Productivity - the amount of value produced per hour worked - has grown at a painfully slow rate across many large Western economies since the financial crisis of 2008. The UK has been among the worst performing economies and within it, Northern Ireland has been falling behind even more.
At the same time, employment in Northern Ireland is at a record high and we have been hearing suggestions that the economy has reached ‘full employment’, meaning that virtually all who are able and willing to work, are employed. So, regardless of whether you agree that Northern Ireland has reached full employment or not, in the years since the financial crisis we have seen steady increases in the employment rate of working age adults. All else equal, Northern Ireland has been doing well at employment creation.
However, these two disparate trends in productivity and employment has led to many questions as to why we’re not seeing the growth to match the increased employment. These trends are part of what is being called the ‘Productivity Puzzle’, a term used to denote the difficulties which economists are having trying to understand how the toil put in by workers is no longer creating the same value for the economy as a whole, despite a high employment rate.
Whilst many reasons have been put forward to explain the fall off in productivity growth a recently published NERI Working paper titled “‘Bad’ Jobs and Productivity: The flexibility paradox” authored by myself and Paul Mac Flynn set about to investigate the role that the structure and the quality of jobs are having on productivity performance. Our reasoning was that surely, it’s not just the number of jobs which are being created that is important, but that where people work, how people work, and the quality of jobs must be important too!
This is not the impression that you would get if you took a glance at what has been happening in the area of labour market policy over the past 40 years. Here, there has been priority given to the numbers of people in employment over all else, with the quantity of jobs being the primary focus of labour market related economic policy. This obsession with employment quantity as the cure of all economic woes was the product of the policy and political ideological shift which led Government from the late 1970s onwards to begin to strip away what it termed labour market ‘rigidities’ and become more flexible.
But it is worth reflecting on what was meant for a labour market to become less rigid and more flexible? Indeed, the main policy thrust involved the broad synonymising of ‘rigidities’ with labour market regulations and protections, with the pursuit for flexibility tending to involve deregulation and the unwinding of established systems of protections for workers. And so, the particular form which the pursuit for flexibility took was one which saw flexibility as synonymous with a ‘low-road’ approach to employment conditions and quality.
Thus, for many decades now the mantra that any job is better than no job has been front and fore and, ironically, the securities and conditions of employment which labour market regulations and protections which were heralded as providing security and bringing improvements in living standards in the post-war period came to be regarded as obstacles to economic performance, which needed to be overcome.
The key problem with this particular pursuit of labour market flexibility however is that it is based on some fairly broad assumptions and not a whole lot of empirical evidence. Whilst there is some weak evidence for a correlation between some flexible labour market reforms and decreased unemployment, there is almost no evidence to suggest it leads to superior growth outcomes such as increased productivity. Indeed, evidence to the counter is often more convincing.
In the case of Northern Ireland our research shows via a sector by sector analysis that key productivity gaps within the Northern Ireland economy can be linked to an increase in one form of flexible employment or another. This is because it is not just the numbers of people in employment that matter for productive performance, but also the nature, securities and conditions of employment. Those sectors which rely most on flexible forms of employment, or have the largest increases in their use of flexible workers have experienced blunted productivity growth as a result.
Here’s why. When flexible labour markets theory was first put forward at international level, it envisaged flexibility for both the employee and the employer finding an equilibrium where workers could manage their job around competing family and social demands and employers could optimise talent in their workforce. It didn’t quite work out that way. Instead it involved the removal of key labour market regulations and protections for workers, and brought ultimate flexibility for employers and insecurity for workers.
In this way, flexible forms of employment such as part-time or temporary work are not necessarily ‘bad’. Indeed, they provide an avenue into the workforce for many people who would otherwise be constrained from participating. However, there is a distinct difference in the quality of these forms of flexible employment compared to the more traditional ‘standard’ forms of employment (i.e. full-time, permanent) – they tend to offer less security, are lower paid, and have little opportunities for skills development or career progression. This is what makes them ‘bad’ jobs. And it is the poor conditions of employment which tend to go hand in hand with flexible forms of employment which is negatively affecting our productivity performance.
The policy implications of this are significant. In terms of productivity we do not just need to be more mindful of where employment is being created in terms of sectors, but also the nature and quality of that employment wherever it is created. Abolishing flexible employment is not the answer. However, the problem we have is that flexible employment has become synonymous with poor conditions of employment and this is in turn having a negative effect on our economy.
There is a need to reject the suggestion made in the Taylor Review that we need to accept that there will inevitably be a trade-off in job quality, conditions, rights and entitlements for flexible work and move forward by taking seriously the need to make decent flexible work.