What Is Happening to UK Jobs - Essay Example

Submitted By: Submitted of Tables of Contents Introduction……………………………………………………… 2. What is happening to UK jobs in 2009 – 2010…………………… 3. Changes in Executive Pay Systems…………………………………………… 4. Conclusion………………………………………………………... 5. Recommendations……………………………………………….. 5.1 – To Government Authorities 5.2 – To Consumers / General Public / Workers EARNING IT 1. Introduction UK employment peaks were recorded in 1968, 1978 or 1989 by economic pundits and analysts. Indeed, the unemployment increased considerably during early 1990s due to economic contraction, however, the problem was tackled in 1993 and UK government observed a continuous decline in the unemployment rates. Indeed, this can be attributed to economic and business friendly policies that resulted in greater trade volume, strengthening of currency and creation of new business opportunities and trade ties. The size of market also increased substantially because of rise in population and increment in consumer purchasing power. It is worthwhile to mention the fact that employment and business outlook aggravated in 2007 – 2008 after collapse of housing sector or property market and ‘bursting of speculative financial sector’ that resulted in financial difficulties and a credit crunch like situation. Indeed, the bankruptcies of various small and large financial institutions followed by closures of manufacturing and services sector organisations led to rapid surge in unemployment and economic contraction. In simple worlds, the aggregate demand and supply reduced that in turn resulted in a decrease in productive activities and new employment opportunities for general public. The weakness in economy, consumer buying power and real incomes also adversely impacted relatively strong sectors such as heavy machinery, engineering, arms, information technology, airline industry, electronics and others etc. because of fall in demand from all consumers. Hence, these strong sectors were unable to sustain their business volume and cut down their employees thereby contributing in unemployment across UK. (Gregg and Wadsworth, 2010) 2. What is happening to UK jobs in 2009 - 2010 According to Bell and Blanchlower (2010), the total real output of United Kingdom was decreased by nearly 7% during 2009; however, some improvements recovered Gross Domestic Product (GDP) growth by2% during 2010. In addition, the total job losses from recession during 2008 – 2010 were recorded to be just under 0.6 million, whereas the worst conditions in 1980 – 1983 and 1990 – 1993 left 1.6 million and 1.7 million workers unemployed respectively. Overall, there were 2.5 million workers unemployed in 2010 all across UK out of which 2 million belonged to England alone (remaining were from Scotland and Wales). In this way, it is justified to argue that UK economic structure is based on stronger grounds because relatively fewer job losses were recorded even though the output had expanded 3 times the aggregate output of 1980s. For instance, economists have provided an explanation that the weaknesses in financial system were actually the major reason behind UK economic collapse in 2008 - 2009. Indeed, the dependence of consumers on plastic money (such as credit cards, debit, visa etc.) for spending and purchasing goods and services and decrease in circulation of monetary units is itself noxious for sustainable development and smooth functioning of the economy. Secondly, the role of financial institutions in subsequent growth of non-productive business sectors such as mutual funds, leasing, mortgage, securities and bonds obviously could benefit in short-term growth and expansion of money and financial markets. Indeed, contribution of manufacturing sector in Gross Domestic Product of United Kingdom is barely above 20% whereas services account for more than 70%. Obviously, the growth in population results in greater increase in amount of UK workforce (Jenkins & Leaker, 2010). Another reason behind present state of unemployment across UK is outsourcing of jobs to Asian and other developing nations. In simple words, the labour wage rates are extremely higher in UK in comparison to developed and developing European, American, Asian and African economies respectively. Hence, it is not feasible for producers and service providers to supply cheaper products in the market because of high costs of doing business. Manufacturers and suppliers, however, have found a solution that they could outsource IT, financial, production, correspondence and other business jobs to nations that host the specialised pool of talented workers who could meet the demands and requirements of foreign buyers. In addition, the UK enterprise owners are involved in contracting and subcontracting agreements that although fulfil their needs, but obviously destructive for UK employment prospects. Because of extremely low wage rates in developing nations such as India, Ireland, Pakistan, Philippines and other economies, a great number of UK jobs were outsourced. Indeed, that was also the case in United States that outsourced its 1.5 million jobs. It should also be mentioned that technological developments are also responsible for job losses across Britain, which in turn, affect employment relationships. For instance, the job market across UK is frozen because of mechanisation in UK industries. The business enterprises have been focusing to attain productive efficiency and effectiveness so that they could save their costs and enhance profit margins. Also, the cost savings would restore competitiveness of UK firms in the marketplace where importers are flourishing because of their competitive pricing strategies for quality products manufactured in developing / emerging nations. It should be noted that the use of sophisticated machinery, state-of-the-art production plants, information technology and automated processes by manufacturing / service sector firms have reduced the demand of human resources. Also, firms that have inclination to induct information systems (such as decision and executive support, operational, office automation, transaction processing, management reporting systems etc.) are facing stiff resistance from workers who fear job losses because of this automation. Obviously, the management – employee relationships are sabotaged due to conflicts as employees raised questions about their fate of their jobs. As a result, the automation has been demotivating the workers due to the fact new jobs are not creating at the similar pace likewise