Labour market

The Changing Shape of the UK Job Market and its Implications for the Bottom Half of Earners

1 March 2012

Oxford academics Craig Holmes and Professor Ken Mayhew, investigate the idea that in recent years the UK labour market has split into high-wage “lovely” jobs and low-wage “lousy” jobs, while jobs in the middle have disappeared. They find that while many middle level ‘routine’ occupations such as process operators in industrial plants have indeed disappeared, jobs on middle pay do still exist – but are now more likely to be given higher status titles such as ‘manager’.

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The creation of an ‘hour-glass economy’ has been attributed to the growth of technology which has replaced workers in routine jobs. Routine jobs tended to be middle wage, such as process operatives in manufacturing and some administrative jobs. Where there is a decline in routine jobs, the expectation is that the labour market polarises towards high wage, high skilled non-routine work at the top and low wage, non-routine service sector jobs at the bottom end. The assumption is that the hollowing out of routine jobs in the middle has been important driver of growing wage inequality. Yet, little has been said about how non-routine jobs have changed in terms of earnings or other measures of job quality.
Our analysis finds far less evidence of polarisation in wage distributions than this above description suggests. We find that many jobs continue to be found around the middle of the wage distribution. What we do find has changed is not so much earnings but job titles, as many of these apparently good jobs continue to earn middle wages despite higher status job titles. We find evidence that there has been a growth in lower paid jobs within a category of jobs generally considered to be well-paid. For example, in the retail and wholesale sector, where managerial jobs increased between 2000 and 2008, the proportion of these jobs earning below £400 per week – adjusting for inflation – increased from 37 per cent to 58 per cent in this time period. In financial intermediation, a sector which has performed relatively well over this time period, there has clearly been a growth in high wage managerial jobs in this sector – those earning over £1,500 per week increased from just a couple of percent in 1993 and 2000, to 10 per cent in 2008. However, between 2000 and 2008, there was also a growth in the proportion of managers in this sector earning less than £400 (from 24 per cent to 30 per cent).
At the bottom end of the distribution, there has been an increase in low-wage work in the UK. This finding is consistent with previous work on the UK (Lloyd, Mason and Mayhew, 2008). Part of the explanation for this comes from the shift towards low-wage non-routine employment. However, the decline in union presence seems to have had a far greater effect on earnings. Moreover, policy effects, such as the introduction of the National Minimum Wage, have led to relatively high levels of wage growth for some of the lowest earners, compared to other low to middle wage earners, making the effects on low wage workers less severe than they otherwise would have been.
Increased educational attainment rather than the shift towards non-routine jobs appears to explain a larger part of the wage growth in higher-wage employment. However, we also find that the growing number of ‘good’ jobs became increasingly polarised between the highest earners – whose wages have grown far faster than all other workers – and the rest, who have been left behind. While the graduate wage premium has remained approximately constant across most of the distribution, it has risen very fast for the top 20 percent of earners. Those outside the top 20 percent now more closely resemble those working in mid-range occupations rather than those in top jobs.
Understanding the true effects of occupational polarisation on earnings inequality is important in identifying the appropriate policy response. Although the growth of good non-routine jobs would, at first glance, suggest an increase in firms’ demand for skills, there is concern that the pace at which workers are becoming increasingly well-qualified may lead to their skills being underutilised. It is important to understand what skills are actually being demanded in these expanding, non-routine jobs. Policymakers cannot simply rely on an expectation that employers will up-skill all jobs in response an increased supply of highly-qualified workers.
In terms of social mobility, we argue that a change in the occupational structure towards non-routine jobs will have implications for paths of career progression. A major concern here is that the hourglass labour market, even in the way we have presented it, does not just create opportunities for improved labour market outcomes – it may also harm some workers. Drawing upon our existing research, we emphasise the possibility of downward mobility for workers displaced from routine jobs, the worsening position of new entrants when many routine occupations have disappeared, and the lower earnings of those moving ‘upwards’ to good non-routine jobs as concerns that need to be tackled by policymakers.

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