Job quality in an hourglass labour market

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As mid-level jobs are moved abroad or automated, the UK is left with an increasingly hourglass-shaped labour market, with little mobility. How did we get here, and who's going to fix it?

Last year, Britain achieved a new record – but not necessarily one to be proud of. In October 2014, think tank The Resolution Foundation released research saying there were more people in low-paid jobs than ever before – five million in total.

Today, the economy is showing signs of recovery and the job market is picking up (the latest ONS figures show unemployment has fallen to 5.8%, a six-and-a-half year low), yet one in six workers are still paid less than the living wage. And it’s not always a short-term issue – one in three workers is still ‘stuck’ in the lowest earning group after 14 years.

In the run-up to the May 2015 general election, low pay (and the link to skills) and living standards are likely to become an even hotter topic. Given the average household has seen its income drop by 6% since before the recession, that’s hardly a surprise.

Just how far business and HR should go in taking a lead on issues that straddle both business and society is open to debate. But first, how did we get here? Is the recession to blame, or are there deeper issues at play? 

An hourglass labour market

Economist John Philpott, former chief economic adviser at the CIPD, says the “hollowing out” of work, and the increasingly ‘hourglass’-shaped UK labour market, is a “structural” issue.

“People with knowledge and skills have been in increasing demand, and demand outstrips supply, pushing up wages for knowledge workers,” he explains. “Those knowledge workers need personalised services, leading to more low-skilled and low-paid jobs. The jobs in the middle can be off-shored or mechanised. You’ve got the two ends, but the middle has disappeared.”

Recent research from Oxford University suggests the hourglass shape in the UK may be even more pronounced than in other European countries, many of which are facing similar problems. According to analysis of jobs created between 1996 and 2008, Britain’s economy has shifted more towards low-skilled jobs and less towards high-skilled ones than other European nations.

Laura Gardiner, senior research and policy analyst at The Resolution Foundation, adds this “hollowing out of the middle” has contributed to rising wage inequality – as the middle rungs on the ladder vanish, it’s harder for people to move up. She also points to a rise in flexibility, self-employment (not always by choice) and the growth of “non-standard contracts”, typified by the collapse of courier firm City Link just before Christmas, with thousands of self-employed drivers losing their incomes with no formal rights to recourse.

According to Chris Warhurst, director of the Institute for Employment Research at the University of Warwick, the current state of the labour market indicates a “patchwork recovery”. “There were some groups of people who weren’t affected by the recession at all, some who were affected and have now gone back into work, and those who are still struggling,” he says.

“The most troubling group is the people who were affected and are now back in the labour market,” he continues. “The jobs being created now are not as good as the ones that have disappeared. We are seeing a polarisation in job quality in the UK and Europe, which has become compounded by the economic downturn.”

Job quality, whether because of the recession or due to more unscrupulous companies using the recession “as an opportunity”, according to Warhurst, has decreased since the downturn. “It’s a worry because people are coming back [into the labour market] on lower wages and worse terms and conditions,” he explains. “City Link is an example of this more voracious type of firm strategy, it’s shifting the risk [from employer to employee].” 

From lovely to lousy

Warhurst believes that this has resulted in what he refers to as a “polarisation between lovely and lousy jobs”. “The real question is: are lousy jobs a temporary phenomenon or are they here to stay? I suspect it’s indicative of a long-term trend. And evidence suggests if you create lousy jobs, people get stuck in them.”

Philpott agrees: “Nothing in the current pattern implies change. There’s no great impetus for employers to change, until we get to a really low level of unemployment. We have an open economy, and migration means there’s no limit to the supply of unskilled labour.”

CIPD chief economist Mark Beatson predicts that while lower inflation rates will have an impact on wages, pay rises are unlikely to happen any time soon. “You’ve still got increasing sources of labour supply – migrants and older workers – keeping a lid on pay and productivity,” he says. However, Gardiner suggests: “The supply of people is drying up.”

This hollowing out of the labour market has been troubling Tunstall Healthcare UK HR director Gemma Reucroft. “In the polarised labour market, those at the bottom have less power than ever,” she says. “Combined with decreasing union membership and collective bargaining, what is the future for these workers?”

She continues: “If we consider only our immediate position within HR, we can individually look at the positives. But is this really a future we want to have, where a large percentage of people have precarious careers, fewer opportunities and reduced recourse when things go wrong?”

Of course, the rise of outsourcing makes things a whole lot harder. Who counts as your workforce, when many jobs are outsourced?

