It is well known that inadequate pension arrangements and profound demographic change will have major impacts on our labour markets. Here, Regeneris director Dr Jim Coleman looks at some of the likely implications for young people joining the workforce and suggests a rethink on Government policy...
Jim Coleman / Director, Regeneris Consulting
It looks like we’re all going to have to work longer and save harder. The Government is suggesting that the retirement age may have to rise to 68 years due to a combination of demographic change and the inadequacy of current pension arrangements. Various key Government reports over the last twelve months, including the high-profile Leitch and Turner Reports, have sought to advise on how policy might have to adapt to accommodate some highly significant and rather pressing labour market dynamics.
A number of interesting issues have emerged, particularly regarding the length of time people are going to have to spend in the labour market. Over the last decade or so, it has become increasingly evident that the period over which individuals are expected to earn an income is getting longer. According to financial website Moneyfacts, over a 25-year period, the value of a typical pension fund based on annual payments of £500 a year crashed from £120,939 in 1996 to just £55,992 in 2006 – a fall of 54%.
Due to demographic change, this situation is unlikely to improve. Between 1971 and 2005, ONS statistics show that the share of the population aged 65 and over has increased from 13 to 16 per cent, with Government projections indicating this figure will rise to 23 per cent by 2031. This is an unavoidable consequence of the UK’s current age structure and the eventual ageing of the post-Second World War baby boom generation.
Harder to leave the workforce
It has been well known for some time that both birth rates and average family or household size in the UK have been on the decline. In 2005 the total fertility rate (TFR) in the UK was 1.79 children per woman, compared to a peak of 2.95 in 1964. There will be fewer young people coming into the labour market and the structure of the workforce is therefore gradually ageing.
Consequently, it is becoming increasingly difficult to leave the workforce prematurely by retiring early. For many workers, the current pension fund pool is of an inadequate volume to provide a decent standard of living, and ultimately there won’t be enough working-age people remaining in the labour market to support those who leave.
Some relief is provided by the forces of migration, which are currently acting against the gradual ageing of the workforce. Between 1993 and 2002, there was a net inflow of migrants to the UK of just over one million people. Forecasts are for a continuing net inflow, consisting mostly of individuals of working age. This would produce lower old-age dependency ratios (the ratio of people above pensionable age to those of working age), currently projected to rise from their present current level of 27 per cent to 47 per cent by 2051.
The overall effect of in-migration, however, is likely to be only short-term relief for highly sector-specific skills shortages, with limited effect on workforce age structure in the long-term.
Spending longer at work
Demand for labour and hence demand for skills will not diminish over time. The UK economy grew at an average rate of 2.5% per year between 1948 and 2005 and is expected to continue to grow, albeit at a slower average of 2% per year, over the next 50 years.
![[Workers]](/pictures/Workers(1).jpg)
The upshot of all this is that many of us are simply going to have to spend longer working, or more precisely, earning an income that covers immediate needs and also facilitates a living income after working time has ceased. Consequently, there is a clear need for both an individual and a collective skills base that facilitates income generation over a longer period, as identified by Leitch and colleagues.
Young people leaving education now can probably expect to spend the best part of the next fifty years in direct employment, or at least in some form of income generating activity. As such, labour market experiences will probably change in a variety of interesting ways.
There are two main aspects to this. Firstly, individuals are likely to experience a more varied range of employment status and position, including, at different stages, full-time or part-time work, self employment and freelancing, portfolio working, or combinations of these, possibly at the same time.
The need to be able to generate this blend of different sources of income generation requires well-developed generic and interpersonal skills that are easily transferable between different employment forms, such as flexibility, skills, communication, enterprise and entrepreneurship capabilities, management and organisational skills and effective networking.
Each of us will increasingly require a core, high level set of these generic skills that allow flexibility and adaptability to different employment forms.
Secondly, as average length of time in the labour market increases, each of us is more likely to switch between different sectors and industries and to experience a different sector-occupation mix. As industrial sectors tend to differ in their requirements for specific types of vocational skills, this means we will need to become more adept at picking up different types of skill attributes at key points in our careers.
Effectively, this involves periodic ‘retraining’ for a changing labour market environment. Already, the development and spread of Information and Communication Technologies (ICTs) in everyday working life has necessitated a degree of ongoing re-training for many, not to mention continual re-learning of systems as this technology continuously changes.
The concept of lifelong learning – or should that be re-learning – will become more than a theory: it will be an absolute necessity. All of us will have to adapt our skills readily and successfully on an ongoing basis.
Surviving the labour market
The increasing need to stay in the labour market longer raises a whole host of issues and reinforces a number of key factors that are already pertinent, particularly in terms of targeted labour market and skills interventions.
As noted earlier, young people coming into the labour market now are likely to spend around fifty years having to generate an income. As such, the next cohort of workers must be fully prepared for the need to spend this length of time sustaining a positive labour market experience and have the necessary skills and attributes to do so.
The schools sector, as well as FE and HE levels, must do more than simply impart academic knowledge. Young people must be trained in the art of surviving the labour market. This means that skills such as creativity, adaptability and enterprise become an even more important part of curricula at all levels. Young people must be genuinely prepared for a ‘career’ in its broadest sense, not simply the first job, or the first stage of labour market experience.
We must do more in terms of supporting young people to effectively career-plan, not just acquire an entry point into the labour market. The concept of ongoing, fluid career development needs to be embedded fully in the minds of all labour market entrants.
Young people, by their very nature, will struggle to perceive or identify with the concept of ‘long term’ and what this means for their income and lifestyle opportunities. We need to think carefully about what messages are likely to work more effectively in communicating the importance of these issues to a young audience.
Sustainable careers
The increasing length of working life also has dramatic implications for those individuals and groups already experiencing various forms of labour market disadvantage and inequality. For those currently encountering exclusion from the labour market, the task of generating a lifelong income is even more challenging.
A key question that arises is how to support individuals in a way that allows them to develop sustainable careers, rather than entry into a single employment or training situation. Access to entry level jobs is unfortunately the end result of many existing labour market support programmes. This must not remain the end point, but must be the first stage in a longer term strategy of employment support, moving closer towards the determination of a meaningful career.
A focus on only achieving entry level outcomes is not good for individuals, communities or the economy, as it is not fully maximising the use of national resources. It is vital that labour market support for disadvantaged groups enables entry into a highly progressive labour market system, not just a single situation. This in turn requires that individuals acquire the right balance of skills, including the skill to re-learn and to adapt to evolving labour market challenges.
There are a number of other complications associated with the need for longer term labour market participation, especially around low-pay traps – often more likely to unfairly affect women than men. These issues become even more prominent as the necessary duration required for labour market participation is extended. Being trapped in low-paid employment usually constrains the development of exactly those key skills that will enhance the ability to progress through employment pathways longer term.
Optimising interventions
Given these changes to the functioning of the UK labour market, there is a clear need to ensure that interventions aimed at supporting diverse groups of labour market participants take account of the need for a longer-term approach to realising a sustainable, income generating career. This is over and above the requirement that young people coming into the labour market for the first time are fully prepared for the need to develop a portfolio of appropriate, adaptable skills and indeed of employment experiences.
Jim Coleman
Dr Jim Coleman is director of Regeneris Consulting’s London office and a former economics lecturer at Durham University. To have your say or to discuss these issues further, contact Jim at j.coleman@regeneris.co.uk or 0207 608 7201.
