Climbing the Jobs Ladder
Speech given by
Andrew G Haldane
Chief Economist
Bank of England
Glanford Park Stadium
Scunthorpe
23 July 2019
The views expressed here are not necessarily those of the Bank of England or the Monetary Policy
Committee. I would like to thank Lena Anayi, Shiv Chowla and Doug Rendle for their help in
preparing the text. I would like to thank Shaheen Bhikhu, Delma Essel, Rebecca Freeman,
Tomas Key, Clare Macallan, Steve Machin, India Rimmer, Michael Saunders, Ali Schomberg,
Joann Spadigam, Silvana Tenreyro, Anina Thiel, Jan Vlieghe and David Young for their comments
and contributions.
This work contains statistical data from ONS which is Crown Copyright. The use of the ONS statistical
data in this work does not imply the endorsement of the ONS in relation to the interpretation or
analysis of the statistical data. This work uses research datasets which may not exactly reproduce
National Statistics aggregates.
It is fantastic to be here at Glanford Park Stadium, home of Scunthorpe United Football Club. I remember as
a boy learning about how Liverpool legends Kevin Keegan and Ray Clemence started their careers here.
Cricketing legend Sir Ian Botham started (and ended) his professional football career here too. A couple of
weeks ago, my home town Guiseley entertained Scunthorpe in a pre-season friendly. Scunthorpe won 2-0.
Off the football pitch, it has not been all wins for Scunthorpe recently. Problems at the British Steel plant in
the town have put at risk the jobs of 5,000 workers and a further 20,000 in its supply chain.1 Hopefully, a
new buyer can be found and jobs in the town and beyond can be assured. This is the latest chapter in what
has been a long and sometimes painful story for the UK steel industry recently. It has been a recurrent
theme of my visits around the UK, including in Redcar and Port Talbot.
-
The loss of signature industries can leave lasting social and economic scars jobs lost, families disrupted,
communities decimated. It is a pattern we see repeated across many industries in many advanced
economies. It has been a key cause of the disaffection and disconnection felt by many and a potent
polarising force in our politics, policies and societies. This polarisation is also a potent force shaping the
fortunes of our economies, as I will go on to discuss.
-
The travails of the steel industry lead me neatly to the issue I want to discuss today jobs and pay. In the
UK recently, this has been a good news/bad news story. The good news has been the new jobs created -
the best jobs recovery in the UK since at least the Second World War. The bad news has been the subdued
-
performance of pay over much of that period the weakest pay performance the UK has experienced since
at least the Boer War.
I will first discuss recent developments in jobs and pay, before providing an account of them centred on
movements up and down the jobs ladder. I will then turn to recent developments in the world and UK
economies and their potential implications for monetary policy.
The Jobs Boom
The past few years have been a jobs bonanza in the UK. Since 2012, 3.4 million net new jobs have been
created. Table 1 compares job creation across previous periods of UK economic recovery. No economic
recovery since the Second World War has seen as many new jobs created. This leaves the UK employment
rate at its highest (61.5%) and the unemployment rate at its lowest (3.8%) in half a century (Charts 1 and 2).
1
https://www.bbc.co.uk/news/business-48365241
Table 1: Job creation in different UK recoveries
Recovery dates Job creation (millions)
2011 Q4 - present 3.4
-
1993 Q1 2003 Q2 2.9
-
1984 Q2 1990 Q1 2.7
-
1977 Q4 1979 Q2 0.3
-
1972 Q1 1973 Q4 0.5
1952 - 1955 0.7
Sources: ONS and Bank of England Millennium of Data.
Notes: Data taken at quarterly frequency from 1970s and measure change in whole economy employment period during periods of
sustained falling unemployment. Other definitions of recovery would of course suggest different amounts/periods of job creation, but it
remains true that the current phase of job creation is high by historical standards.
Chart 1: UK employment rate
Per cent
64
62
60
58
56
54
52
50
1971 1975 1979 1983 1987 1991 1995 1999 2003 2007 2011 2015 2019
Sources: ONS.
Notes: 16+ employment rate.
Chart 2: UK unemployment rate
Per cent
14
12
10
8
6
4
2
0
1971 1975 1979 1983 1987 1991 1995 1999 2003 2007 2011 2015 2019
Sources: ONS.
Notes: 16+ unemployment rate.
