UK Employment: Opportunity to Boost the Employment - Essay Example

UK Employment: Opportunity to Boost the Employment-A Detailed Review. Introduction: Being one of the most well developed countries of the world, UK is supposed to have most number of job opportunities for the graduates and undergraduates. But the scenario is not like the same. After the financial crisis of 2007-2008 the job market in the UK is going through a very dismal phase. To combat the financial crisis several industries are busy in cutting down their employee strength to boost the profit margin. In last 4-5 years, the rate of unemployment increased drastically throughout all the sectors. To combat this increasing rate of unemployment the government in UK has forced to take precautionary measures to control the increasing unemployment rate. Objective of the Paper: The main objective of this paper is to analyze the present employment situation in the UK market along with the history of job opportunity before and after the financial crisis in the UK in 2007. The paper is also emphasizing on the role of the government to combat that situation and also discuss about a suitable model for the UK government which can assist them to increase the rate of employment in the country. UK Job Opportunity: an overview The recent survey clearly represented the fact that, most of the well-known British companies enrolled lesser number of graduates in 2012 compared to that of 2011. The recent data from the top 100 companies of the UK clearly suggested the fact that slow recruitment rate is the clear indication of sustained economic indecision in the corporate sector which was started during the financial crisis in the year of 2007. The data available from top 100 companies clearly represented the fact that there is 0.8% less graduate-level jobs available in those companies. The most affected sectors are the investment banking and accounting firms. According to Walker, (2013) “the drop reverses a trend which saw rises of 2.8% and 12.6% in 2011 and 2010, which followed sharp falls amid the global financial crisis in the two previous years. There is mixed news for those leaving university this year and currently buried under applications forms. On a positive note, the companies surveyed said they expected overall vacancies to nudge up by 2.7% this year.” (Walker, 2013). As per the opinion given by several top recruiting agencies, in the recent years most of the vacancies are expected to be filled up by the people who have prior work experience with them. The demand for the experience professional is going to be nearly 50% in case of the law firms and almost 75% in case of the various leading investment banks. (Walker,2013) Due to the financial crisis and lesser availability of job in the UK, having prior work experience is as important as securing a first class degree in the graduation or the post-graduation level. Companies are now more inclined for those student who are having prior work experience or have experience of internship in some kind of companies. For new graduates who do not have any work knowledge at all throughout their studies, they are highly unlike likely to get a better job opportunity. The market survey also represented the fact that fresh graduates, who did not have any kind of job opening in the year 2013 can expect a starting salary of £29,000, and this figure is same during last four financial year. This unchanged salary offering is also represents the fact that the job market in the UK is going through a tough period and direct government intervention is absolutely important. The above salary figure is although higher than the UK average full-time salary of £26,500. (Walker, 2013) Walker in his report has also mentioned that the salary structure used to vary between several sectors in the UK. For example, the newly developed investment bankers used to offer a starting salary of £45,000 on an average whereas people working in several public sector companies used to earn about £22,000 in the beginning. In his view “the picture remains somewhat gloomy for those already leaving university with huge debts – the expected 2013 vacancies remain 11% lower than the pre-recession level of 2007” (Walker, 2013) Relationship between Economics and Job Creation: In the subject of economics there are several model related to the creation of new job opportunity and country’s economic condition. It is very clear that all those models are focusing on common point. The growth in the job opportunity is directly related to the rate of inflation, GDP growth and industry growth. If the country is going through a phase of low GDP growth and high inflation rate phase then the job opportunity will be very less. In the UK, after the 2007 financial crisis, the role of the government or direct intervention of the government is very much important in various sectors mainly in banking and financial sector to increase the rate of new job creation. Job Creation by Lowering Wages: The Perry Model: One of the most common models in the economics is creating job by lowering the present wage structure. This is a very common model and the same is implemented in some parts of the USA to create more jobs or cut down the rate of termination. If we analyze the policy implemented by the various states in the USA it is very clear that as they do not have the rights to decrease the interest rate or regulate the monetary policy so they have chosen the way of cutting the wages. One practical example is Texas, where the local authority implemented the concept of hourly wages instead of salary and the workers used to get $11.20 compared to the average hourly wages of $12.50 in other parts of the USA. (Reich, 2011). Reich in his review has mentioned that “From 2007 to 2010, the number of minimum wage workers there rose from 221,000 to 550,000 -- thats an increase of nearly 150 percent. And 9.5 percent of Texas workers earn the minimum wage or below -- compared to about 6 percent for the rest of the nation” (Reich, 2011). As a matter of fact by implementing this process government can ensure more and more jobs for the people in the country. It is matter of fact that the overall