Underemployment: the implications     Published in the M&C Report 12/10/2012 16:04:00              

What will the effect of the underemployed be on the hospitality sector? Trajectory Partnership’s Paul Flatters investigates.

Underemployment – the number of people in work but not working as much as they would like – is set to emerge as a central factor in consumers’ experience of the downturn in the UK, and will have important implications for the hospitality sector in the short term. Analysis of labour force datasets by the TUC has revealed that as much as 11% of the total UK workforce is currently underemployed, exacerbating consumers’ existing financial concerns.

The UK economy has now endured a downturn longer than the great depression of the 1930s, yet given this continued bad news, headline unemployment has stayed reasonably low. From a low of 5.2% at the beginning of 2008, it peaked at 8.4% at the end of 2011. Over the past year, as the economy has fallen back into recession, unemployment has fallen, and the latest figures show it at 8%.

Although 8% is probably higher than many politicians or economists would like unemployment to be, it is remarkably low given the financial context; in the early 1990s recession, unemployment peaked at 10.6%, and at 11.9% following the recession in the early 1980s.

Misplaced optimism

In the past two years, one of the main squeezes on household income has been price inflation running ahead of income growth. As inflation falls (CPI – or Consumer Price Index – has dropped from a high of 5.2% in September 2011 to 2.5% in August 2012), this pressure will ease, and optimism may even rise if the economy returns to low levels of growth, as has been forecast for 2013 and 2014. This positive spin is compounded by the lower-than-expected levels of unemployment.

However, such optimism may be slightly misplaced. Masking these low unemployment figures is the spectre of underemployment; a sharply rising number of people in the workforce who would like to work more hours than they are currently able.

Data from the Labour Force Survey indicates that the number of under-employed workers has risen by a million in the past four years, from 2.3m in 2008 to 3.3m at the start of this year. At its most extreme, underemployment concerns part-time workers who would like to work full-time, but also includes part-time or full-time workers who would simply like to work a few more hours every week.

The willingness of firms to offer their workers a reduction in hours or overtime – rather than cutting staff entirely – was a key factor in keeping the rise in unemployment to a minimum at the outset of the downturn. As the economic crisis continues, however, and firms are still unable to offer their staff the desired extra work, the effect of underemployment has caught up.

The rise in underemployment has affected all groups, but some disproportionately. The rise of 1 million has been split evenly between men and women, although women remain slightly more likely to want more hours. In terms of age, the steepest rise has come from those aged over 50; the number of underemployed 50 to 64-year-olds has increased by 60%, from 433,000 to 694,000, and the number of underemployed over-65s has more than doubled, from 24,000 to 49,000.

The group most likely to be underemployed remains those aged 35 to 49, however – 1.16 million are underemployed, with a majority of them (58%) women. This group, as they are likely to have young families, have already been disproportionately affected by other aspects of the downturn such as high inflation and a squeeze on public spending are also being buffeted by underemployment.

Regional variations

Regionally, there have been rises across the country. Although – perhaps unsurprisingly – some of the lowest rises have been in the south, there is not a simple north/south divide; London’s underemployment level has increased by 47%, and the West Midlands’ by 33% – either side of the 42% average.

The scale of impact across industries and occupations is notably more pronounced; underemployment has decreased for managers, by 16%, but has almost doubled for those in professional occupations.

In total, 11% of the UK workforce is underemployed, which sharply alters the perception of the jobs situation in the country. Added to the unemployment rate of 8%, these figures show that one in five economically-active people are either without work or without enough work.

Consumers being unable to earn as much as they would like – or in many cases, as much as they were before the downturn – is contributing heavily to perceptions of the squeeze. In the first half of the downturn, between 2008 and 2010, consumer spending remained reasonably stable, with consumers cutting back slightly on a wide range of spending areas in order to cope with overall rises in the cost of living.

However, the downturn since 2010 has been characterised by strong rises in areas in which it is harder to reduce spending; food, bills and housing costs.

Furthermore, high rates of price inflation in the past 18 months have ensured the cost of living is rising faster than wages – adding to the squeeze.

Underemployment creates a scenario in which consumers are earning – but not enough to maintain spend on leisure activities in the way they have been since the onset of the downturn.

Effect on hospitality The rise in underemployment has significant repercussions for the hospitality sector. If the national picture – a composite of unemployment, GDP growth and inflation – continues to improve, many businesses could expect an upturn in consumer confidence and optimism. However, unless there is a corresponding fall in underemployment, for many households, this increased confidence is unlikely to materialise.

Trajectory’s Global Foresight survey reveals the impact that working part-time can have on consumer behaviour, even without accounting for underemployment. Just 19% of people working full-time think the UK economy will improve in the next year, but for part-time workers, confidence is even lower – 11%.

This lower confidence translates directly into reduced leisure activities: part-time workers are less likely to eat out in a restaurant, and less likely to go for a drink in a pub/bar. Leisure is likely to be less central to their lives – 34% of part-time workers say leisure is very important to them, compared to 42% of full-time workers.

Over the next few years, pressures on household spending are likely to remain influential in consumers’ minds as they try to balance a rising cost of living with lower income. Price and value will play a central role in consumers’ decision making generally, but especially for those who feel they are not earning enough. One of the central causes of this squeeze on income – even after inflation falls and the national economy grows – will be underemployment.