This jobs bonanza has had a broad geographic base. Since 2012, unemployment has fallen by at least 4
percentage points in all corners of the UK (Chart 3). Unemployment here in Scunthorpe has also fallen
significantly from its peak of over 11% during the financial crisis but, at around 7 1⁄2%, remains well above the
national average.
Chart 3: Fall in UK unemployment by region (latest vs. post-crisis peak)
Region
NI
Scotland
Wales
SW
SE
London
East
W Mids
E Mids
Y&H
NW
NE
0 1 2 3 4 5 6 7
Percentage points
Sources: ONS and Bank of England calculations.
Notes: Data for NUTS1 regions. Changes between post-crisis peak and latest data in Labour Force Statistics.
A high quantity of new jobs is no guarantee of quality. Yet recent job creation has also been encouraging on
that front. Of the jobs created since 2012, over 2.7 million or around 80% have been full-time. Around half
(over 1.7 million) have been taken by women. Employment rates among the youngest (aged 16-24) and
oldest (aged 55+) have both risen strongly, by around four to five percentage points, respectively.
The jobs bonanza has been fairly broadly-based across the occupational spectrum too (Chart 4). Unusually,
all of the main categories of occupation have seen a rise in employment rates since 2012. As elsewhere,
this boost has been largest at the higher-skill (such as managers and directors) and lower-skill (such as
elementary occupations) ends of the occupational spectrum, with the mid-skilled benefitting least.2
2
For example, Haldane (2018), Autor (2014) and Autor (2017).
Chart 4: Change in UK employment by profession
Percentage change in employment between 2011 and 2018
25
20
15
10
5
0
Managers, Professional Associate Administrative Skilled Trades Caring, Sales and Process, Elementary
Directors and Occupations Prof. & Tech and Occupations Leisure and Customer Plant and Occupations
Senior Occupations Secretarial Other Service Service Machine
Officials Occupations Occupations Operatives
Sources: ONS and Bank of England calculations.
Notes: Ordering defined by ONS 1-digit SOC 2012 classification.
Despite a slowing economy, this large and evenly-distributed jobs bonanza has continued apace. The stock
- -
of available job vacancies a measure of aggregate demand for workers currently stands at around
830,000, close to its all-time high. After seven years of continuously creating jobs, and continuously falling
unemployment, the UK labour market remains in rude health.
It also appears to be tight. One way of gauging that comes from comparing the stock of vacancies (V) in the
economy (aggregate labour demand) with the stock of people seeking work (U, aggregate spare labour
supply). Chart 5 plots two measures of the V/U ratio in the UK.3 They are at their highest since the 1960s.
Both ratios also well in excess of 100%, suggesting demand for labour exceeds available supply.
3
The broader measure is the vacancy-effective searcher ratio, where effective searchers are a weighted average of the employed,
unemployed and non-participants. The weights on the employed and non-participants are their job finding probabilities relative to the
job finding probability of the unemployed. The unemployed therefore have a weight of one.
Chart 5: Vacancy to unemployment ratio
Ratio, percent
160
140
120
100
80
60
40
20
0
2002 2004 2006 2008 2010 2012 2014 2016 2018
Vacancy-Unemployment ratio Vacancy-Effective searcher ratio
Sources: ONS and Bank of England calculations.
Bank's estimate of its
Other evidence confirms that picture. The UK unemployment rate (3.8%) is below the
long-run equilibrium rate (or NAIRU) of 4 1⁄4%. In business surveys, a majority of companies point to acute
skills shortages across a range of professions and industries. When I asked on a recent visit to Northern
top three concerns, the answer was
Ireland about businesses' revealing: skills, skills and skills.
Surveys of workers tell a similar tale. Households'
outlook for their financial situation is currently in line with
historical averages and well above troughs in previous economic downturns (Chart 6). It is easy to be blasé
and to forget just how big a societal shift this represents. Job insecurity was the scourge of the latter part of
the 20th century. During the 21st, and in particular over recent years, that scourge appears finally and
thankfully to have lifted.
Chart 6: Household financial position
Net balance
20
15
10
50-5
-10
-15
-20
-25
1985 1988 1991 1994 1997 2000 2003 2006 2009 2012 2015 2018
Sources: GfK and Bank of England calculations.
Notes: Question in survey asks,
"How do you expect the financial position of your household to change over the next 12 months?" Net
balance refers to proportion of respondents expecting improvement minus proportion expecting worsening.
