Employment rate is high because workers feel poor, says study

Lower-than-expected incomes are pushing more people into work and forcing them to increase hours, according to think tank

The UK’s record high employment rates have been caused by individuals working longer hours because they feel poorer, a new report has claimed.

A study released today by the Resolution Foundation said workers were taking a “feel poor, work more” approach to employment, arguing that lower-than-expected earnings since the financial crisis had pushed more people into taking a job or working longer hours than before.

It said these factors, combined with an increasing demand from employers for cheap labour, could explain why wage growth was still low despite the economy running close to full employment.

The Resolution Foundation estimated UK workers were collectively clocking 65 million more hours work each week compared to 2008, because they were compensating for lower earnings. It found the greatest increases in employment were happening in households that were less able to adapt to lower incomes, such as those with children.

The employment rate of mothers with a partner, for example, was flat before the 2008 financial crisis but has increased by 5 percentage points in the last 10 years.

Jon Boys, labour market economist at the CIPD, said today’s report was a “really plausible explanation” for why increased employment has been met with stagnant wages. But he added it was just one of several different narratives emerging around the causes of the post-financial crisis jobs boom.

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Boys added that if working longer was the only way to boost pay packets, organisations needed to start helping employees work smarter. “The solution as ever is we need to boost productivity. Wages have been lagging and that corresponds pretty much one-for-one with the UK’s productivity performance.

“What’s quite interesting is the conversation around productivity is focusing more and more on the workplace, and that’s a good thing because it’s been a neglected area of policy,” he added.

“Whereas other parts of productivity are out of the control of most people in their day-to-day lives – there’s not much you can do about skills infrastructure, for example – organisations can concentrate on their people management skills and particularly the skills of their line managers.”

Other common explanations for the UK’s employment growth include a more flexible labour market and the introduction of universal credit – the incoming benefits system which the government says has been designed to make it more advantageous for those on benefits to work. 

But today’s report said that while a more flexible labour market had theoretically enabled a surge in employment, the fact there had been little change in employment regulations in the past decade meant this was unlikely to be the cause.

The increase in jobs growth also pre-dated the introduction of universal credit, which the report said dispelled the idea that changes to benefits had been significant 

Torsten Bell, chief executive of the Resolution Foundation, said: “Higher employment has little to do with a more flexible labour market or welfare reforms. Instead, it’s a story about how households have responded to the unprecedented post-crisis income squeeze.

“Faced with shrinking pay packets, we have chosen to work more hours or rejoin the workforce, as many thousands of women have done. The economic motto for many families has been ‘feel poor, work more’.”