This is the decade where our economy has broken records—for all the wrong reasons. It is set to be the worst ten-year period of productivity and pay growth for over two hundred years. To compensate, British households recently became net borrowers for four successive quarters—the first time since records began in 1987. There are now more people in poverty in working households than workless ones. The historic link between GDP growth and wage growth has severed; so too the link between employment growth and wage growth. Economists are baffled. The signs are that we may not just be experiencing a Japanese-style “lost decade,” but a lost generation.
My recent RSA report (in partnership with Nottingham Civic Exchange) argues that economic insecurity is a critical part of this story. To understand the challenges facing workers and families, the traditional lenses of poverty and inequality are important but insufficient. We also need an account of how economic insecurity—harmful volatility in people’s economic circumstances—impacts people’s lives and shapes their interaction with the economy.
Our research describes a number of features of this 21st century insecurity.
One is that a job no longer guarantees economic security. This is partly attributable to the rise of non-standard and atypical work (such as zero hour contracts), but more so to the prevalence of low pay, lack of in-work progression, precarious finances, and limited assets to protect against economic shocks. Three out of four people in the survey undertaken as part of our study feared that the cost of living would continue to outpace wage growth. Many are having to fill the gap in pay with credit and problem debt.
Related to this, economic insecurity also involves threats to people’s economic status—not just the risk of becoming unemployed. Under this interpretation, major economic events such as de-industrialisation are so harmful not only because they destroy jobs, but also because they often replace “good” jobs with bad ones. Despite headline after headline about the threat of mass unemployment brought about by automation, it is job status insecurity that is the new class divider: those in lower socioeconomic positions do not necessarily fear unemployment more than others, but are more likely to fear that they will lose important and valued features of their job, such as pay, autonomy and respect.
Finally, economic insecurity impacts a broad section of the population. It is not only the poor and unemployed that are adversely affected. It also defines the lives of many of the families described in the past by Theresa May as “Just About Managing” (JAM). Compared to more financially secure groups, those that self-identified as JAMs in our survey research were much more likely to have concerns about debt, lack of work and pay progression and cost of living pressures. Indeed, the threat of downwards mobility affects a significant proportion of middle income families. DWP statistics show that 37 per cent of such households moved down the income distribution between 2011 and 2015 (after taking into account housing costs), compared to 30 per cent that moved up and 33 per cent that remained in the same income quintile.
In the report we argue that government actions combined with the particular nature of our market economy have created a political economy of insecurity. We have seen a significant transfer of risk from government and employers to workers and families. In other words, economic insecurity is not simply the result of macroeconomic forces and technological trends, but deliberate policy choices.
“Despite headlines about the threat of mass unemployment brought about by automation, job status insecurity is the new class divider”We have a capitalism characterised by the pursuit of short-term profit, enabled by cheap, “flexible” and poorly utilised labour. Workers do not have as much of a voice—as much power—as they should. We invest very little in training, technology and labour market support. Productivity therefore lags behind our competitors. The welfare state, through ever increasing conditionality (including the widespread use of sanctions), all too often heightens people’s sense of insecurity and pushes them into poor quality jobs. Unfortunately, our state has become more concerned with getting people off benefits and punishing “bad behaviour” than with providing social security. It is little wonder that only around half of unemployed people now claim benefits, compared to 80 per cent in 1996.
Denmark has a successful economic and social model described as “flexicurity.” It balances low employment protection with a generous welfare state with significant spending on labour market support, and high levels of public and private investment. The UK’s model may perhaps be best described as flex(in)security: low worker protection without a countervailing institutional architecture that provides meaningful economic security.
The future looks bleak in the absence of major reforms. It will be interesting to see the government’s response to the “Taylor Review into Modern Working Practices,” as well as how the Industrial Strategy develops and whether it confronts the structural features of our economy that deepen insecurity. One thing is clear: economic insecurity is one of the defining challenges of our time, and we need to do much more to address it.