The Pay Bust
A tight labour market is usually a recipe for rising pay. Yet until recently, there was little sign of pay picking
up closer to rates seen before the crisis. Chart 7 plots inflation-adjusted pay in the UK over the past
70 years. For the first 60 of those years, real pay growth grew steadily at over 2 1⁄4% on average each year.
Over the past 10 years, real pay growth has averaged minus 0.4% - a "lost decade" for the average worker.
Despite some recovery recently, that leaves the inflation-adjusted pay of the average UK worker still over 5%
lower today than it was just prior to the crisis. You have to go back to the 19th century to find a similar period
of stasis in UK living standards. The UK's jobs bonanza has been accompanied by a pay disaster.
Chart 7: Real pay
Index, 2007 = 100
120
100
80
60
40
20
0
1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015
Sources: ONS, Bank of England Millennium of Data and Bank of England calculations.
Notes: Data at annual frequency using AWE deflated by CPI. Prior to AWE and CPI we use AEI and RPI, respectively, to extend the
series backwards.
These falls in real pay have been widely spread geographically. Chart 8 compares average real wage rises
across UK regions in the ten years either side of the global financial crisis. In the ten years prior to the crisis,
all regions experienced annual rises in real pay, averaging between 1.3% (Wales) and 2.2% (London).
These pay rises were roughly in line with pre-crisis economic growth rates.
Chart 8: Real pay by region
Average annual real pay growth (per cent)
1998-2007 2009-2018
2.5
2
1.5
1
0.5
0
-0.5
-1
-1.5
Sources: ONS and Bank of England calculations.
Notes: Data at annual frequency using median gross weekly pay in ASHE deflated by CPI. Regional calculations at NUTS1 level.
Over the past decade, average growth rates of real pay in every UK region have fallen into negative territory
and well below average GDP growth rates in the economy over the same period (1.3%). The worst-affected
regions have been the East Midlands and London. Scunthorpe has been towards the lower end of this pack,
with real pay falling by, on average, 0.8% per year over the past decade.
The distribution of real pay rises across the wage distribution tells a nuanced story (Chart 9). In the decade
prior to the crisis, real pay growth was fairly evenly distributed. The one exception was the top two wage
-
deciles, where real pay growth averaged 2 1⁄4% 0.5 percentage points higher than in the lower deciles.
The global financial crisis (2008-11) saw a sharp and significant amplification of these pre-crisis trends. The
distribution of real pay rises fell below zero for all income groups. But while for the top two income deciles
real pay shrank by only 2%, for the bottom two deciles it fell by 4%. This widened pre-existing wage
inequalities. For the poor, this really was a Great Recession.
Chart 9: Real pay growth along the pay distribution
Average annual real wage growth (per cent)
4
2
0
-2
-4
-6
-8
5 10 15 20 25 30 35 40 45 50 55 60 65 70 75 80 85 90 95
Pre-crisis (97-08) Crisis (08-11) Post-crisis (11-17) 2018
Sources: ONS ASHE and Bank of England calculations.
Notes: Data based on real weekly pay (using CPI as the deflator).
During the subsequent period of jobs recovery (2011-17), these distributional patterns went into reverse.
Lower deciles of the wage distribution experienced real pay rises. For the bottom three deciles, these
averaged around 1 1⁄4% per year. They came, at least in part, courtesy of the National Minimum and,
subsequently, the National Living Wage. By contrast, real pay among the upper pay deciles continued to fall
over this period. Wage inequalities began to shrink.
Until, that is, 2018 when real pay of the bottom two wage deciles fell by a further 2%, partly reflecting the
effects of sterling's
depreciation after the referendum which pushed up consumer prices faster than wages.
The upper wage deciles appear largely to have been insulated from these pressures, with real pay rising by
around 1% among the top two wage deciles.
Comparing the past 10 years as a whole, real pay today is lower at every point along the wage distribution
and, with the exception of the bottom decile, by broadly similar amounts of around 5% (Chart 10). These
real pay falls have been felt by both men and women, by the young, middle-aged and young, and by the low,
medium and high-skilled. The lost decade of pay was an equal-opportunity disaster.
Alongside this period of stasis in real pay have been some important on-going shifts in the nature of work.
