John will be posting weekly with his personal analysis of the issues that matter in HR and people management and the external factors that affect them.
In the run up to this year’s budget, many economists have been arguing that a second fiscal stimulus in the region of £20billion is necessary to prevent an even deeper recession, forestall the likelihood of a still larger fiscal deficit and limit the rise in unemployment. But the UK deficit and debt burden greatly limits the Chancellor’s scope to use tax and spend measures when delivering his second Budget speech.
With the General Election looming, it is likely that the Chancellor, and most certainly the Prime Minister, would wish to have more political scope for a larger budget deficit in 2009-10. Yet that scope shrunk when the Governor of the Bank of England told the Commons Treasury Select Committee that, given the public finances, it would be sensible to be cautious about further use of discretionary measures. Any further fiscal stimulus is likely to be accompanied by a number of austerity measures for the period 2011-12 far tougher than the projected public spending squeeze announced in the PBR.
Mr Darling’s dilemma is that he wants to present a genuine ‘Budget for Jobs’ without borrowing a great deal more to fund any job generating measures. But if he wants to execute a genuine ‘Budget for Jobs’, he must consider measures aimed at keeping people in work, and investigate creative ways to keep people out of long-term unemployment.
In the PBR the Chancellor announced a 0.5 per cent increase in employers’ National Insurance Contributions (NIC) from 2011. Many have voiced concern that the NIC rise will come like a cold frost just when the green shoots of labour market recovery are beginning to emerge. The CIPD agrees that delaying that increase would be a sensible start for Mr. Darling, but cutting current contributions would bring the Chancellor one step closer to sowing the seeds of recovery. In the CIPD/KPMG Labour Market Outlook, 37 per cent of employers across all sectors named this as the policy most likely to improve their organisational resilience through the recession.
In current economic circumstances it is vital that the preservation of jobs takes priority over pay increases. This already seems to be the case throughout much of the private sector where pay freezes are widespread and pay cuts more common than previously experienced. The Chancellor can use the Budget as a signal to employers and employees in all sectors to put jobs first when setting pay. Although Mr Darling may not wish to make a firm statement on public sector pay deals he should make clear that public sector pay and pensions provision must in due course moderate to reflect the worsening state of public finances. The Chancellor should also announce that there will be no annual uprating of the National Minimum Wage in October 2009. While this will be bitterly disappointing to the lowest paid in society, it reduces the risk of job losses in low paid sectors such as retail and leisure at a time when deflation on the RPI measure of inflation will limit the impact of a National Minimum Wage pause on people’s real living standards.
Keeping people in jobs rather than mopping up unemployment through temporary job creation will strike many as a preferable big ticket item for a Budget for Jobs. The TUC and Federation of Small Businesses (FSB) have jointly advocated a subsidy scheme which they estimate could support up to 600,000 workers a year at a net cost to the Exchequer of £1.2 billion. However the CIPD estimates that this scale of subsidy would involve a net cost of £2.4 billion a year. Subsidies for short-time working are prone to deadweight effects and may deter necessary economic restructuring. Any subsidy should therefore be targeted on industries it is most likely to benefit, such as manufacturing.
In the forthcoming CIPD/KPMG Labour Market Outlook, 56 per cent of respondents from the manufacturing sector said they were most likely to use a short-time working subsidy, compared with an overall average of 28 per cent. They were also most likely to say that it would make a difference to their organisational resilience (27 per cent as compared to 8 per cent). It would also be sensible to limit eligibility to businesses that have already been operating short-time working as an alternative to redundancy in order to enable them to extend the practice for a longer period.
Furthermore, countries already using the subsidy have not been immune from difficulties. In Germany, often seen as the bastion of short-time working, businesses are reporting that despite months of subsidies, payroll costs still need to be slashed and redundancies this summer are likely. The consensus in the UK is that a widespread short-time subsidy would be too little too late.
An ambitious addition to the Chancellor’s policy armoury would be a temporary job creation programme targeted directly at the young unemployed or long-term unemployed. This could operate as a last resort for jobless people for whom the other existing measures have not proved suitable.
On the face of things a job creation programme might look expensive. However, the CIPD’s estimate of the job creation potential of various spending options in fact suggests that the Chancellor could make a policy virtue out of fiscal necessity by highlighting the merit of a targeted job creation programme compared with tax cuts or untargeted spending measures. Based on the experience of previous UK job creation programmes for the unemployed, the CIPD estimates a net cost of £5,500 per place per year on such a programme in 2009-10. The Chancellor could announce an initial programme with 250,000 participants at a net cost of around £1.4 billion. The programme would be in operation by the beginning of 2010.
This costing assumes participants are paid what they would have received in benefit, plus a top-up payment and work-related training for one day each week to avoid the common accusation that such programmes are a form of Workfare. The jobs created would be operated primarily by local voluntary sector bodies and geared toward environmental improvements under the title Green Action Projects (GAP). Participants would be offered a ‘GAP year’ as an alternative to unemployment but would not be compelled to participate.
