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Employment and the Economy
Not unexpectedly the focus of this year’s conference season was the economy and the impact of rising unemployment and public debt figures. According to the Labour Market statistics the unemployment rate for the three months to July 2009 rose to 7.9%, the highest since November 1996. This rise of 0.7 over the previous quarter and 2.3% over the year means 2.47 million people are now unemployed.
Most sectors of the economy show falls in jobs, with the highest falls not surprisingly in finance and business services (down 67,000) and construction (61,000). The number of unemployed for the three months to August, however, did not exceed 8% as predicted, remaining at 7.9%, with a drop in the number of young unemployed.
CIPD reported that the recession is putting more men than women out of work and John Philpott, their chief economist, predicted that it will be a “job-light recovery” which would involve a gradual increase in net job creation and continued high unemployment for another six years. Earlier in September the Chancellor Alastair Darling had been cautiously optimistic about a recovery, a view not shared by the Organisation of Economic Co-operation and Development (OECD) who, on the eve of the finance ministers’ G20 in London, said the UK would emerge from recession behind other countries.
The Office of National Statistics also revealed that there had been a 2.5% decline in industrial production during August, an unexpected result which dampened previous optimism about Britain’s prospects of recovery. Sterling was expected to rise in September but fell to a new low against the euro after inflation was down by more than 1.1% due to the fall in energy prices. This fall is likely to lead to fears of a downward inflationary spiral; if the CPI rate of inflation is 1% above or below the bank’s 2% target, Mervyn King, Governor of the Bank of England, is required to write to the Chancellor to explain.
What is clear is that if we are to move out of recession the economy has to undergo fairly drastic re-structuring. However, it is unlikely things will return to the boom conditions enjoyed before the collapse. This will require a greater flexibility from both employers and employees.
Thinking positively, this recession is very different to any other in that never before has so much information and technology been available to so many. The John Lewis Partnership founded almost a 100 years ago as an experiment in industrial democracy is once again leading the way by expanding its plans to take on the long-term unemployed for its new stores. According to People Management magazine John Lewis, despite being inundated with job applications for its latest store in Cardiff, is committed to working with Jobcentre Plus to fill the vacancies.
Jobcentre Plus takes candidates who have been out of work for more than six months and puts them through a two week pre-employment training course designed by retailers and Skillsmart Retail, the skills body.
Finally who were the winners and the losers during that most uncertain of institution, the party conference? Well not the Conservatives, apparently, who failed to achieve any boost from their party conference. A poll carried out by Populus after the annual round of gatherings revealed that support for the Conservatives was down 1% to 40% since mid-September, while Labour was up 3% at 30%. The Liberal Democrats remained unchanged with 18% of their support. This was despite the Shadow Chancellor Vince Cable’s surprise announcement of a tax on owners of houses worth more than £1m. Bloomberg accounted for the advance in Labour support to Gordon Brown’s government attacks on bankers and the rich – for more on this see bankers’ pay in the following item.
Pay and reward
G20, banks and regulation
Despite President Sarkozy’s best efforts G20 finance ministers refused to impose a cap on bankers’ bonuses at the meeting hosted by Gordon Brown in London in early September, ahead of the full summit in Pittsburgh at the end of the month. Instead they accepted Alastair Darling’s view that such regulation was unenforceable and agreed to continue the £3 trillion boost to the economy while requiring banks to increase liquidity.
Divisions were apparent between the UK and the US, Europe and Asia, and China in particular which has returned to 8% growth. In future bonuses will be deferred for three years so that risk is properly assessed. However, the banks’ tougher capital and liquidity requirement caused consternation in France and Germany, with fears of more bank bail-outs.
Lord Turner once more strode into the breach to quell fears that bankers were being let off lightly, prior to ratification of the measures at Pittsburgh. He made a withering attack on the industry speech at the Mansion House saying: “British citizens will be burdened for many years with either higher taxes or cuts in public services because of an economic crisis cooked up in the trading rooms where many people earned annual bonuses equal to a lifetime’s earnings of some of those suffering the consequences.”
The world’s eight biggest banks met with the City Minister, Lord Myners, at the Treasury to sign up to the G20 onerous new rules on bonuses after Christmas. Nevertheless, Goldman Sachs appeared unrepentant despite receiving huge amounts of taxpayers’ money, and immediately announced record profits and bonuses to match the very next day. Lord Mandelson was not amused, describing the bonuses as “unacceptable”. In an interview with Channel 4 News, he said: “The Government stands absolutely four-square behind the FSA over the necessary action they may deem fit to take in relation to these banks and their bonuses”. It is an ill wind that blows no one any good, however; the Treasury will benefit from Goldman Sachs’ increased profits to the tune of an estimated £2.5bn in tax revenue.
There are no easy answers to the vexed question of regulation of bankers’ pay, as David Cameron found to his cost in the opinion polls after the Conservative party conference. The irony remains that the global economy needs bankers if it is to come out of recession; yet not enough bankers of the right calibre are being trained, so those who are will continue to extract huge rewards. People Management magazine this month examines the moral dilemmas surrounding management education, in an excellent article entitled School for Scandal.
French media welcomes G20 decisions
The French media were not too downhearted by President Sarkozy’s apparent defeat to impose a cap on bankers’ bonuses. However, they reported the difference of opinion as being very much USA v Europe, rather than USA and Britain v Europe.
L’Express concedes that those present were able to reach an agreement on the essential points and to set the foundations for new economic and financial governance to avoid another world financial crisis.
Nicolas Sarkozy, who had made the bonus question his war horse, said that the G20 leaders had “listened to France on the question of bonuses and specifically on the ban on bonuses guaranteed beyond one year”.
