Financial insecurity means no early return of feelgood factor
Thursday 14 March 1996
The lack of optimism among voters is clearly linked to the jobs market, and unemployment is one aspect of it. As the great Fats Domino once said: ``A lot of fellows nowadays have a BA, MD or PhD. Unfortunately they don't have a JOB.''
The small rise in the claimant count last month after 29 successive declines, reported yesterday, shows that falling unemployment cannot be taken for granted. Even so, Britain's jobless rate is one of the lowest in the European Union. Yet its decline has had almost no effect on consumer confidence.
Having a job, or more chance of finding one if unemployed, is therefore not very effective feelgood medicine. The reason it cannot do the trick is the widespread and deep sense of job insecurity.
There is a bit of a puzzle here. The figures on measures of actual job insecurity do not suggest that it has changed very much. For example, according to an article in the latest issue of the Economic Journal, average actual job tenure has fallen only 10 per cent between 1975 and 1992, which is noticeable but not catastrophic. The fall has been concentrated on unskilled men. Others have seen barely any change in their average length of time in one job. This evidence is in line with earlier research.
There is, though, one clue about the effect of employment deregulation on jobs. That is the striking failure of overtime hours to rise during the 1990s. In past recoveries, as the chart shows, overtime climbs with output. This time hours have stayed flat and the number of jobs has risen instead. The presumption is that as the economy weakens it will be jobs rather than hours that are cut.
This makes overtime hours a good predictor of levels of consumer confidence. Professor Peter Spencer of Birkbeck College, London has found that hours beat all other candidates such as unemployment, inflation and housing market indicators in ability to explain confidence or its absence. The average level of overtime is also a very good match for the only direct measure of job insecurity we have. That is the question in the annual British Social Attitudes Survey about whether respondents expect the number of jobs at their own place of work to increase, stay the same or fall.
So there is some evidence that job insecurity has increased and contributed to our feeling bad. But it is only half the story. The other half is the simultaneous withdrawal of welfare benefits. Professor Spencer says: ``The labour market has become more uncertain at exactly the same time that the safety net has been pulled away.'' Although Chancellor Kenneth Clarke seems to understand the significance of simultaneously deregulating the labour market and privatising welfare, many of his colleagues do not.
A new book* by Tony Atkinson, an Oxford University expert, spells out the weakening of the safety net as a result of recent government policy. Take pensions, for example. Professor Atkinson calculates that the basic state pension amounted to about 42 per cent of the average income in 1979. By 1990 it had fallen to 32 per cent, and it will be down to less than a quarter by 2010. He quotes Michael Portillo on the basic pension - it ``is going to be worth a nugatory amount in the coming century.''
People are meant to top up their old age income from one of three sources: the state earnings related pension, an occupational pension or a personal pension. Since 1986 Serps has been scaled down so much that it could leave many people with less than a minimum adequate retirement income.
Most people with occupational pensions should be provided with enough but - even apart from any more Robert Maxwell-style difficulties - schemes might not be able to fulfil the pension promise for a variety of reasons ranging from bankruptcy of the employer to gaps created by unemployment or illness. Personal pensions carry investment risk and the uncertainty about the rate of annuity which can be purchased at the end.
The probability is that pensioners will be on increasingly unequal incomes in the next century, with retirement income determined by decisions made 25 years earlier about which type of pension to choose - and luck. The increase in inequality is already apparent. The average pension grew 38 per cent between 1979 and 1991, but for the richest tenth of pensioners incomes grew 62 per cent. At the other end of the scale the proportion of pensioners with incomes of less than half the national average rose from 16 per cent in 1979 to about 34 per cent now.
Pensions are not the only new long-term financial worry. People are increasingly beginning to consider how they will pay for long-term care for their parents or themselves - and anyone with more than pounds 16,000 in assets - that is, any home owner - has to fund it themselves. Sales of insurance policies to cover the risk of needing long-term care grew 40 per cent in the UK last year.
Then there is the need many feel to save for their childrens' schooling and higher education. Private health insurance continues to grow, although mainly as a perk for those with jobs. Owner-occupiers are increasingly taking out policies to provide unemployment cover now that housing benefit no longer covers the mortgage for the first six months of unemployment. Income has to be earmarked, by those who have jobs, for pension contributions, additional insurance cover, and higher precautionary savings.
Professor Spencer puts it eloquently: ``People of our generation had a fantastic education with a lot of money pumped into schools, no problems getting jobs after university, a housing boom, good public service. It is only now that we are beginning to face any problems.''
And what problems. Britain's stubborn refusal to feel good, despite the economic background of steady growth and low inflation the Chancellor likes to emphasise, is not due to a lack of jobs, or even a lack of job security, but a lack of lifetime financial security. It will not be remedied before the election.
* Incomes and the Welfare State, AB Atkinson, Cambridge University Press., pounds 15.95 or pounds 40
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