There has been strong growth in Alternative Working Arrangements (AWA), such as self-employment,
zero-hours contracts and agency work (Chart 11).4 The number of self-employed, zero-hour contract and
agency workers in the workplace has increased by 1.1 million, 0.7 million and 0.6 million, respectively, over
4
For example, Taylor (2017).
the past decade. There are now close to 1 million agency and zero-hours contract staff and 5 million
self-employed.
Chart 10: Real pay along the pay distribution
Gross average weekly earnings (2018 prices)
1200
2008 (2018 prices)
1000
2018
800
600
400
200
0
10 20 30 40 50 60 70 80 90
Sources: ONS and Bank of England calculations.
Notes: Nominal pay data for 2008 translated into 2018 prices using CPI.
"Alternative work" arrangements
Chart 11:
Number of people on different employment contracts , millions
5
4
3
2
1
0
2001 2003 2005 2007 2009 2011 2013 2015 2017 2019
Self employed Agency workers In employment on a zero-hours contract
Sources: ONS and Bank of England calculations.
Notes: Agency workers calculated on a quarterly basis using LFS data on those reporting to work for, or receive payment from, an
employment agency in their main or second job. Data on zero hour contracts is published annually up to 2012, and then bi-annually
from 2013. Zero hour contract and agency data are not seasonally adjusted. Some of the increase in the agency work and zero hours
lines may reflect increased awareness and reporting.
the "gig economy".
These structural shifts in the workplace are often called Their common denominator is
greater working time flexibility in the jobs contract. For some, this increased flexibility has been welcome. In
surveys, around 30% of workers says they have benefitted from this flexibility, particularly female workers
(re-)entering the workforce and older workers tapering into retirement.5
For others, though, these shifts in working arrangements have been a cause for concern. In surveys, around
half to two-thirds of workers say they would prefer either to be working more hours or to have greater
certainty around their hours.6 For them, AWA are not welcome flexibility but unwelcome insecurity. The
TUC estimate that as many as 1 in 9 workers may be in work which is insecure in income terms.7
This income insecurity has been a key and recurrent theme in my recent discussions with charities, faith and
community groups across the UK. For some, these income insecurities have been worsened by the
introduction of Universal Credit. This has added time lags in payments to claimants, caused rising concerns
about benefits sanctioning and has heightened uncertainties about eligibility for work criteria.8
Recent research by the Resolution Foundation has found that pay volatility in fact affects a significant
number of UK workers, not just those on low pay or the gig economy.9 Over 90% of those who remained
with the same employer during 2016-17 experienced at least one month when their take-home pay varied by
more than 5%. This pay volatility is more prevalent for those on lower earnings and among the young.
Income volatility appears to have significant welfare costs for workers. A recent study found the average
worker would be willing to sacrifice a fifth of their wage to avoid a variable work schedule set by their
employer.10 In practice, gig workers tend to be paid less not more. Pay of self-employed and zero-hours
contract workers lies significantly below employed and permanent contract counterparts (Chart 12). This is a
malign coincidence of lower and less certain income.
Chart 12: Pay for alternative work
Median real weekly income
Median real
(2018 prices), 2007/08 = 100
hourly wages
Zero Hour Contract Workers
Employees (2018 prices)
120
All Workers
14
Self-employed without workers
110
12
Self-employed with workers
10
100
8
90
6
80
4
2
70
0
60
2002 2004 2006 2008 2010 2012 2014 2016 2018
2007-2008 2009-2010 2011-2012 2013-2014 2015-2016 2017-2018
Sources: ONS and Bank of England calculations. With thanks to Steve Machin and Rui Costa at the CEP for kindly providing the data
for these charts.
5
Datta, Giupponi and Machin (2018).
6
For example, Datta, Giupponi and Machin (2018) and
https://www.tuc.org.uk/news/two-thirds-zero-hours-workers-want-jobsguaranteed-hours-tuc-polling-reveals
7
https://www.tuc.org.uk/news/1-9-workers-are-insecure-jobs-says-tuc
8
https://www.bankofengland.co.uk/events/2018/november/townhall-blog-scotland-november-2018
9
Tomlinson (2018).
10
Mas and Pallais (2017).
These changes in the nature of work are likely to have contributed to the recent weakness of pay. The
creation of larger numbers of, on average, lower paid jobs will have had a direct, dampening effect on pay.
And income insecurity and the lack of unionisation among gig workers may also have lowered their pay
bargaining power.