Le Monde interviewed Baudouin Prot, MD of BNP Paribas, and Frédéric Oudéa, chairman and MD of the Société générale.
M. Prot said the G20 decisions were “historic”. He declared himself delighted that the G20 had agreed to adopt internationally and in a clear and firm way the rules regulating variable pay that were put in place by French banks on 25 August.
M. Oudéa felt the G20 decisions went in the right direction, but cautioned that there was still some way to go to implement them all. The requirement for higher liquidity requirements for banks operating certain types of trading was a wise one. He also applauded the international introduction of the French rules concerning variable remuneration.
Executive pay and pensions
An annual survey of boardroom pay conducted by the Guardian revealed that despite being the FTSE companies’ worst year, executive directors continued to take far bigger increases than their employees. This year, however, all has changed as companies freeze public sector pay. Many final salary pension schemes have also closed and RBS has announced it will introduce a 2% cap on annual growth in pensionable pay. CIPD has issued a new reward code to tackle the problems of inappropriate risk-taking. The institute has published 10 draft principles, written by reward experts, to support HR directors and remuneration policies and practices.
Public sector pay freeze
The public sector is not immune and the Chancellor Alastair Darling wrote to the salary review bodies during the Conservative party conference recommending a pay freeze for 40,000 senior public servants in 2010/11, and calling on them to freeze the pay of judges, senior NHS managers and GPs. In addition about 700,000 middle ranking public servants including doctors, dentists and prison officers will get a rise of 0 and 1%. David Cameron accused Darling of being cynical in his timing and he and George Osborne offered a radical agenda for change at the Tory conference in Manchester. Pulse, the GP’s Forum however, claimed that GPs would face another pay freeze under a Tory government.
MPs’ allowances
As MPs return to Westminster after the summer recess they are being faced with demands to repay expenses claims. This comes in the wake of the official inquiry into the expenses scandal by Sir Thomas Legg. Many of these claims seem petty or inaccurate and this time MPs seem more inclined to stand their ground
Equal pay and the recession
According to the Guardian, the Equalities and Human Rights Commission (EHRC) has told the government that the economic climate is too fragile to impose equal pay reviews on business. It does not want pay reviews to be in the equalities bill due to be published next month. Nicola Brewer for the EHRC said “radical reform” was needed in future, but clearly not now.
Helpline on employment rights launched
The government has just launched a single helpline to give both employers and employees advice on basic employment rights. The Pay and Work Rights Helpline will advise on minimum wage, agricultural minimum wage, the working time directive, employment agency standards and the licensing of gang masters, a service previously provided by no less than five separate government bodies.
Youth employment and training
The good news is that the figure for the young jobless actually defied expectations and fell during August. The Office for National Statistics (ONS) revealed that the number of 16-24 year olds out of work fell from 947,000 in the three months to July to 946,000 in the three months to August. The reduction surprised those experts who had taken a more gloomy view predicting, that the total unemployment rate would exceed three million by the end of the year.
The drop is probably due to a number of reasons which may or may not be directly connected to economic recovery. Certainly, many young people are opting for education and joining training schemes or doing post graduate degrees. In July the government launched Backing Young Britain which has introduced a number of training schemes in the form of apprenticeships and internships to boost the employability of 16-24 year olds. Since then more than 85,000 employers have signed up to the scheme. People Management magazine pointed out, however, that some employers are simply using the campaign to fill existing roles rather than creating new ones.
At the Liberal Democrat conference Nick Clegg introduced its proposals for tackling youth unemployment, Lifeboat for a Lost Generation. Plans include 10,000 more university places, introducing the right to a place in work, training, education or internship after three months unemployment rather than the current 10, a paid internship scheme offering 800,000 places and fully funded adult apprenticeships.
Orange, the mobile phone company, is backing a new full-time qualification delivered by the National Enterprise Academy (NEA) for 16-19 year olds. NEA was founded by Peter Jones, star of the BBC TV show Dragon’s Den. Orange is offering work placements and mentoring for the students and setting real life business challenges as part of the curriculum. Certainly all employers have a moral obligation to provide work experience opportunities, either paid or unpaid, wherever possible.
Graduate employment
The picture for graduates is even more complex. BT has announced it will close its graduate scheme altogether from next year, although in May the company claimed this was only a short term decision. Commenting on the decision the Association of Graduate Recruiters said “very few” employers had abandoned graduate recruitment altogether. In fact retailing is continuing to attract graduates who are turning their back on the City in the grip of recession. Supermarkets in particular are expanding their graduate recruitment programmes. Sainsbury’s announced they will increase graduate intake to 85 places in 2010 up from 65, and Aldi are increasing placements from 90 to 120. Tesco’s on the other hand will not only hold their scheme at 200 but plans to introduce an £3 million senior learning academy to service its ambitious global expansion programme.
Paid Internships
The scheme was originally introduced by John Denham universities and skills secretary in March this year to provide training in return for an allowance roughly equivalent to benefits. The Department for Innovation, Universities and Skills (BIS) went on to launch an ambitious portal The Graduate Pool a sort of on line dating service to match graduates with employers. Employers are urged to access talent through the BIS website. The government announced at the Labour Party Conference that they would create 10,000 skilled internships in partnership with the Federation of Small Business.
It is difficult to evaluate the level of take up at this stage; certainly Alan Milburn has been sceptical describing it as socially divisive. When companies can recruit high quality graduates without having to pay them, (some industries such as the creative sector are notorious for this practice) it is difficult to imagine why they would. There is a social cost to pay however in rising student debt and young people unable to either afford mortgages or start families. It is chastening to consider that in Japan sales of adult nappies now outstrip those for babies as we all come to terms with the impact of an aging population.
