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Labour market policy more than just finding round pegs for round holes

Dan Mawson - Global Forum on Productivity - 20-21 June 2019, Sydney

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Labour market policy more than just finding round pegs for round holes

  1. 1. Labour market policy – more than just finding round pegs for round holes Dr Dan Mawson
  2. 2. The debate about labour markets tends revolve around its role in determining employment and wages, less so productivity • There is often an implicit separation in policy debates about the roles of labour market and productivity related policies, along the lines of: • The presumption being that if labour markets are delivering high employment and solid wage growth they are ‘doing their job’ • Which then shifts the focus onto issues such as equity, regional disparities etc. Step 1 Get more people into work Step 2 Make people in work more productive Labour Markets Productivity Step 3 Raise wages of those in work (labour share) Labour Markets
  3. 3. But we know that the labour markets are actually engaged in a complex process of matching (finding round pegs for round holes)
  4. 4. Which means there are range of channels through which labour markets affect productivity and vice versa, for example… • Clear link between productivity and wages (e.g. Berlingieri et al) – At the micro level there are questions around the channels (e.g. do high productivity workers sort into the best firms, or is it rent sharing by high productivity firms?) • Efficient labour markets raise the returns to investing in human capital (Lang et al) – Conversely, labour market imperfections affect what types of skills are invested in, and who is likely to pay for that investment (e.g. Acemoglu and Pischke) • Labour reallocation from low to high productivity firms accounts for a significant proportion of productivity growth (e.g. Griliches and Regev) – Hence is central to how factors competition, innovation etc. help drive growth
  5. 5. This has a number of implications 1. Horizontal labour market policies can have non-horizontal effects – Not just in terms of how they play out across different groups in society 2. Jobs are more than just bundles of tasks – Firms’ business strategies affect the characteristics of the jobs they offer and vice versa 3. Labour market outcomes can tell us things about the other drivers of productivity – Changes in the types of labour demanded reflect changes in firms’ strategies
  6. 6. (1) Horizontal labour market policies can have non-horizontal effects • First paper is a good example of how a horizontal policy (national wage setting) can have significant non-horizontal implications • To recap, under national wage bargaining we find… – Weaker link between productivity and wages across regions – As a result, low productivity regions have higher non-employment – But low productivity regions also have higher real wages • The resulting spatial misallocation leads to lower overall employment and output than would otherwise be the case
  7. 7. However, even under full regional pay flexibility we can still run into other constraints due to failures in other areas of policy Percentage difference between median income and overall median income, 2013–14 to 2015–16 Source: IFS • Outside of a handful of sectors, wages in the UK are set locally, not nationally • There is huge variation in nominal wages across the UK • But in real terms the gap is smaller due to market failures in the UK housing market
  8. 8. Which will have an impact on productivity • Spatial misallocation of employment and jobs likely to have a negative impact on productivity as price mechanism cannot do its job – People end up ‘queuing’ for jobs, firms reluctant to relocate etc. • UK example shows how we cannot think about this in isolation from other policies (e.g. housing, transport) – getting labour market policies right is not enough – e.g. evidence that house price distortions in the UK have significantly reduced labour mobility among younger workers over the last twenty years • This is likely to become more important due to trends such as the ageing population which makes people less likely to move
  9. 9. (2) Jobs are more than just bundles of tasks • The second paper is a great illustration of how changes in job characteristics can transform labour market outcomes • To recap, introduction of Trust Based Working (TBW) led to… – Reduction in the gender pay gap – A degree of selection by women into firms offering TBW – But, also changed the tasks / skill requirements of the work women were doing • Latter point particularly important because it is about the types of work women are likely to do under TBW, not just where and for whom they choose to work
  10. 10. Implication is that a significant proportion of the labour force are being underutilised Distribution of men and women by firm productivity (UK, 2010-2014) Percentage of men and women working in the top 20% most productive UK firms (by GVA per worker) Source: IFSSource: IFS