Summing up, then, a jobs boom has reduced the scourge of job insecurity that troubled workers in the past.
-
But in its place has emerged a different scourge static or lower pay and rising income insecurity. Job
insecurity at the end of the 20th century has given way to income insecurity at the start of the 21st. This
insecurity is an important part of the explanation for recent patterns in jobs and pay.
The Jobs Ladder
-
The framework most often used by macro-economists to explain pay and jobs is the Phillips curve the
negative relationship between pay growth and the stock of unemployment.11 Despite reports of its demise,
there is still reasonably clear empirical evidence of a Phillips curve in labour market data, once allowance is
made for a possible downwards shift in the NAIRU and/or slope of the Phillips curve.12
An alternative, complementary, lens on the labour market comes from looking at flows of workers between
jobs, rather than stocks of unemployed. There is a large literature studying the process by which people
-
search for work and are matched into jobs.13 There is empirical evidence that job-to-job flows the velocity
-
of circulation in the labour market can play a significant role in explaining wage growth.14
When studying labour market flows, a "jobs ladder" pattern of behaviour has often been found. In a growing
economy, workers move between jobs by climbing a ladder of opportunities based on job characteristics
such as relative rates of pay and firm productivity. The tighter the jobs market, the harder it is for companies
to fill vacancies, the greater their incentive to offer workers higher-paid positions and the stronger the
incentives among workers to move into these positions.15,16
More productive firms are better able to offer higher rates of pay. This means more productive firms are also
the ones most likely to expand, as they bid-away workers with higher pay offers. Less productive firms, by
contrast, are unable to pay-up and are more likely lose workers and shrink. As workers climb the pay and
productivity ladder, we would thus expect to see simultaneously higher levels of job moves, and higher rates
of pay and productivity growth.17
11
Phillips (1953).
12
For example, Broadbent (2017).
13
For example, Pissarides (2000).
14
Melosi and Faccini (2019).
15
Moscarini and Postel-Vinay (2016) and Moscarini and Postel-Vinay (2018).
16
Abel, Tenreyro and Thwaites (2018) discuss the role of monopsony power in the labour market.
17
Moscarini and Postel-Vinay (2016) and Moscarini and Postel-Vinay (2018).
The reverse is true during a slowdown. Then, rates of hiring fall and rates of job transition slow. Workers
are either forced off the jobs ladder entirely ("unemployment") or, in coordination with employers, the labour
market outcome results in them moving to a lower rung of the pay and productivity ladder
("under-employment"). Lower-productivity firms expand while higher-productivity firms shrink. The result is
slower rates of job move and lower rates of pay and productivity growth.
One of the attractions of this approach is that it explains the velocity of circulation in the labour market, pay
and productivity growth as a single, simultaneous process as workers traverse the jobs ladder. We do not
need to rely on unexplained shocks to productivity to explain pay. Rather, it is behaviour by companies and
workers which generates simultaneous movements in pay and productivity.
So how useful is this framework when characterising recent behaviour in the UK labour market? At a high
level, this story fits the UK facts. Chart 13 plots job-to-job flows in the UK over recent decades. It displays a
pro-cyclical pattern, with job moves picking up during a recovery and falling during a recession. From their
low point in 2010, job-to-job flows in the UK have picked up as the labour market has tightened.
Chart 13: Job-to-job flows
18%
16%
14%
12%
10%
8%
6%
4%
2%
0%
1976 1979 1982 1985 1988 1991 1994 1997 2000 2003 2006 2009 2012 2015 2018
Sources: ONS ASHE and Bank of England calculations.
Hiring and quit rates among companies are also pro-cyclical, as we would expect. More than that, the
degree of pro-cyclicality in hiring is strongest, and in firing is weakest, among the medium and large firms.
To the extent size is a proxy for productivity, this is also as we would expect.18 During expansions, more
productive firms hire more, and lose fewer, of their workers than less productive firms (Charts 14a and 14b).
Other patterns in the data less obviously fit the facts, however. Despite jobs flows picking up, pay growth
has until reasonably recently remained slow and low. Meanwhile, productivity growth has remained
18
For example, Bernard et al (2014) and Wales et al (2018).
stubbornly subdued despite a seven-year jobs recovery. So has the jobs ladder broken? Have its rungs
been removed? To understand these developments, it is useful to break the decade down into phases.
