MATTHEW PERCIVAL10/12/14

MAKING GROWTH WORK FOR EVERYONE

John CridlandCBI director generalNew Year message 2013/14

“The recovery is taking root and business leaders have a spring in their step compared to this time last year – but this is no time to rest on our laurels.

Businesses must support employees in every part of the country to move up the career ladder, while also giving a helping hand to young people taking their first tentative steps into the world of work.

As the financial situation of many firms begins to turn a corner, one of the biggest challenges facing businesses is to deliver growth that will mean better pay and more opportunities for all their employees after a prolonged squeeze”

CBI 2014/15 work plan

Delivering prosperity for Britain

Winning the public’s confidence in business

Ensuring growth makes a difference to everyone

Getting Britain building to deliver investment and jobs

Boosting businesses’ capacity to grow and compete

Securing a global future for Britain in a reformed Europe

In July we published our first report, Making Britain work for everyone…

This was a scene-setting piece that looked at how our labour market has performed and identified where the challenges we need to tackle going forward lie. The key messages were:

● Our labour market faces significant challenges – the recession hit living standards but there are longer-term issues too. Who you are – your gender, age, ethnicity and where you live – still matters to how successful you are in our labour market

● Labour market flexibility is not the problem – it is essential, and the UK has performed better on pay and job creation than our competitors. So flexibility must be preserved, but it’s not enough to address the challenges we face on its own. We need to do more.

● Finding solutions that tackle weaknesses (inequality of opportunity) but preserve our strengths (flexibility) is a challenge for us all.

FinancialTimes

Disadvantagedshouldshareintherecovery,CBIdeputysaysFinancialTimes18/05/14

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Recoveryinjobsmarketbypassingsociety’sdisadvantaged,saysCBIGuardian03/07/14

investment,saysdeputyCBIboss,KatjaHallDailyMail

Short‐termpoliticsarearealrisktobusiness:UKmustprotectinvestment,saysdeputyCBIboss,KatjaHallDailyMail18/05/14 4

…and at our Annual Conference in November we published recommendations to meet these challenges

5

• Firstly, we need to take immediate action to reduce the burden on those on low incomes and working families.

• Then we need to put in place a plan to raise pay on a sustainable basis – this can only be done by improving the UK’s productivity performance.

• Ensuring people are equipped to progress in their careers through creating more and better ladders into higher-skilled work is also vital.

• A greater focus on making more of our talents by addressing the performance of our schools system.

• Finally, we need to develop ways for people to build financial resilience for when they fall on hard times.

611/12/2014

Real wage growth in the UK compared favourably pre-crisis, but the pace of growth and its distribution changed over time

7

Measuring wages alone has become a less accurate measure of workers compensation

11/12/2014

8

There is still a strong link between productivity and the cost of employment

11/12/2014

The determinants of employment retention and wage growth

• Annual changes using the Labour Force Survey five quarter panels (use all panels starting in Q2 (Spring quarter) 1997‐2013)

• Longer run changes – up to 17 years – using the British Household Panel Survey (1991‐2007)

Key findings from the analysis of employment retention

• Individuals who start in low hourly paid jobs are less likely to remain in employment;

• Higher levels of qualifications are associated with higher rates of job retention;

• Younger and older workers are the least likely to retain employment and those aged 40‐44 are the most likely;

• Working in the public sector is associated with higher rates of employment retention;

• Employment retention is lower for those working in part time or temporary jobs;

• Prior training is associated with higher employment retention.