they were created by business entities in past few decades (Stewart, 2005). On the other hand, manufacturing businesses have (although) increased their marginal productivity per labour and profitability after employment of modernised technology and automation, but Britain is moving fast towards deindustrialisation. This means that investors are not inclined to establish factories / industries, which is why manufacturing sector has not been contributing significantly in terms of job creation and employment, which is attributed to technology. In addition, the manufacturing firms demand more contract based or part-time workers who could complete short – term assigned projects, goals and tasks. Taking above mentioned into consideration, it should be argued that employee – management relations are not stronger followed by high turnover rates in capital intensive manufacturing firms. Blanchflower and Shadforth (2009) have explained another reason behind unemployment in United Kingdom which is the fact that overseas workers migrate every year in large amounts for whom no real employment opportunities are available. They either end up with menial jobs or remained unemployed thus depend on money they receive in the name of unemployment benefits. Above all, the unemployment issue is not only an outcome of economic turmoil and downturn but also of outsourcing and employment of information, communication and production technology. Secondly, there had been greater focus on development of relatively non-productive sectors by concerned authorities that are vulnerable to any global economic meltdown and crises (Manning, 2005). As far as social costs of unemployment in UK are concerned, it should be pointed out that job losses result in distress and psychological diseases among personnel who do not find adequate work projects. In fact, this not only impacts the mental well-being and health of individuals but also may lead to untimely deaths. Dorling (2009) has pinpointed the fact that decrease in unemployment could save more than 2500 premature deaths per annum. In addition, increase in unemployment may lead to commencement of civil disobedience movements that in turn result in law and order crises. For instance, the outcomes of such movements include political uncertainty, rebellion and unrest in the society that later affects economic growth rate and expansion. Nevertheless, unemployment forces women to get involved in prostitution, while it also compels men to indulge in organ trading and other illicit activities. As a result, incurable diseases such as HIV / Aids, cancer and other sexually transmitted diseases spread in a society. As far as the economic costs are concerned, it should be emphasised that unemployment across UK is an outcome of slump in aggregate consumption and demand of goods and services that compel businesses to dismiss additional workers. As a result, business activities come to a halt thereby reducing taxable incomes and corporate earnings of entities. In short, the tax revenue received by the UK government authorities declines. An associated social cost with fall in tax revenues is the reduction in government over community, social welfare and infrastructure projects that directly facilitate citizens in a society. In addition, surge in unemployment leads to severe health issues that force government and concerned authorities to increase their health budgets. Consequently, this adds to the financial burden over government that already has to cope with societal issues of poverty, unrest, instability and lack of confidence among investors and business personnel (Bentolila & Ichino, 2006). 3. Changes in Executive Pay Systems It is worthwhile to mention that the employment rate and the number of jobs / working opportunities to potential workers also impact on employee – employer relationships and psychological contracts with a business firm. For instance, if economy is booming and expanding at a rapid pace then workers will have more opportunities at their disposal. Therefore, they will prefer switching firms that offer the best compensation (tangible and intangible rewards / benefits) including pay package, fringe benefits, accommodation, conveyance, medical, insurance cover, commissions, bonuses, share ownership and promotions. In contrast, the economic downturn / meltdown results in unemployment due to job losses. Fewer employment opportunities then results in over supply of workers in the labour market that means there will be a surplus. The HR executives and employers carefully record, study and analyse these changes and conditions in labour market after which they reduce the wage levels, salaries, executive pays and compensation package. In other works, it becomes difficult for organisations to assimilate surge in total costs of doing business (redundant labour / personnel) and decline in revenue streams simultaneously. Therefore, organisational HR departments dismisses redundant workers, while influence existing workers to accept low wage rates because of overall poor business performance (Verity, 2010). Nevertheless, it is justified to mention the fact that bargaining power of employees suffered greatly when worst economic recession in 2010 aggravated business conditions followed by substantive rise in unemployment. Hence, workers had also started accepting even low-paid jobs and were ready to accept wage / salary cuts. In addition, the employees also became reluctant to get involved in any conflicts with employers fearing that could lead to job losses. Newhouse (2010) has highlighted the fact that, although, the pay – rolls and compensation packages of middle and upper – middle executives, in general, have been reducing because of decline in economy, yet the total compensation in the form of salaries, benefits, cash bonus, commissions, share ownership etc. of executive and non-executive directors (board members) of top most organisations registered at FTSE 100 were increased in 2009 in comparison to 2008. For instance, the average yearly income (including all benefits) of a top executive (such as CEO or President) of any FTSE 100 corporation was increased by over 5% to nearly £4 million in 2009 considering 2008 as the base year. But, it is worth mentioning that executive salary reduced by a scant 1% followed by a considerable 30% reduction in bonuses. Nevertheless, over 30% surge in long – term share ownership incentives to executives balanced the decline in other benefits and resulted in over 5% increase year-on-year basis (Sibun, 2010). This