economic management, around which it can begin to reshape other policies –those on employment and education and training for example. The charter only applies to ‘normal’ conditions anyway   and with another economic downturn on the cards, it’s likely that Osborne will also have to ditch his commitment to ‘living within our means’ as the Neo-liberal argument that the economy should be run like a prudent household, becomes increasingly unsustainable.  

The problem’s the jobs, not the people who do them.

Deputy Governor of the Bank of England Ben Broadbent thinks the growth of low-skilled and low paid-employment can be related to the increased availability of low skilled workers from different parts of Europe. (Guardian 24/09/15). Not only has this kept wage levels depressed, Broadbent argues, but it is also a reason why ‘human capital’ –the quality of the workforce and therefore its productivity has been growing more slowly compared to the 1990s.

These arguments can’t really be substantiated. A UCL study (Financial Times 05/11/15) for example, reveals that more than 60% of new migrants from western and southern Europe are now university graduates while the educational levels of east Europeans who come to Britain are also improving, 25% of recent arrivals having completed a degree compared with 24% of the UK-born workforce. Britain is uniquely successful, it argues, even more so than Germany, in attracting the most highly skilled and highly educated migrants in Europe.

In otherwords highly qualified European migrants often ‘trade down’ skills for the highly level of pay they can earn in their adopted country. But it also continues to be the case that many low-skilled jobs are also done by ‘overqualified’ British workers – According to the Office for National Statistics for example, graduates increasingly work as receptionists, sales assistants and many types of factory workers, care workers and home carers.

Broadbent thinks that an improvement in European economies will make the UK less attractive and the reduced supply of labour will help both to push up wages and encourage investment. The labour market is certainly tightening, but there’s not enough evidence so far to show that real wages are rising because of this. Equally significant is the zero rate of inflation. There’s even less sign of any significant increase in investment.

Since the downturn, the proportion of low-paid low-skilled jobs has increased extensively and labour intensive work with low productivity and low pay, continues to predominate. Though more pronounced in the UK, this has been a feature across the developed world as has the mismatch between workers qualifications and the jobs they end of doing.

Unemployment rises as labour market tightens

Monthly figures from the ONS show the labour market tightening. Average wages have also edged up 2.4% and with inflation at almost zero this represents a real increase in income, though many low paid workers continue to miss out on an annual pay rise.  The total number  in employment falling by 63 000 and the unemployment rate rising by 25 000  indicates that employers are reluctant to pay more for new staff, fearing this will eat into profits –some citing having to pay an increased future minimum wage as an additional problem.

A way out would be a serious increase in investment and in particular, more use of new technology with the aim of increasing both output, but also the current miserable level of productivity. It would also make it harder to justity wages being so low.

There’s little evidence of this happening (with investment expenditure at 15% of the GNP amongst the lowest internationally) and of any serious challenge to the current ‘growth’model, where output has been increased by adding to the size of the labour force and relying on a ‘reserve army of labour’ –zero hour, temporary contracts, part-time employees who can’t get a full time job. And of course, low-paid workers from overseas.

Although some analysts have welcomed the continued fall in youth employment as a sign that, because of increased difficulties with filling vacancies, employers have more incentive to recruit cheaper younger workers, this hardly bodes well for the future. Despite this increased optimism, youth unemployment stands at 16% – after full-time students looking for work are excluded it’s still 14%. Latest estimates for NEETS are due this week.

Low-paid, zero hours jobs won’t close Osborne’s deficit

If George Osborne’s proposed legislation to make budget deficits ‘illev2-osbornegal’ goes ahead,  then public services will no longer be able to be expanded as a way of stimulating future economic growth and activity. Or at least, it will be up to the Office for Budget Responsibility (OBR) to decide whether ‘exceptional circumstances’ allow this to happen.  It isn’t clear whether Osborne would be able to legally bind a future administrations to a future course of action and his actions can be seen as more about pushing Labour ‘Blairite’ leadership candidates to accept even tighter restrictions over economic policy –here he seems to have already been successful.

Ironically, the last Chancellor to run a budget surplus  was Gordon Brown at the end of the 1990s –then,  the City boomed,  consumer credit expanded at alarming rates and it was declared there’d be ‘no more return to boom and bust’.  Osborne’s main line of attack has been to argue that subsequently,  Labour  spent too much, leaving no money aside to cover the cost of a future  recession  (even though going into the 2010 election the Tories committed themselves to maintaining Labour’s  spending levels).   This was then outrageously   ‘spun’ to mean that Labour was at least partly responsible for the downturn –an accusation  Miliband’s team appeared incapable of  seriously challenging in the election campaign.

Deficit reduction has continued to focus on the need to make  spending cuts – but it has been the loss of taxation revenue that has been the main reason why Osborne has continued to have difficulties reducing the deficit and why, as some commentators predict, he may still not have cleared it by the end of his second term – the OBR has already revised its forecasts downwards.  While Osborne brags about creating a thousand new jobs a day,  some estimates put the  annual loss of income tax at over £25 billion (over a quarter of the current deficit and more than twice the amount of the  latest round of welfare cuts).

This is because a large majority of new jobs have been low-paid, irregular/zero-hours  and unable to generate this tax revenue.   Output has been increased by drawing on a ‘reserve army ’of labour, rather than increasing productivity. With technological changes also wiping out many skilled jobs,  there’s  every  reason to think that this situation will continue, especially as  the public sector and in particular, public sector investment  continue to decline, a consequence of Osborne’s  main  political objective – reducing  state activity to a level not seen  since the 1930s.

Campaigns against austerity can be combined with positive proposals for reforming the labour market. Not only  raising the minimum, but also the ‘living wage’, limiting pay differentials between those at the top and the bottom,  guaranteeing hours and security of tenure. Also, ensuring pay levels not only reflect increases in the cost of living but also keep up with increases in profits.