Boosting careers will boost growth24 April 2015
The average American worker today earns 4% less, after accounting for inflation, than they did 40 years ago. This is a quite astonishing fact. So often, where the U.S. leads – Britain follows. But this is one trend we can do without. That’s why NIACE wants the next Government to urgently establish a Career Advancement Service.
Living standards have flat-lined since the Great Recession of 2008. The result is that 5 million people are in low paid work, 1 million more than the OECD average. It is likely to be well beyond 2020 before they recover to pre-recession levels for people on low to middle incomes. This is one of the key reasons the deficit has fallen by less than the Government hoped – flat earnings have meant flat income tax receipts.
But this is about more than the aftermath of recession. Increasingly, it looks as though the previously automatic link between growth and living standards has broken: a rising tide no longer floats all boats. It is also connected to Britain’s longstanding low productivity: what takes the average British worker five days to produce only takes the average French worker four days. Leading economist Paul Krugman famously said that productivity isn’t everything, but in the long run it’s nearly everything.
Much of the election debate has been about tax and spend plans, how and by how much the deficit should be cut. But we need a more fundamental debate about how to boost growth and how to do so in a way that boosts living standards. This in many ways is the missing element in the election.
The American experience shows that the disconnect between growth and wages can become permanent. So we need urgent action to tackle flat living standards and low productivity.
There are many reasons for our current situation, and so there is no single, simple answer. For example, the decline in labour market institutions, like trade unions, has weakened the position of workers in the labour market. Global economic changes, like the rise of emerging economies such as India and China along with advances in technology, have changed the types of jobs available – hollowing out intermediate level jobs, creating an hourglass labour market.
These are long-term complex challenges that need long-term action. But one thing we want a new Government to do immediately is set up a Career Advancement Service. This would give low paid workers access to a Career Coach and personal budget. Their Coach, working with them and their employer, would put together personalised support designed to help them build their career. The service’s success would be measured by whether people earned more money after support, and it would be funded from within existing budgets. We think the new service should start in the retail and hospitality sectors that have high concentrations of low pay and low productivity.
The aim is to build this into a universal, national service by 2020.
How to grow the economy has been the missing part of the election debate. The stubbornly high deficit is at least in part a consequence of flat pay and low productivity. We must take action to tackle these fundamental challenges. The alternative is that the 2055 election debate could, mirroring the U.S. experience, be about flat pay for 40 years. A Career Advancement Service should play a key role in building a better Britain.