  11. 11. This matters not just for equity reasons – it is also about adoption of best practice business processes • By changing their business strategies (e.g. introducing trust based working) firms can widen the set of available workers – Sectors like Pharmacy show this is eminently feasible even for high skill occupations performing complex / highly regulated tasks • Likely to become more important as an ageing workforce will increase demand for more flexible work – Also some evidence of changing attitudes among younger generations around parental roles and related labour market policies (e.g. British Social Attitudes Survey) • So why do we not see more of this? – Business Productivity Review identified a number of market failures in the adoption of new technologies / business processes – Not least of which is many firms are not aware of what is possible and the benefits
  12. 12. (3) Labour market outcomes can tell us things about the other drivers of productivity Case Study: Innovation Diffusion • Recent evidence review in the UK highlighted just how little we know about the diffusion of innovations across the economy • We have plenty of theory and case studies, but relatively little hard data (in particular over time) • Basic challenge is that it involves finding out what is going on inside firms, so our evidence base is mainly a small range of business surveys – Surveys are problematic in that they are resource intensive and can only find what they ask questions about
  13. 13. Using job vacancy data to track innovation diffusions • The explosion in online job adverts / websites etc. creates an opportunity to track something related – the demand for particular skills from employers – Datasets like Burning Glass track millions of job adverts in real time • If we can associate technologies with particular skillsets needed to use them, then we would expect firms demanding those skills to be using those technologies – e.g. To make use of AI you need to hire people with very specific skillsets • Advantage is we can use data science techniques to organically identify new skills / innovations, not just those we are looking for – Though still requires some manual intervention / checking
  14. 14. Applying this idea to Burning Glass data we find expected patterns in demand for skills linked to some technologies Vacancies requiring AI skills increased rapidly as its use took off up to 2017 Vacancies requiring project management (e.g. Prince2) have declined as it has been replaced by new techniques Artificial Intelligence Project Management
  15. 15. Though the speed of adoption of particular innovation varies across different sectors and regions 15 Rankings for the number of months of growth across innovative products Rankings for the number of months of growth across innovative processes and ways of working
  16. 16. The analysis organically identified a range of job characteristics unconnected to skills or technologies • Clustering algorithm identified a range of other terms as important job characteristics • For example:  Passion and energy: ‘can-do attitude’, ‘vision’, ‘proud’, ‘enjoy’  Diversity: ‘equal opportunities’, ‘inclusive’  Ways of working: ‘collaboration’, ‘flexible working’, ‘proactive’, ‘job share’, ‘work from home’, ‘ability to multitask’  Childcare: ‘childcare vouchers’  Other nuggets: ‘veteran’, ‘startup’, ‘care home’, ‘care assistant’, ‘social care’ Rankings for the number of months of growth across innovative processes and ways of working
  17. 17. Summing up • We need a better understanding of how labour market institutions feed through into productivity via the matching process – High employment rates are necessary but not sufficient for a good outcome • In particular how they interact with other policies (such as housing or transport) to create and support local labour pools – Outcomes determined by the weakest policy not the best? • Recognising that jobs are more than just bundles of tasks with associated skills requirements, their other characteristics also matter – i.e. firms work practices affect their available labour supply
  18. 18. Final thought – we need to move beyond thinking about matching employees to jobs (round pegs for round holes) Personal Capabilities (Behaviours, Competencies, Skills) Job Requirements (Behaviours, Competencies, Skills) Personal Requirements (Autonomy, Commute, Working Hours etc.) Job Characteristics (Autonomy, Commute, Working Hours etc) Potential Employee Potential Employer
  19. 19. To include how firms can adapt their offer to the workforce (sometimes changing a round hole into a square one) Employee Offer (Behaviours, Competencies, Skills) Job Requirements (Behaviours, Competencies, Skills) Personal Requirements (Autonomy, Commute, Working Hours etc.) Employer Offer (Autonomy, Commute, Working Hours etc) Potential Employee Potential Employer

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Dan Mawson - Global Forum on Productivity - 20-21 June 2019, Sydney

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