household income level is going to be decreased with lesser wages but more important is that it can reduce the rate of unemployment. The theory of implementing low wage to create more job opportunity was introduced in the UK during 1999, under the ruling of Tony Blair’s government. There are some key features of this policy such as: Implementation of low wedge reduces the average household earning in the UK and also has its impact on the overall structure of the economy. As the buying capability is reduced so the demand for various products also came down as a result GDP get affected although the employment rate increased. The concept of minimum wedge in UK is always same for all and the lifestyle of any particular area is not taken into consideration. Therefore, perhaps, the applicable salary structure l has continuously been too high for those who are living in the northern part of the country compared to those who stay in London. The people in the early 20 years age group are considered as less experience so the salary is very less for them compared to the experienced employees. As a matter of fact, despite implementing this policy the unskilled labor market in UK is not performing very well as the rate of unemployment among 16-24 years age group was 24.7% in 2011 compared to that of 13.8% in 1999. (Siebert, 2013). In the UK the concept of low wedge has a mixed impact in the employment sector. It is clear from the trend analysis that minimum wages has increased significantly from 79% from 1999 to 2011 whereas increase in the salary of average workers is around 50% during the same phase. The increase in the price of daily goods and other service is 45% at the same time frame. So from economical point of view, it is a good option to increase the rate of employment in the UK. There is also a point of concern regarding this policy. A detailed survey has shown the fact that probability of continuing in an occupation (employment retention) is decreased by about three percentage points for part-time women. In Siebert’s opinion, “This result is important because a 3 point reduction is in fact quite large when measured against an average retention rate (i.e. probability of remaining in employment for one year) of around 70 per cent.”(Siebert, 2013) The Flat-Earth Theory of Job Creation: The New York Times in their editorial has mentioned that the government has the power to create hundreds and thousands of jobs. Samuelson (2012), in his review regarding the editorial has mentioned the concept of flat earth theory which suggested that government can create many job whenever they want to. Generally to create job government need money and the same is generally collected from the tax payers or by means of selling various government bonds. Now if the same money is available with the common people then they can utilize the same, can buy some product, travel in various places –can spend those money and that spending can in turn boost the opportunity for job in various sectors such as FMCG, travel and tourism etc. Most importantly, if one considers the private sectors then it is very clear that creation of job is more like a spontaneous and circular process. People used to buy things which they need or want, some time they purchase products and service for more luxury and comfort. Likewise, the private players often invest money to invent new products and services, technological innovation to gain more profit. As a matter of fact, all this expenses used to driven by the self-interest and profit motives of the corporates which can create more jobs. On the other hand, there are assumptions such as employment in the public-sector companies grows only when administrationdirectly involves in the operation, such as during financial crisis in the UK in 2007 when government intervention was absolutely necessary. Some sectors such as health care, insurance, public transport, public sector banks need support from the government to create job but at the same time government needs to encourage the growth in the private firms so that the pressure of unemployment is not only on the government sector companies. (Samuelson, 2012) A proven Economic Fact:High Inflation Destroys Jobs- How Philips Curve is Inconsequential in modern UK economy: There is a very common myth in the economy that high inflation used to destroy the rate of employment. A detail economical study clearly represents the fact that increasing rate of inflation always affects the rate of employment in any country. As a matter of fact the increasing rate of inflation supposed to reduce the rate of unemployment rate as per the Philips curve. The Philips curve suggested the fact that:Constant upsurge in the demand for employment as administration expenditure produces growth, the percentage of unemployment therefore going to reduce as the government spending increased over the due course of time. During that phase the workers used to have more bargaining power to increase their nominal wages. To combat this situation, firms forced to increase the price of their product and services to combat the additional expenses. (Economics Online, nd) But, data of 1970 onwards has proved the fact that Philips curve is not stand valid ground. During a span of 3 years, from 1971 to 1974, change in the annual percentage of Consumer Price Index (CPI), increased from 4.4% to 11.0%. As per the Philips curve, this figure supposed to reduce the rate of unemployment. But from 1971 to 1974, the rate of unemployment increased steadily. The rate was 6.1% in 1971 and the same was 7.2% during 1974. By 1975 the figure rose further and reaches 8.2%. In 1the year of 1977, the CPI was 6.5% and by 1980thesame was reached 13.5%. At the same time the employment rate also increased as the same was 7.2% in 1980 and hit 10.8% by 1982. The inflation rate again increased in 1990 as it was 5.4% so as the inflation rate shoot up from 6.6% in 1986 to 7.3% in 1991. (Pento,2012). From the above analysis it is very clear that inflation and unemployment is directly proportionate and to create more job opportunity UK government must introduce some strong policies to control the inflation. Relation between