Real wage annual growth rates

‐0.06

‐0.04

‐0.02

0

0.02

0.04

0.06

0.08

0.1

0.12

0.141997

‐98

1998

‐99

1999

‐00

2000

‐01

2001

‐02

2002

‐03

2003

‐04

2004

‐05

2005

‐06

2006

‐07

2007

‐08

2008

‐09

2009

‐10

2010

‐11

2011

‐12

2012

‐13

Mean

Median

Labour Force Survey - 12 month panels

Regression results – relative differences in average annual real wage growth rates

‐0.10

‐0.08

‐0.06

‐0.04

‐0.02

0.00

0.02

0.04

0.06

0.08

0.10

0.12

Female

Male

1997/98‐2001/02

2002/03‐2006/07

2007/08‐2011/12

age1

 <25

25‐39

30‐34

35‐39

40‐44

45‐49

50‐54

55‐59

60‐64

tyne

 & wear

rest of n

orthern region

south yorkshire

west y

orkshire

rest of yorks & hum

berside

east m

idland

seast anglia

inne

r lon

don

outer lon

don

rest of sou

th east

south west

west m

idland

s (met cou

nty)

rest of w

est m

idland

sgreater m

anchester

merseyside

rest of n

orth west

wales

strathclyde

rest of scotla

ndno

rthe

rn ireland

Private sector

Public se

ctor

Perm

anen

t job

Tempo

rary job

Full‐tim

ePart‐tim

eTraining

 3 m

onths b

efore w1

No training

 3 m

onths b

efore w1 E

EUE

EIE

3+ m

oves

Training

 3 m

onths b

efore w5

No training

 3 m

onths b

efore w5

Labour Force Survey - 12 month panels

Regression results – relative differences in real wage growth rates (6 years)

‐0.8

‐0.7

‐0.6

‐0.5

‐0.4

‐0.3

‐0.2

‐0.1

0

0.1

0.2

0.3

0.4Male**

Female

age =25

 & age < 30

age >=30

 & age < 35

age >=35

 & age < 40

age >=40

 & age < 45

age >=45

 & age < 50

age >=50

 & age < 55

age >=55

 & age < 60

age >=60

 & age < 65

higher degree

1st d

egree

HND, HNC, te

aching

A level

O level**

CSE

none

 of the

se

Private sector**

Public se

ctor

Perm

anen

t**

Not permanen

t

Full‐tim

e**

Part‐tim

e

Training**

No training

>0 <0.2

>=0.2 =0.4 =0.6 =0.8 

Regression results – relative differences in real wage growth rates (6 years)

‐0.35

‐0.3

‐0.25

‐0.2

‐0.15

‐0.1

‐0.05

0

0.05

0.1

0.15

0.2

1 Managers &administrators

2 Professionaloccupations

3 Associateprofessional &

technicaloccupations

4 Clerical &secretarialoccupations

**5 Craft &related

occupations**(reference)

6 Personal &protectiveservice

occupations

7 Salesoccupations

8 Plant &machineoperatives

9 Otheroccupations

Differen

ce in

 real wage grow

th ra

tes (7 years)

1991‐1997

2001‐2007

British Household Panel Survey data

Regression results – relative differences in real wage growth rates (1 year and 6 years)

• Higher levels of qualification are associated with higher average real wage growth rates

• Starting in an initially low paid job is associated with higher average real wage growth rates, but..

Transition probabilities for employees initially earning in the lowest wage quintile

0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

0.9

Q1 Q2 Q3 Q4

1997/98

1998/99

1999/00

2000/01

2001/02

2002/03

2003/04

2004/05

2005/06

2006/07

2007/08

2008/09

2009/10

2010/11

2011/12

2012/13

Labour Force Survey - 12 month panels

1711/12/2014

People face huge challenges in the post-crisis UK

1811/12/2014

Making growth work for everyone is the right thing to do – and good for business

1911/12/2014

Immediate steps to help those on low incomes and working families will help ease the squeeze

2011/12/2014

Recommendations for business:

• Challenge outdated assumptions around flexible working in firms and, where possible, adopt a presumption in favour of flexibility from job advert onwards, to help employees manage their work-life balance effectively, including childcare costs

2111/12/2014

Recommendations for government:

• Reduce National Insurance Contributions (NICs) for employees. Start with raising the threshold for employee NICs to £10,500, the level of the income tax personal allowance in 2015/16, in steps up to 2020/21

• Close the gap between free provision of childcare and statutory maternity pay by offering 15 hours of free childcare to all children aged one and two and by extending statutory maternity pay from 39 to 52 weeks. Aim to further increase the number of hours of free childcare in time

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Wages can only rise with productivity and competitiveness – that is the challenge for business

2311/12/2014

Recommendations for business:

• Take a long-term approach to raising employee value-added, and make it a firm priority, working within the company and together in supply chains, local areas and sectors. Address areas like management skills, job design, innovation and investment

• Sector bodies should support firms in this endeavour

2411/12/2014

Recommendations for government:

• Ask the Office of Budget Responsibility to report regularly and in-depth on the UK’s productivity performance, including sectoral trends and any government-inspired barriers, in the manner of the Australian Productivity Commission. With the support of business leaders, use this data to guide policy and address issues raised

• Simplify the support network for smaller and medium-sized firms to improve take-up and enhance productivity potential. This should focus on four areas: access to government procurement; UKTI’s role in supporting exports; simplification of business support, including for lower paying sectors, and access to finance

2511/12/2014

Help people to earn more through better ladders into higher-paid work

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Recommendations for business:

• Work with higher and further education institutions to create ‘learn while you earn’ routes into the new middle-skills (level 4).

• Make a board level commitment to helping staff develop their careers and incentivise line managers to make this a priority.

• Provide line managers with the tools to deliver both staff development and succession planning through management education in business schools, and greater HR support

2711/12/2014

Recommendations for government:

• Help more people gain the new middle-skills they need (level 4) by encouraging more co-working between higher and further education institutions and building an emphasis on vocational alternatives to degrees as a key part of the system

• Give workers the confidence to study part-time by making the scale of financial support for courses better known, and change the rules that prevent people from retraining in lower or equivalent qualifications that are more in demand through fear of fees or unaffordable loan commitments

• Launch a new government strategy for adult retraining

• Encourage further specialisation in the further education sector and ensure colleges are delivering courses that are in demand in the economy by rewarding them on employment outcomes, not bums on seats

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Education is the best long-term tool to boost growth and living standards through social mobility

2911/12/2014

Recommendations for business:

• Step up and offer valuable, inspiring and engaging work experience opportunities for young people from a wide socio-economic background and increase commitment to collaborating with and supporting schools

• Ensure their doors are open to talents from all sources through a stronger focus on achieving the widest socio-economic spread when hiring or offering internships

3011/12/2014

Recommendations for government:

• Ensure we develop rigorous, rounded and grounded and socially mobile young people through a new statement of what schools should deliver and a new Ofsted inspection regime to deliver accountability through narrative reporting that is widely used in business

• Set out a plan for 14-18 education, peaking with academic or vocational A-levels, and moving away from GCSEs

• Reinstate the duty on schools to provide work-related learning at Key Stage four and introduce a national network of Local Brokers to support schools in delivering it

3111/12/2014

Making sure people have a buffer for when a rainy day comes

1 in 5The number of people who have no savings whatsoever

£1,300The value of accessible rainy day savings of the UK median saver

3211/12/2014

Recommendations for business:

• Play a stronger role in helping employees build up buffers by considering a wide range of workplace saving options.

3311/12/2014

Recommendations for government:

• Raise demand for corporate Individual Savings Accounts (ISAs) by allowing people to save into both an individual and a corporate cash ISA.

• Simplify the legal, tax and regulatory framework to tackle barriers to the uptake of capital share and employee share ownership schemes among business.

• Work with the insurance industry to review options on using the auto-enrolment reforms flexibly to deliver support during working lives.

• Help more people onto the housing ladder and reduce the cost of renting a property by building 240,000 new homes every single year within the next decade.

ANY QUESTIONS?

www.cbi.org.uk/better-off-britain