is the evidence that firms, at one extreme, cutting down their workers in the name of recession; while on the other hand they have increased the gross disbursements of their owners and strategic planners. However, it should not be forgotten that there are numerous other small, medium and large scale businesses that were adversely affected from decline in aggregate consumption; therefore, they were compelled to not only dismiss their redundant workers but also the compensation and pay – packages of top most executives. In simple words, when a firm records negative growth followed by liquidity issues then even CEO, President and Board members have to accept the burden and proportional decline in their yearly incomes (Edwards, 2010). For example, Busfield (2010) has presented the example of Guardian Media Group where annual pay packages of editor in-chief, Chief Executives and Divisional Heads were either reduced by 10 - 20% or brought to a halt. Also, the Media Group announced non-payment of performance-based cash bonuses and benefits because of financial difficulties across core UK markets. Marks & Spenser, in contrast, increased its executive pay because of improvement in sales of its textile and clothing products in 2010 (Thompson, 2010). Sibun (2010) has presented some important facts according to which the wages and salaries expense of FTSE 100 index companies (or top most British corporation) recorded a significant growth of more than 10% to nearly £235 billion in 2009 even though Britain was feeling the pinch of recession and massive downturn. Obviously, some of these 100 top firms also dismissed their workers, while others employed new workers because of relatively better performance and growth. However, the total number of workers employed by 100 top British firms was 7.35 million, and surprisingly there was no overall increase or decline (stagnancy) in 2008 and 2009. But, the questions that arise here in minds of general public and concerned government authorities are what triggered the increase in total wage / salaries expenditures and who the actual beneficiaries were of this escalation in disbursements. The answer is simple and precise – the upper level executives that dominate strategic planning, policy formulation and decision – making in FTSE 100 organisations. Hall (2010) has presented the fact that Reckitt Benckiser and The Berkeley Group were actually the top two corporations that disbursed £93 million and £70 million respectively in total to their board members (executive and non-executive directors). Other highest paying corporations (in addition to above mentioned organisations) are BG Group, Xstrata, Man Group, Tesco, Barclays, Schroders, Royal Dutch, Standard Chartered, Prudential and Shire. 4. Conclusion In conclusion, there are ways to grapple with the monster of unemployment across UK through rationalisation of monetary and fiscal policies. Similarly, it is now mandatory to create jobs from expansion in manufacturing rather just relying on growth in services sector. In addition, there is dire need to formulate and implement a new financial system and monetary frameworks that could lead to sustainable development across United Kingdom. 5. Recommendations 5.1 - To Government Authorities 1) Manufacturing sector is, however, the most appropriate option that could meet with rising demand in labour markets. However, this growth is services sector not at all the perfect substitute of productive or manufacturing related sectors that create more employment opportunities. 2) As far as government policies regarding the issue of unemployment are concerned, it is worthwhile to recommend that UK government has to devise an investor- and business – friendly fiscal policy that will help employers in reducing aggregate costs. Also UK government could reduce number of taxes on corporate and commercial sectors followed by low tax rates on individuals. In this way, entities will benefit from reduction in business costs and could offer low priced products to consumers. 3) The third recommendation is to reduce direct income taxes on individuals as this will increase their savings and real purchasing power in present and future that in turn trigger increased consumer spending on goods and services. The aggregate demand will increase while businesses also increase production to meet greater demand. Consequently, new business and employment opportunities will be created. 4) Another recommendation is that Federal Bank has to play its vital role by easing monetary policy through open market operations. These purchases will increase the money supply in the market that would then eradicate the issue of credit crunch and liquidity. The aggregate consumption of goods and services will increase, at least, in the short run that will boost the confidence among business personnel. In addition, State Bank has to reduce discount (interest) rate so that costs of doing business diminish and UK companies could restore their competitiveness against firms from China, South Korea, Malaysia and Japan etc. that either compete on price or quality or on both. 5) Next recommendation is there is dire need to control unnecessary immigration across United Kingdom that has resulted in an imbalance of available resources to total population. It has become evident that UK can’t control outsourcing and mechanisation, however, government can devise strategies to encourage manufacturing sector. 5.2 - To Consumers / General Public / Workers 6) Consumers have to readjust their consumption patterns. For instance, they have to carefully utilise their resources by prioritising their needs and then on luxuries. Unnecessary expenditures have to be eradicated from household budgets to avoid living hand to mouth in challenging economic scenario. Also, this strategy may enhance saving rate that could be used to get rid of financial debts. 7) Workers should understand that UK business firms are facing genuine problem of extremely high wage level; therefore, they will continue benefiting from information technology through induction of computerised systems. Hence, they need to make themselves highly competent because only the fittest and extra – efficient candidates would survive in employment tests and be hired by companies for higher-paid jobs in near future. There is, in fact, no place for laggards and inflexible candidates anymore in UK labour market because they have now become outliers in extremely challenging business environment. 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