Polarisation event slide pack

Looking through the hourglass: Hollowing out of the UK jobs market pre- and post-crisis

Laura Gardiner, Resolution Foundation

Adam Corlett, Resolution FoundationCraig Holmes, Pembroke College, Oxford

Andrea Salvatori, University of Essex

Matthew Whittaker, Resolution Foundation (chair)

Wifi: AvantaGuest // Passcode: LondonWorkspaces

#futurejobs // @resfoundation

Looking through the hourglassHollowing out of the UK jobs market

pre- and post-crisis

Laura Gardiner & Adam Corlett

March 2015

@resfoundation

• A large and growing body of research details the ‘hollowing out’ of developed labour markets

• Previous Resolution Foundation research has confirmed that these trends continued in the UK in the early years of the crisis

• We update this picture to 2014, and discuss UK trends in the context of broader debates on polarisation

3

Has the UK’s job structure polarised pre- and post-crisis?

Since the early 1990s, mid-skilled occupations have experienced falling employment shares

Using initial wages as a proxy for skill levels,

mid-skilled occupations have

declined 1993-2014 and high-skilled

occupations have grown, with smaller

changes in low-skilled occupations. This

leads to a ‘U-shaped’ graph

The picture is similar when looking at hours

or headcountNotes: The final quarter of 2014 is not included because data was not available at the time of analysis. See annex for other methodological details. Source: Resolution Foundation analysis of Labour Force Survey, ONS

4

Since the early 1990s, mid-skilled occupations have experienced falling employment shares

We summarise the trends in different

parts of the occupational skill

distribution by grouping together

skill deciles 1 and 2 (low-skilled), 3 to 7 (mid-skilled), and 8 to 10 (high-skilled)

5

Low-skilled Mid-skilled

High-skilled

Notes: The final quarter of 2014 is not included because data was not available at the time of analysis. See annex for other methodological details. Source: Resolution Foundation analysis of Labour Force Survey, ONS

Low-skilled occupations were growing in share in the mid-1990s, but then declined

Low-skilled jobs declined in share through the late-

1990s and early 2000s, and have been

broadly flat since

6

Notes: The first quarter of 2001 and the final quarter of 2014 are not included due to missing variables or because data was not available at the time of analysis. See annex for other methodological details. Source: Resolution Foundation analysis of Labour Force Survey, ONS

The downturn may have ‘amplified’ polarising trends

Updating our starting point to 2002 (to

reflect a decade of changes to the

occupational wage structure) gives a

similar picture

The crisis shows a potential return to the

trends of the mid-1990s, with growth in

high-skilled jobs, slight growth in low-

skilled jobs, and sharper relative

decline in mid-skilled ones. These trends

then slow

7


The self-employed skew the picture slightly towards low-skilled jobs

When including the self-employed, we

find that low-skilled jobs expanded

slightly, and high-skilled jobs grew

slightly more slowly, between 2002 and

2014

8


So what are these declining mid-skilled jobs? manual trades and mid-skilled office workers…

The two occupations experiencing the

largest decline in their share of employment

since 1993 are ‘process, plant and

machine operatives’ and ‘secretaries’

There has been strong growth in caring and

service occupations across the

occupational wage distribution, some of

which may reflect demographic changes

9

Notes: The final quarter of 2014 is not included because data was not available at the time of analysis. Bubble size reflects the average labour share between 1993 and 2014. See annex for other methodological details. Source: Resolution Foundation analysis of Labour Force Survey, ONS

With similar trends enduring during the crisis and recovery

The employment share of construction occupations declined sharply after 2007 (in

contrast to the longer-run view), likely

reflecting the collapse in demand for these

skills during the crisis

10

Notes: The final quarter of 2014 is not included because data was not available at the time of analysis. Bubble size reflects the average labour share between 2002 and 2014. See annex for other methodological details. Source: Resolution Foundation analysis of Labour Force Survey, ONS

It is often assumed that a polarising labour

market has been the main driver of rising

wage inequality – with more low- and high-

paid occupations increasing the gulf

between the two

However, research has demonstrated that

while a shift in the UK’s job structure has

played a role in lower wage growth for low-

and middle-earners, this is only one part of

the story

11

Notes: The final quarter of 2014 is not included because data was not available at the time of analysis. 1993 analysis based on SOC 1990 (3-digit); 2014 analysis based on SOC 2010 (4-digit).See annex for other methodological details. Source: Resolution Foundation analysis of Labour Force Survey, ONS

But does this matter? There is limited evidence of job polarisation driving wage polarisation

What lies behind hollowing out? Strong links to the automation (or offshoring) of routine jobs

What do mid-skill jobs have in common?