By definition, job creation schemes directly impact on employment. whereas other forms of public spending can be devoted to non-labour items or increases in public sector pay, while cuts in personal income tax or VAT can be absorbed as savings and/or in part be spent on imported goods and services.
A given increase in public borrowing to finance a targeted job creation programme would generate:
* 25 times as many jobs as an equivalent sum used to cut personal income tax* 21 times as many jobs as an equivalent sum used to cut VAT * 12 times as many jobs as an equivalent sum used to increase public investment* 8 times as many jobs as an equivalent sum used to increase current government spending
The CIPD believes that spending targeted directly at providing employment opportunities for the young and/or long-term unemployed offers a far bigger ‘bang for the buck’ and might make for a more creative and ambitious Budget for Jobs 2009.
The CIPD has issued the following statement ahead of this week's G20 Summit in London:
The global economy is suffering the worst financial crisis for 70 years, the worst economic crisis for 50 years and the worst jobs crisis for 30 years. By the end of 2009 more than 200 million people will be unemployed worldwide while millions more will be experiencing severe financial hardship, the majority of them in the G20 leading industrial countries. With this in mind the CIPD calls on the G20 leaders to unlock the labour market, not just unblock the credit market for a ‘new world order of work’.
The human impact of the economic crisis is being witnessed in workplaces around the globe. Managers everywhere are having to deal with the consequences, in many cases cutting jobs, in all cases helping workers and their organisations adjust and prepare for future challenges.
The way in which organisations meet the management task of enabling their people to remain resilient at such times is primarily a matter for organisations themselves to determine. But the task is strongly influenced by the various policy decisions made by governments and other national and international bodies.
As the leaders of the G20 countries prepare to assemble in London to consider actions necessary to respond to the crisis, we in the management community therefore call upon them to ensure that global and national policy is geared not only to the short-run imperative to restore economic growth, enhance economic stability, and stimulate renewed job creation but also opens the door to a new world order of work that builds long-lasting prosperity by making the most of our human resources.
With this imperative in mind we highlight four policy pillars of a productive work agenda that both meets the need to increase work opportunities and improves the performance of people in work.
Pillar 1 More in Work
The immediate policy requirement is to restore confidence to the global financial system in order to increase the flow of credit to businesses and households. In addition a major demand stimulus must be injected into the global economy.
Each G20 should push monetary and fiscal policy levers to the fullest throttle consistent with medium term resource capacity and fiscal stability constraints. In some countries there is scope for considerable further monetary and fiscal policy expansion, though others will need to act more cautiously to reduce the risk of inflation or large fiscal deficits limiting their medium term growth potential.
Whatever the extent of their respective fiscal stimulus, each G20 country should conduct ‘employment potential audits’ so that public spending programmes are targeted to maximise sustainable employment opportunities. As well as providing a cost-benefit analysis of the impact of public spending on jobs, EPAs would help support a coordinated approach to tackling global unemployment, which is set to rise above 200 million by the end of this year.
However, at the same time, there should be a clear restatement of the importance of ongoing structural reform designed to improve the flexibility of the labour markets. While it is widely recognised that the global financial system should be subject to greater regulation the G20 should avoid any temptation to extend regulation in general, and particularly labour market regulation. This would reduce the propensity of the global economy to create jobs and improve living standards.
If at this time of rapidly rising unemployment, G20 governments consider it necessary to offer greater support to people at risk of losing their jobs this should be undertaken within a policy framework generically referred to as ‘flexicurity’. This encourages employment policies that aim to enhance labour market flexibility but combine these with an extensive range of welfare to work measures designed to aid and equip people who lose their jobs for an early return to work.
The principle of flexicurity also offers a bulwark against attempts to protect employment and national labour markets by preventing the offshoring of jobs or limiting the free flow of capital from which all countries eventually prosper. Workers who lose out as a consequence of the operation of open and flexible labour markets are ultimately better served by measures that improve their long-term employability rather than protectionist barriers that deny the spread of opportunity within the global economy.
The G20 should make a collective commitment to encourage the free flow of migrant workers between their countries, subject to strictly limited measures to avoid national labour market distortions created by current global imbalances in employment and income levels.
Pillar 2 Smart Work
G20 governments should do everything they can to support organisations in at least maintaining investment in work-related training during the recession.
Existing public investment in training for youths and less skilled adults should be redirected to employers to fund high quality apprenticeships.
In allocating public resources to vocational education and training G20 governments should in particular recognise the critical importance of investment in people management skills as a driver of growth in workplace productivity.
The effective management of people at work increases the return on investment in education and training, increases the incentive for organisations to invest in work related skills, and enhances the quality of working life and well being that people experience in the workplace. Effective management also extends to the realm of organisational ethics and the handling of risk, failures of which in the banking and financial sector were a major factor in causing the current economic crisis in the first place.
