Under-employment in the UK labour market

Under-employment occurs when individuals are working in a capacity that is below their skill level or working fewer hours than they would prefer. Under-employment is a critical issue as it signifies inefficiency in the labour market, leading to wasted potential and reduced economic output.

Measuring Under-Employment

• Indicators:
  • Hours of work: Comparing actual hours worked with preferred hours.
  • Skill mismatch: When individuals are working in jobs that do not utilise their skills or qualifications.
  • Involuntary part-time employment: Part-time workers who would prefer full-time positions

Causes of Under-Employment

• Economic Downturns: Recessions reduce demand for labour, leading to fewer available full-time positions.
  • Example: The 2008 financial crisis led to significant under-employment as businesses reduced hours and postponed hiring.
• Technological Change: Automation and advancements can reduce the need for certain skills, leading to under-employment in some sectors.
  • Example: Automation in manufacturing has reduced demand for traditional labour while increasing under-employment in those with outdated skills.
• Structural Changes: Shifts in the economy, such as a move from manufacturing to services, can lead to skill mismatches.
  • Example: Decline in UK manufacturing and rise in service sector jobs.
• Seasonal Fluctuations: Certain industries have peak seasons, leading to temporary under-employment in off-peak periods.
  • Example: Retail and hospitality industries often employ more staff during holidays and fewer during off-seasons.

Effects of Under-Employment

• Economic Impact:
  • Reduced Output: Skills and labour are not fully utilised, leading to lower productivity and economic growth.
  • Wage Suppression: Excess supply of labour can keep wages low.
  • Inefficiency: Economic resources are not being used effectively.
• Social Impact:
  • Increased Inequality: Under-employment can exacerbate income disparities.
  • Mental Health: Job dissatisfaction and financial insecurity can affect mental well-being.
• Personal Impact:
  • Skill Erosion: Workers may lose skills if they are not used, making it harder to find suitable employment in the future.
  • Reduced Lifetime Earnings: Persistently under-employed individuals often face lower lifetime earnings.

Under-Employment in the UK: Current Trends

• Sectoral Differences: Higher rates of under-employment in retail, hospitality, and arts compared to finance and tech.
  • Example: Retail workers often experience under-employment due to fluctuating demand and part-time contracts.
• Geographical Variations: Under-employment rates vary by region, with higher rates in areas with declining industries.
  • Example: Former industrial regions like the North East have higher under-employment rates compared to London.
• Impact of COVID-19: The pandemic led to a significant increase in under-employment due to lockdowns and economic slowdown.
  • Example: Hospitality and tourism sectors saw a surge in under-employment during the pandemic.

Policy Responses to Under-Employment

• Training and Education: Investing in skills development to reduce mismatch and improve employability.
  • Example: Government-funded apprenticeships and retraining programs.
• Economic Stimulus: Policies aimed at boosting demand for labour, such as infrastructure projects.
  • Example: Post-2008 recession stimulus measures to create jobs and reduce under-employment.
• Flexible Working Policies: Encouraging flexible work arrangements to align better with workers' needs.
  • Example: Promotion of remote work and job-sharing schemes.
• Support for Small Businesses: Facilitating growth and job creation in small and medium-sized enterprises (SMEs).
  • Example: Tax incentives for startups and small businesses to stimulate job creation.

Key Economists on Under-Employment

• John Maynard Keynes: Highlighted the importance of demand-side policies in addressing unemployment and under-employment. His work during the Great Depression emphasized government intervention to boost economic activity.
• David Card: Renowned for his research on labour economics, including the impact of minimum wage and immigration on the labour market. His work provides insight into how these factors influence under-employment.
• William Beveridge: Known for the Beveridge Report which laid the foundation for the modern welfare state. His focus on full employment and social insurance indirectly addresses issues related to under-employment.

Essay-Style Questions

• Question 1: "Evaluate the effectiveness of government policies in reducing under-employment in the UK labour market."
• Question 2: "Discuss the impact of technological change on under-employment in the UK. Provide examples to support your answer."
• Question 3: "To what extent is under-employment a greater concern than unemployment in the current UK labour market? Analyze with reference to recent trends."
• Question 4: "Examine the relationship between under-employment and income inequality in the UK. How can policy interventions mitigate this issue?"

Glossary

• Labour Force Survey (LFS): A survey conducted to collect data on employment and labour market characteristics among the population.
• Skill mismatch: A situation where workers' skills do not match the requirements of available jobs.
• Involuntary part-time employment: Part-time employment that individuals accept due to the unavailability of full-time positions.
• Structural changes: Long-term changes in the economy that alter the industrial and occupational landscape.
• Economic stimulus: Government policy aimed at increasing economic activity, typically through spending and tax cuts.
• Flexible working policies: Work arrangements that allow flexibility in terms of hours, location, and work schedules.
• Minimum wage: The lowest wage that employers are legally required to pay their workers.

These notes provide a comprehensive overview of under-employment in the UK, covering key aspects such as causes, effects, and policy responses, along with examples and insights from notable economists. The essay questions encourage deeper exploration of the topic, enabling a thorough understanding of the issue and its implications.