‘Routineness’ and ‘offshorability’ scores

assigned to each broad occupation group are a good

predictor of changes in employment share

The strongest relative declines in manual

trades and some office jobs attest to this – these are the

roles most at threat from computerisation

12


But how do ‘routineness’ and hollowing out relate? Low-/ mid-skill jobs are more routine...

As a mirror image of falling employment

shares, jobs of above-average ‘routineness’

are concentrated in the middle and

bottom of the pay distribution

13


…And it is these routine jobs which have been lost, particularly from the middle

And the employment share of these routine

jobs has fallen over time, with the largest

absolute falls in the middle, helping

explain the earlier ‘U-shape’

14


However, there is some evidence that higher paying routine jobs are the most at risk

But there is some very tentative

evidence that middle to high paying

routine jobs are most at risk

Low paying routine jobs will – all else

equal – be less profitable to

automate, though this theory requires further exploration

15


• The ‘rise of the robots’ hasn’t yet harmed overall employment

• And if ‘routine-biased technological change’ was the only factor behind polarisation we would expect to see corresponding wage polarisation (wages changing in line with employment shares) –which we don’t

• Supply-side factors are also likely to be important – including upskilling of the workforce, as explored by others

• As well as other more localised factors – such as demographic changes and the cyclical collapse in the construction industry

16

Don’t just blame the robots – technology is not the only factor in occupational polarisation

• An expanded slide pack and blog will be available on our website following this event

• Further work to explore the real-world implications and what the near future may hold

• Using the latest data, and potentially new ways of measuring routineness

• A report later this year as part of our New Labour Market research programme

17

Next steps

The anatomy of job

polarisation in the UK

Andrea Salvatori

University of Essex

23 March 2015

Resolution Foundation

London@iseressex

@andysalvatori

@andysalvatori

@iseressex

The (mostly US-focused) literature supports a demand-centred story:

- Middling “routine” jobs easier to automate

- All education groups have lost shares in middling jobs

- Polarisation of occupational wages in 1990s

- Over time, stronger growth at the bottom

- No growth at the top the 2000s

Is polarisation in the UK different?

Among employees, since 1980:

% graduates triplicated

% immigrants doubled

Is there a role for these supply-side changes?

Polarisation and computerisation

@andysalvatori

@iseressex

Job polarisation in each decade, 1979-2012

-20

-15

-10

-5

0

5

10

15

20

1980s 1990s 2000s 1979-2012

Ch

an

ge in

em

plo

ym

en

t s

ha

re

Bottom deciles (1-2) Middle deciles (3-8) Top deciles (9-10)

Occupational deciles based on the 1979 ocucpational median wage.

Growth at the top always larger than at the bottom:

Top has gained 16pp of the 19pp lost by middle

@andysalvatori

@iseressex

Polarisation is a non-graduate phenomenon (1979-2012)

3.99

15

3.18.3

16.6

0.8 0.7

-1.5

Graduates

Total contribution (1)+(2)

Explained by change in relative size of group (1)

Explained by reallocation across occupations (2)

-0.4

-28.3

0.7

-12-15.5

-0.4

11.6

-12.7

1.2

Bottom Middle Top

Non-Graduates

Compositional changes:

- >50% non-graduate decline in

middle

- 100% graduate increase at the

top

Changes within groups:

- Non-grads moved to the bottom

At the bottom:

- Net growth is grads

- But reallocation of non-grads

offsets decline from educational

improvement

@andysalvatori

@iseressex

2000s: graduates and immigrants more important

Bottom occupations:

• Education upgrading continues while

• Reallocation of non-grads slows down

• Graduates shift towards the bottom

• Number of immigrants increases

Native graduates and immigrants are main contributors to growth of

bottom occupations

Overall contribution of natives is negative: in the aggregate,

educational upgrading stronger than reallocation to bottom.

Contribution of immigrants not limited to bottom occupations:

• (Graduate) immigrants account for 35% of growth at the top (up from 16% in

1990s)

@andysalvatori

@iseressex

Occupational wages have not polarised in any decade

No evidence of decline in wages in middling occupations in any decade

Performance of median wages in top occupations deteriorates over time –

and it is worst in the 2000s.

Points to importance of supply at the top

@andysalvatori

@iseressex

So, polarisation in the UK is different from the US

The findings on

1) importance of educational upgrading

2) occupational wages

are not consistent with a simple demand-based story and suggest that

supply-side changes played an important role in the UK.

particularly in the 2000s when growth at the top stalled in US

Impact of technology on labour market more complex than often

suggested.