“If organisations really want to commit to job quality, they need to consider their whole workforce, not just those on the immediate payroll,” believes Reucroft. “When outsourcing, it is easy to create your own two-tier internal labour market. Outsourcing can lead to a race to the bottom. Do you know what your cleaners, your security guards or canteen staff get paid? Some might think it’s not their business; I argue it should be.”

But this can be easier said than done, especially if your organisation uses shared facilities. One HR director, who asked not to be named, told HR magazine that when she tried to find out how much contractors working in her organisation’s shared building were being paid, “it was near impossible to get that information”. 

The invisible workforce 

Damian Grimshaw, professor of employment studies at Manchester Business School, is co-author of a paper for the Equality and Human Rights Commission (EHRC) on the ‘invisible workforce’ of contract cleaners. He believes outsourcing is a “really challenging area for HR”.

“As a client procuring, you are going to want to have some influence on the way that workforce is managed,” he says. “Things might not fit with the culture of your organisation, and those workers are part and parcel of the image you want to show your customers.”

The EHRC didn’t find much evidence of trafficking or coercion, but it did find examples of lack of dignity and respect, low pay and ‘forced flexibility’.

Take zero-hours contracts – Grimshaw believes HR should be trying to “close down these options unless absolutely necessary”. “In one hotel, an HR manager couldn’t answer what would happen if someone came in and there wasn’t any work for them. They hadn’t thought about it” he says.

However, Mike Williams, an experienced hospitality sector HRD, points out that the zero-hours contract issue “isn’t as black and white as all that”, as the hospitality sector in particular needs a degree of flexibility. But, he adds, HR often uses these types of contracts as “they haven’t got to the point of analysing their workforce planning requirements”. “I encourage people to understand their business peaks and troughs, and contract accordingly,” he adds.

CBI director for employment and skills Neil Carberry adds he is “concerned about the demonisation of flexible working contracts”, which often work well (a 2013 CIPD report found the majority of workers on zero-hours contracts were just as satisfied with their job as full-time employees). But, Carberry adds: “Where we see that there is bad practice, we the business community should stand and up and say it’s not right”. He cites exclusivity clauses in such contracts as one example.

And speaking at a recent CIPD event, business secretary Vince Cable spoke out against the labour market becoming any more flexible: “There’s a point at which labour markets become too flexible. Why would you want to invest in your skills if you could lose your job tomorrow?” Cable also pledged a government investigation into the City Link collapse and the “dark side” of self-employment. 

Contractors and clients

Overall, Grimshaw believes “there is a lot of unsophisticated thinking around low wage service work”. “A lot of HR people don’t spend enough time thinking about the lowest level of pay in their workforce,” he says. “It’s pushed to the boundaries of conventional thinking because it most affects women in part-time jobs and migrant workers, and HR policies are often for the full-time, knowledge workers.”

However, focus on the relationship with supplier companies and it could end up being rewarding, promises Grimshaw. While he recognises “cost imperatives are not going anywhere soon”, he advises building collaborative relationships with counterpart managers in contractor firms. “Recognise you are not going to agree on all your strategic goals, but try and identify those aspects that will help you to build a shared platform,” he says. “Collaboration will be more forthcoming with HR support.”

He suggests opening up training to contracted workers to help them add more value and give you more access to skills (for example, an airport training cleaners to also act as baggage handlers).

To encourage collaboration and support improved outsourcing employment practices in the cleaning industry, the EHRC has set up a taskforce including leading service providers like ISS, Sodexo and Interserve as well as clients like professional services firm KPMG.

ISS Facilities Services UK & Ireland CEO Richard Sykes advocates collaboration, and believes that it allows his company, and the facilities management industry more widely, to engage in “difficult conversations”. “Collaboration and education are key factors,” he adds. “Making small changes, like improving retention, makes the service we deliver seamless.”

On the client side, KPMG is reaping the benefits of engaging with its contractors. Director and head of CSR Mike Kelly is a passionate advocate of the living wage campaign (he is chair of the Living Wage Foundation), but he believes simply paying more isn’t enough.

“If you just change pay rates to get the protestors off your back, all you’ve done is added cost to the business,” he says. Instead, he advises looking at service contracts on an “outputs rather than inputs basis”, giving contractors flexibility to think differently about staffing (for example, using more apprentices, lowering costs and creating career paths). “It’s not just throwing money at it, it’s putting the onus back on the service provider,” he adds.