Unemployment and Inflation Rate: The above data clearly represents that with the increasing rate of inflation has a negative impact on the employment rate. The jump in the inflation rate from 2009 onwards as well as impact of the world financial crisis in 2007shown a big jump from 2008 onwards and UK government needs to control the rate of inflation to control the increasing inflation rate. Likewise the GDP is also associated with the rate of unemployment. The growing GDP stabilize the unemployment rate and therefore after 2009 there is a very little growth in the unemployment rate in UK. Relation between Unemployment Rate and GDP GDP in UK from 2005-2012 Unemployment in UK from 2005-2012 The role of Government in Creating Job in UK Industry: After the financial crisis of 2007-2008, the UK government has taken some crucial steps to ensure that the unemployment rate keep remain in check. As a matter of fact the performance of the UK job industry is much better than expectation of the expert. But there are some crucial questions associated with the job status in the UK. Questions like why the UK government finding it so hard to design strategies? IN a broader perspective, the role of UK government is unquestionably crucial as they have to emphasize on the various above mention model, co relate those with the situation in the UK’s economy and social structure to ensure creation of more job opportunity and decrease the unemployment rate. Following is the sector wise analysis as how the UK government can play a crucial role in reducing the rate of unemployment in the UK. Health Care Industry: In the UK, one of the key area or sector to boost the rate of employment for government is the health care sector. In the UK, at present the health care section is considered as one of the least compensated and lowest-status sectors among all others. In the UK, the most common working pattern in the health care sector is the zero-hour contracts (no definiteworking hours, but all the employee needs to be present in a short notice) As the earning of people started to increase with the time, there will be a better opportunity for all to spend more in terms of health care. UK government can take a note from the fact that during last decade, the half of the total job created in the USA is in the healthcare sector.(Mulgan, 2012) Role of the UK Government: The role of the UK government is also very important in this case. In UK, there is hardly any internship in the field of care. There are very few schools in the country which have specially designed course for the health care industry or to train people who want to join the industry. IF the UK government develops a well-structured and well planned course for the health care industry like nursing and all, a large number of new job opportunities will be there in the UK and more importantly it will reduce the pressure on the other industries like banking and IT where the rush is more in the last 8-10 years. Information Technology: Apart from the healthcare, the UK government can also focus on the IT sector to boost the growth in the employment. In the recent years, there are significant number of companies recorded large number of growth I the field of software and hardware development. Data warehousing, Data mining can also be considered as the better opportunity for the people in the UK. If one compare the situation in USA, almost half million jobs are created in the USA in the field of application development and hardware. One also has to consider the fact that top IT companies are more concentrating on outsourcing the job to boost their profitability. UK government has to implement some policy which can one way boost the profitability of the UK software and hardware companies and same time can provide more opportunities for the young generation at the same time. (Mulgan, 2012) Role of the UK Government: To create more job opportunity in the IT and development field UK government need to ensure that the standard of education is high. To provide well educated employee source for the UK IT companies government need to upgrade the standard of engineering education as well as must provide vocational training opportunity. UK government need to introduce some policy/rule to make it sure that the companies provide enough opportunity for the local young people in their company before outsourcing the jobs elsewhere. Implementation of Local first approach will be beneficial for the local youth. UK government must ensure that there are enough opportunities for the students with vocational training as well. In the IT and ITES sector, in general there is a large requirement of students with such vocational training. The number of opening is also very high in those sectors. BPO, KPO all this industries can help the UK government to reduce the rate of employment. To encourage those companies, UK government needs to provide financial aid, some additional benefit such as corporate loan in lower interest rate, tax exemption, allocation of government projects etc. Globalization and Increasing Job Opportunity in the UK: Another way for the UK government to increase the job opportunity in the UK is taking the advantage of the globalization. Many companies from different parts of the world are looking for expanding their business in UK. To take this opportunity UK government can introduce favorable investment policies for those companies and against that they can ask them to keep a certain percentage of jobs restricted for the UK people. This can again help them to reduce the pressure on various government firms for creating more jobs. As a matter of fact, Foreign-owned industries elevated their portion of UK jobs from 11% 19% from in last 10 years. As on 2010, there is almost1.6m more jobs in the UK from the foreign companies. (Mulgan, 2012) Helping government policy can encourage more companies to open more branches in UK thus there will be more job opportunity for the UK people. Role of the UK government: To meet the requirements of these companies, UK government need to introduce more vocational courses for the young generation. At the same time they also needs to encourage the young generation