Skilled managers and leaders are more likely to adopt smart work practices that enable people to achieve more for any given number of hours of work, in particular by undertaking various forms of flexible working. This reduces the need for legal restrictions on working time, which while offering the advantage of protecting people from excessive hours limit the ability of organisations and employees agreeing on ways of working that can jointly enhance productivity and work-life balance.
Pillar 3 Inclusive Work
The G20 must reiterate the need for policies to prevent the global economic crisis from reinforcing existing inequalities of gender, age, race, religion and sexual orientation. However, governments should resist the temptation to seek short-cuts to greater equality that fail to understand the true underlying causes of inequality or recognise the complexity of organisational life when it comes to dealing with them.
The experience of previous recessions in many G20 countries is that teenagers and young adults and workers in late middle age and early old age bear the brunt of job losses and unemployment. The immediate priority of the G20 during the recession should be to prevent hardship to people at the opposite extremes of the working age spectrum but most especially the young.
Evidence suggests young people are the demographic group being hit hardest by this recession across the globe. This can have a damaging effect on their lifetime employment and earnings prospect. To counter this, governments should support unemployed young people in a variety of work-related education and training initiatives.
For older people unemployment in the recession can lead to a permanent premature withdrawal from the labour market. To avoid a repeat of previous mistakes, and deter employers from using early or enforced retirement as a method of labour cost cutting.
While action to avoid sowing the seeds of a generation of wasted talent must necessarily come at a national level, global leaders can usefully compare policy solutions and co-ordinate actions. For the sake of the long-term benefit of the global skills base, this should be as much of a priority as freeing the credit markets.
Government should do more to identify the social and cultural roots of inequality rather than automatically assume that this is the result of unfair or discriminatory organisational structures and practice. Good management is not helped by tokenistic ‘box ticking’ initiatives that encourage undue attention to regulatory compliance but do little to advance true diversity in the workplace.
Pillar 4 Green Work
There is now a broadly based and widening consensus that green job creation will play an important part in combating the mass unemployment caused by the global economic crisis. This also provides a unique opportunity to finance a ‘green revolution’ – a new spirit of innovation and a globally co-ordinated investment in green technologies and services.
But this welcome focus on jobs that both provide work and tackle the consequences of climate change too often overlooks the management of green work and the organisation of the green workplace. The G20 governments should be encouraging, where necessary with the use of financial incentives or business reporting requirements, a green work movement, including environmentally friendly ways of working, such as tele-commuting, and teleconferencing, and green transport initiatives.
Trillions of dollars are clearly going to be borrowed and spent by governments around the world in the coming years. The G20 leaders have a unique opportunity to direct this expenditure into environmentally sustainable projects. Governments should in particular be investing in the communications infrastructure and innovation to reduce the need for so much environmentally damaging international business travel.
An intriguing typo in yesterday’s newspaper coverage of the 2009 Oscar awards ceremony. Apparently, British actress Kate Winslet won a statuette, triumphing over her chief rival Meryl Streep who gave a polish (sic) performance as a nun in the taut drama Doubt. I presume it should have been polished, though the error did make me ponder on Ms Streep’s ethnic background and the possibility that she is a dab hand at fixing problems with her U-bend and regularly tucks into a Carp supper.
By coincidence, Poles were in the news again today. Figures released by the Home Office show a sharp drop in the number of central and eastern Europeans registering to work in the UK. There were just 29,000 worker applications in the final quarter of 2008, down from 53,000 in the equivalent quarter of 2007 and 65,000 the year before that. Overall, applications are running at a lower level than at any time since the European Union enlarged eastwards in 2004. Separate figures published by the Department for Work and Pensions on the number of workers given National Insurance numbers in 2007/8 likewise show a drop of 4.4% in Polish migrants.
This change in trend highlights the extent to which rising unemployment and a sharp drop in the value of the pound has reduced the UK’s economic pulling power as far as eastern European migrants from the initial EU accession countries, especially Poland, are concerned. It is now clear that not only are fewer Poles coming to the UK but also more are going home too.
Some will see this as good news insofar as reverse migration will take a bit of pressure off the UK jobs market at a time when vacancies are scarce. However, while a slower rate of inflow of migrant EU workers might eventually take some heat out of the unfortunate ‘British jobs for British workers’ row, at a time of recession and mounting joblessness it is sensible to ensure that migration from outside the EU is tightly controlled so that employers make full use of available UK and EU labour before hiring migrants from further afield.
As a result the Home Secretary, Jacqui Smith, is to be commended for her weekend announcement that the Government will adjust the recently introduced points based migration system to make it harder for non-EU migrants to enter the UK for work. Although ‘British jobs for British workers’ remains a regrettable political slogan, home grown jobless people with skill, talent and experience deserve to be considered first when home grown jobs are on offer.