Technology is certainly important, but it is its interaction with the skill

structure of the workforce that determines what happens to the quality and

quantity of jobs.

HAVE UK EARNINGS DISTRIBUTIONS POLARISED?

Dr Craig HolmesResearch Fellow, Employment, Equity and Growth Programme, Institute for New Economic Thinking at the Oxford Martin School

March 23rd 2015Resolution Foundation

Introduction• Polarisation towards high wage and low-wage work implies

increasing inequality

-15%

-10%

-5%

0%

5%

10%

15%

20%

25%

30%

35%

40%

0 0.2 0.4 0.6 0.8 1

Wag

e g

row

th

Percentile

1987-2001 1994-2007 2006-2013

Introduction• To put this in a different way:

– Low wage work: hourly wage < 2/3 median hourly wage

– High wage work: hourly wage > 1.5x median hourly wage

Low wage work High wage work

1987 20.2% 23.4%

2001 23.0% 25.6%

1994 22.6% 25.2%

2006 21.4% 25.6%

2013 22.3% 26.3%

Introduction• Questions:

1. How important has the change in the occupational structure –“hollowing out” - played in these trends?

2. Why has “hollowing out” not always accompanied increased pay dispersion?

• In both cases, the structure of wages within occupations is key

Overview of approach• Typical (OLS) regression predicts the mean of a variable (say,

wt), conditional on the explanatory variables, Xt:

• From this, we can calculate the unconditional mean of the whole distribution:

• Changes in the mean wage over time can be broken down into ‘compositional effects’ and ‘wage effects’:

tttt Xw

ttt Xw

10101001 XXXww

Overview of approach• Here, essentially doing the same thing except looking at

changes in wages at different points of the distribution instead of the mean

• The approach I follow is that of Firpo, Fortin and Lemieux (2009).

• Three time periods

• Real hourly wages

• Explanatory variables: occupational groups, education levels, union membership, gender, part-time status

Hollowing out and earnings

1987-2001: 1994-2007: 2006-2013:

-5.0%

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

35.0%

0 0.5 1

Hollowing out Overall

-5.0%

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

35.0%

40.0%

0 0.5 1

Hollowing out Overall-10%

-8%

-6%

-4%

-2%

0%

2%

4%

0 0.2 0.4 0.6 0.8 1

Hollowing out Overall

Compositional and wage effects

Overall composition: Overall wage:

-15.0%

-10.0%

-5.0%

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

0 0.2 0.4 0.6 0.8 1

1987-2001

1994-2007

2006-2013

-15.0%

-10.0%

-5.0%

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

0 0.2 0.4 0.6 0.8 1

1987-2001

1994-2007

2006-2013

Returns to education: 1994-2007

• Not the result of education pulling the middle up

-4.0%

-3.0%

-2.0%

-1.0%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

0.00 0.10 0.20 0.30 0.40 0.50 0.60 0.70 0.80 0.90 1.00

All education wage effects

Degree wage effect

Occupational wage dispersion: 1994-2007

• Wages within higher occupations becomes more dispersed…

-5.00%

-4.00%

-3.00%

-2.00%

-1.00%

0.00%

1.00%

2.00%

3.00%

Low pay Middle pay High pay

Ch

ange

in e

mp

loym

en

t sh

are

, 19

94

-2

00

7

Professionals

Managerial

Intermediate

Manual routine

Admin routine

Service

Occupational wage dispersion

• … which is experienced almost entirely by graduates.

-5.00%

-4.00%

-3.00%

-2.00%

-1.00%

0.00%

1.00%

2.00%

3.00%

Low pay Middle pay High pay

Ch

ange

in e

mp

loym

en

t sh

are

, 19

94

-2

00

7

Professionals

Managerial

Intermediate

Manual routine

Admin routine

Service

Gender and hollowing outWomen, 2006-13: Men, 2006-13:

Source: Holmes (2014), Turning over the 'hourglass' labour market argument, Policy Network

-15%

-10%

-5%

0%

5%

10%

15%

0 0.2 0.4 0.6 0.8 1

Overall wagegrowth

Compositioneffects

Wage returns

-15%

-10%

-5%

0%

5%

10%

15%

0 0.2 0.4 0.6 0.8 1

Overall wagegrowth

Compositionaleffects

Wage returns

THANK YOU

For more information please see www.inet.ox.ac.uk

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