Echoing Grimshaw, he says KPMG involves all its contractors in events such as the recent ‘One Firm’ away day. Cleaners also work in the day, another of the EHRC’s recommendations. “Rather than having cleaners as the pixies who come in the night, there’s nothing wrong with them working in the middle of the day,” he explains. “Do that, and suddenly you have less unsociable working hours and people working for only one employer, doing longer shifts.”

This sort of approach has lowered KPMG’s turnover for third-party contract workers – the industry average is 10% and KPMG’s is 3%. When the firm moved its cleaning contract two years ago, every employee TUPE-ed over to the new firm. “We kept all the skills and knowledge, and got new management – the best of both worlds,” says Kelly. 

Investing in training

During the downturn, training and development was the first thing to be cut in many organisations. “If you can get workers cheaply and easily, and dispense of them easily, there’s no incentive to invest in their training,” says Philpott.

According to The Resolution Foundation policy analyst Conor D’Arcy, who has carried out research into low-paid workers and career progression: “There is a sense that [training cuts] could become the norm, but the expectation is building as people think things are going to start improving. Things have started to turn, although I’m not sure when that will reach low-paid workers.”

Investing in training is also a sure-fire way to increase productivity, and with Britain’s productivity currently languishing at the bottom of the G8, it’s something our economy sorely needs. Carberry says companies should focus on productivity, giving careful thought to how lower-skilled roles can become more productive.

“For example, John Lewis is training its delivery drivers to install washing machines and other kitchen appliances,” he says. “That adds value and gives people extra skills. Businesses should look at the pathways people can follow. Look at who progresses and who doesn’t.” It’s sobering to remember the UK has one of the worst track records for social mobility in the developed world.

According to D’Arcy’s research, the most important issue is how seriously the organisational culture treats progression. “The difference in firms where it is taken seriously is that managers are given time [to focus on staff development] and it is included in their evaluation,” he says. “It is not just a box-ticking exercise.”

His research also found more is being done in larger companies where there are naturally more opportunities for progression, but that part-timers, single parents and employees outside of large companies are missing out.

Against a backdrop of pay restraint, “skills become the new currency”, believes Williams. “If you are employing low-skilled people on the minimum wage, you have a moral obligation to give back, via the opportunity to learn and a clear career path,” he adds.

But one issue for the hospitality industry especially, is that the pay gap between junior, frontline roles and supervisory ones has been squeezed so much that moving up is not as attractive as it once was. “The next rung on the ladder is actually only half a rung up,” explains D’Arcy. “[Some people think] moving up may not be worth the extra hassle or responsibility.”

Williams says he sees “both sides of the argument”. “There’s a responsibility to pay [well], but organisations are under huge pressure to perform,” he adds “There’s a pressure on businesses to demonstrate growth, irrespective of the economic context, and pressure from investors. If firms can’t show growth through customer spending, they need to show it through finding new efficiencies and not increasing costs.” 

A rock and a hard place

It could be argued this conflict puts more pressure on HR than any other function. “HR is caught between a rock and a hard place,” says Warhurst. “On the one hand, HR has a role in delivering these ‘bad jobs’. On the other hand, HR has a more proactive role to play and knows investing in people increases productivity.”

To help overcome this paradox, Warhurst believes we need more research on what creates good jobs. “Once we have that evidence base, we need to start educating HR professionals about the business case for good jobs,” he adds. He would also like to see consultants working with companies to encourage higher-quality jobs.

“In the UK, we are not educating people in what is common sense,” he adds. “They are told that reducing costs is common sense, when it might not be the case.” He acknowledges the pressure firms are under to deliver high share prices, and the encroachment of aggressive private equity models, make things harder.

Philpott is more scathing about the role of HR. “Where is HR?” he asks. “The voice of HR is virtually silent on all these issues.”

The decline in trade union influence has certainly played a role. Many people in low-paid roles are not in a union, says D’Arcy. “They don’t know what to expect, what they are entitled to and who to lobby,” he adds. And although it might seem counter-intuitive, he suggests HR can fill some of the gap left by unions: “Some of the best employers are the ones who fill that information gap, with things like employee councils.”

For Reucroft the ‘seat at the table’ debate has not necessarily been all for the good. “In our rush to be strategic, we may have left something behind,” she says. “I’m not advocating a return to the ‘tea and tissues’ status of HR, but there is a balance to be struck.”

After all, she concludes: “If HR is not going to take the lead in making sure their organisations treat people and pay people properly, then who is?”

Check back all this week for more features on HR's role in improving job quality at all levels

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