to look for alternate subjects outside the regular ones which in recent years have more demand in job market. Subjects like bio-chemistry, microbiology etc. have gain more importance in modern times as there is an increasing needs of these subjects. More focus on biology related subjects can ensure more job opportunity in the field of heath care, pharmaceuticals which are now one of the fastest growing sectors in the world. Tourism Sector: An Effective Alternative In the urban and semi urban areas, UK government needs to encourage the study of tourism as they can promote the tourism as an alternate source of employment. The number of international tourist visiting the country is increasing continuously so the tourism sector can also acts as the source employment for the government. Following are the some key models which UK government can follow to reduce the 4key types of unemployment namely: Real Wage; Keynesian; Structural and Frictional. (Revision guru, nd) Real Wage Unemployment: The main objective of this process is to make every labor market more flexible with the opening of job, well adapted with the changing market structure and industry demand. To ensure this UK government need to focus on more job oriented training for the youth as well as reforming the trade unions making those more advanced with the demand of various sector. Keynesian Unemployment: This type of unemployment is mainly happen due to the reducing demand in the various sectors. The financial crisis of 2007-2008 has shown a significant level of the above mentioned unemployment in the UK. To combat this UK government need to follow following steps such as: increasing the government expenditure to boost the growth in various sector, decrease the pressure of taxation (mainly the corporate tax) and interest rates, reviewing the exchange rate periodically and introduce some encouraging policies to encourage the corporate to boost their production. At the same time government has to remember that these policies take time to show its effect so government must have some short term measures to combat the pressure of unemployment. Structural Unemployment: To fight against the structural unemployment UK government need to invest more in the training and development. Generally various employee friend labour market policies such as free vocational training, training to start new business with small capital, government paid up for the capital to start small business, providing government aids t the companies which are operating in the high unemployment areas can help the government to fight against the structural unemployment in the UK. Frictional Unemployment: To combat this situation government need to provide regular update about the job opportunity for the youth in various urban and semi urban areas. At the same time, the UK government can decrease direct taxes for the low paid to upsurge the post-tax wage. By implementing this policy, UK government can encourage jobless people to find job quickly. One of the key initiatives taken by the UK government in the year of 1996 was the introduction of the Job Seekers Allowance. The government aid was entirely dependent on the fact that they have to give interviews in every 15 days to get the government aid. By reducing that 15 days’ time span to 7 days, along with by reducing the value of unemployment benefit government can indirectly force the youth to join the available openings in their areas. Conclusion: It is very clear that despite the financial crisis in the UK, the government can create more jobs at present. The economic crisis of 2007-2008 created a huge setback for all the industries and thus resultant in to a huge amount of job cut. But as the time moves on the economy is started to regain its shape and started to get stabilize. All the above mentioned processes are the framework that UK government can follow to reduce the unemployment rate. They have to consider the fact that all the above processes might not be functional in every part of the country. So depending upon the work culture, education level, and possibility of job opening UK government need to design and implement their policies. . References 1. Mulgan, G. (2012) The UK economy can still create jobs; The Guardian; Retrieved on 2.5.2014 from http://www.theguardian.com/commentisfree/2012/nov/04/uk-economy-create-jobs-sectors 2. Pento, M. (2012) Why Higher Inflation Destroys Jobs; Forbes; retrieved on 2.5.2014 from http://www.forbes.com/sites/michaelpento/2012/05/01/why-higher-inflation-destroys-jobs/ 3. Policies to Reduce Unemployment, (n.d.), Revision guru; retrieved on 2.5.2014 from http://www.revisionguru.co.uk/economics/unemp4.htm 4. Reich, R. (2011) How to Create More Jobs by Lowering Wages: Texas and America; Wall Street Giants; Retrieved on 2.5.2014 from http://www.huffingtonpost.com/robert-reich/how-to-create-more-jobs-b_b_961789.html 5. Samuelson, R.J. (2012), The flat-earth theory of job creation; The Washington Post, retrieved on 2.5.2014 from http://www.washingtonpost.com/opinions/the-flat-earth-theory-of-job-creation/2012/10/25/2c922630-1eb1-11e2-ba31-3083ca97c314_story.html 6. Siebert, W.S. (2013), Unemployment and the minimum wage; Institute of Economic Affairs; retrieved on 2.5.2014 from http://www.iea.org.uk/blog/unemployment-and-the-minimum-wage 7. The Philips Curve (n.d.), Economics online; retrieved on 2.5.2014 from http://www.economicsonline.co.uk/Global_economics/Phillips_curve.html 8. Walker, P. (2013) Graduate job opportunities shrink amid economic uncertainty; The Guardian; Retrieved on 2.5.2014 from http://www.theguardian.com/education/2013/jan/14/graduate-job-opportunities-shrink-economic-uncertainty Data Source: World Bank Data: http://data.worldbank.org/indicator/SL.UEM.TOTL.ZS Data Table: Year Rate of Inflation 2005 0.02 2006 0.02 2007 2.30 2008 3.60 2009 2.20 2010 3.30 2011 4.50 2012 2.80 Year value of GDP 2005 2,321,359,350,398 2006 2,483,008,793,219 2007 2,857,080,828,858 2008 2,687,796,663,762 2009 14,417,900,000,000 2010 14,958,300,000,000 2011 15,533,800,000,000 2012 16,244,600,000,000 Year Unemployment % 2005 4.7 2006 5.5 2007 5.4 2008 5.4 2009 7.8 2010 7.8 2011 7.9 2012 7.9 Read More