Charts 14a and 14b: Hire and quit rates by firm size
Hire rate Quit rate
2.5%
7% 1.0%
Small firms (< 50 workers)
0.9% Medium firms (50-499 workers)
6%
Large firms (500+ workers)
2.0%
0.8%
5%
0.7%
0.6%
1.5%
4%
0.5%
3%
0.4%
1.0%
Small firms (< 50 workers) - LHS
0.3%
2%
Medium firms (50-499 workers) - RHS
0.2%
0.5%
1%
0.1%
Large firms (500+ workers) - RHS
0% 0.0%
0.0%
Sources: ONS LFS and Bank of England calculations.
Notes: Charts show four-quarter moving average of hire and quit rates.
(a) Descending the Jobs Ladder
The global financial crisis generated a sharp fall in output. Given that fall, the subsequent rise in
unemployment was more modest than expected. Between 2008 Q1 and 2009 Q2, UK output fell by around
6 1⁄4%, while unemployment rose by just over 2 1⁄2 percentage points. By comparison, in the early 1990s
recession output fell by around 2% peak-to-trough, while the unemployment rate increased by over
2.5 percentage points.
Chart 15: Forecasts for unemployment
Per cent
12
10
8
6
4
2
0
2005 2007 2009 2011 2013 2015 2017 2019
February 2009 February 2010 Actual
Sources: ONS, Bank of England and Bank of England calculations.
Put differently, in the immediate aftermath of the global financial crisis, unemployment rose by less than was
expected by most mainstream forecasters, including the Bank. Chart 15 shows Bank forecasts for
unemployment in early-2009 and early-2010. Having expected unemployment to peak at over 10.5%, the
eventual peak of 8.5% was reached in late-2011.
More recently, the "Okun's Law" relationship appears to have steepened as weak productivity growth since
the crisis has seen unemployment fall sharply since 2012 despite more modest GDP growth (Chart 16).
Okun's Law
Chart 16:
Annual change in
4
unemployment rate
(percentage points)
1972-2009 2010-2018
3
2
1
0
-1
-2
-3
-6 -4 -2 0 2 4 6 8
Calendar year GDP growth (per cent)
Sources: ONS and Bank of England calculations.
Notes: Chart shows calendar year GDP growth plotted against annual percentage point change in calendar year average
unemployment rate.
A different way still of illustrating, and explaining, these developments comes from looking at job moves. As
the crisis struck, job-to-job movements fell. Instead of moving between jobs, workers instead transitioned
into unemployment. But these transition rates into unemployment rose by less than in previous recessions.
Workers and their employers bargained to remain on the jobs ladder rather than jumping-off.
Remaining on the ladder did, however, come at a cost in terms of pay. For workers staying in the same job
this meant accepting pay freezes, with the fraction of workers accepting these rising sharply during the crisis
(Chart 17a). For workers moving, this meant moving down the jobs ladder by accepting lower-paying jobs at
lower-productivity firms: the fraction of switchers taking pay cuts spiked during the crisis (Chart 17b).
Median wage growth for switchers fell from over 9% in 2007 to 4 1⁄2% by 2010 (Chart 18).
At the time of the global financial crisis, then, workers and their employers were faced with a stark outcome
of job insecurity (jumping off the ladder) or income insecurity (stepping down the ladder). Unlike in previous
recessions, most chose the latter path. The result was lower-than-expected unemployment, but weaker pay
and productivity growth.
Charts 17a and 17b: Proportion of workers facing nominal pay freezes or cuts
Job stayers Job switchers
Per cent Per cent
40
40
35
35
30
30
25
25
20
20
15
15
10
10
5
5
0 0
1990 1994 1998 2002 2006 2010 2014 2018 1990 1994 1998 2002 2006 2010 2014 2018
Cut Freeze Cut Freeze
Sources: ONS ASHE and Bank of England calculations.
Notes: Chart shows percentage of workers either in current job or moving job who faced nominal pay cuts or freezes in a given year.
Chart 18: Wage growth for job movers
Per cent
12
10
8
6
4
2
0
1998 2001 2004 2007 2010 2013 2016
Sources: ONS ASHE and Bank of England calculations.
Notes: Median hourly pay.
(b) Climbing the Jobs Ladder
As the economy recovered after the crisis, so did aggregate jobs growth. In response, workers began to
climb the jobs ladder, with transition rates between jobs rising. We would expect this to have then boosted
aggregate pay and productivity, as workers rotated into higher-paying, more productive firms. In practice,
this process appears to have been sluggish for pay and to have stalled for productivity. Why?
There appear to have been two effects at play in slowing the rate of climb up the jobs ladder. First, although
the rate of jobs transition picked up, it did so only slowly, especially given the degree of underlying strength
in the jobs market. Despite picking up, the velocity of circulation in the labour market has remained relatively
subdued in the face of the biggest jobs bonanza since the Second World War.
Job-to-job transition rates have only just reached their pre-crisis levels after seven years (Chart 13). And
that still leaves them around 25-30% below their peaks in the 1970s and 1980s. This relatively subdued
pattern is even more striking if we compare transition rates with the degree of tightness in the labour market,
defined by the V/U ratio (Chart 19). This suggests job-to-job transitions have not really picked-up at all over
recent years, when measured relative to the strength of the jobs market.
Chart 19: Ratio of job-to-job transition rate to V/U
Per cent
2
1.8
1.6
1.4
1.2
1
0.8
0.6
0.4
0.2
0
1990 1993 1996 1999 2002 2005 2008 2011 2014 2017
Sources: ONS, Bank of England Millennium of Data and Bank of England calculations.
What explains these subdued rates of job transition? A strong candidate is that 21st century scourge, income
insecurity. The crisis scarred risk appetite. Risk-aversion discourages workers from moving to reach higher
rungs up the jobs ladder.19 It also discourages companies from offering workers those higher-rung positions.
Risk scarring slows the velocity of circulation in the jobs market and hence pay and productivity growth.
19
whereby new
One rationale for risk-aversion in moving to higher paid jobs at a different firm could be so-called "last-in-first-out"
workers are mostly likely to lose their jobs in the event of redundancies.
This risk-aversion has not been confined to those switching jobs; it has also affected those staying put. A
workers'
reluctance to move reduces these bargaining power, weighing on their pay. Put differently, if
companies are less fearful of workers being poached, for a given degree of the strength in the jobs market,
they will feel less need to pay-up to retain those workers.
There is evidence of this behaviour in the differential pay growth of stickers and switchers recently
(Chart 20). Switchers have consistently experienced higher rates of pay growth than stickers, as we would
expect. But it is striking how this differential has widened as the labour market has tightened over recent
pay growth
years, with movers securing pay increases of 7-9%, while stickers' has until recently flat-lined at
2-21⁄2%.
Switchers' stayers'
Chart 20: and pay growth
Per cent
12
Stayers
Switchers
10
8
6
4
2
0
1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018
Sources: ONS and Bank of England calculations.
(c) Rungs on the Jobs Ladder
The second dynamic at work is that even those climbing the ladder have tended to do so at a less rapid pace
than in the past. Or, put differently, the rungs in the jobs ladder have been closer together. This, too, may
have reflected workers' unwillingness to move occupation, industry or geography at a time of increased
income insecurity.
The Resolution Foundation has recently looked at rates of movement between UK regions.20 They find that
- -
rates of geographic mobility people taking a new job in a different region has been lower since the crisis
than in the preceding period. Their analysis finds that this reduction in mobility is driven by the young and, in
particular, young graduates. Graduates under the age of 35 were close to 6 times more likely to move region
and employer than non-graduates in the 1990s but are now just 3 times more likely. And mobility has
decreased for both groups.
20
Clarke (2017).
Charts 21 and 22 look at rates of worker transition between different industries and occupations. These
moves are grouped into "rungs" on the ladder, where the rungs for the 9-rung occupation ladder are ordered
by the standard ONS classification, which itself reflects differences in skills used within each occupational
group. For the 21-rung industry ladder, the rungs are ordered by the mean hourly gross pay of workers
within each industry, across the whole sample period. The blue zone defines zero rung movements. The red
zone defines large upward rung movements and the grey zone large downwards movements.
Chart 21: Industry job ladder
100%
11+
90%
8-10
80%
4-7
70%
1-3
60%
0
50%
-1 to -3
40%
30%
-4 to -7
20%
-8 to -10
10%
-11+
0%
1990 1995 2000 2005 2010 2015
Sources: ONS and Bank of England calculations.
Notes: Chart shows percentage of jobs moves based on extent of upward or downward movement along the industry job ladder.
Chart 22: Occupa