Talk on economic and workplace outlook to 2020 based on summer Budget 2015 forecasts

1. Economic and
workplace outlook: the
next five years
Mark Beatson
Chief Economist, CIPD
@MarkBeatson1

2. Contents
• International outlook
• UK economy
• UK labour market
• The public sector
• Impact of longer term trends

3. International outlook

4. Emerging economies continue to support global
economic growth
-1
0
1
2
3
4
5
6
7
8
9
World USA Euro Zone Japan UK China India
%changep.a.
GDP growth
2013 2014 2015 2016
Source: IMF World Economic Outlook, July 2015 update.

5. The Euro Zone is growing … slowly
-1
0
1
2
3
4
EuroZone Germany France Italy Spain
%changep.a.
GDP growth
2014 2015 2016
Source: IMF World Economic Outlook, July 2015 update.

6. What about Greece?
• Don’t expect events to be predictable or obey any
timetable
• Greece is only 2% of Eurozone GDP
• Uncertain impact on other weaker members –
growth, banks, bond yields
• Diverts political attention from fundamental
problems?
• Diverts political attention way from UK concerns?

7. Slow growth in Europe affects the UK because
of trade links
13.2
10
8.5
6.9
6.1
4.6 4.3
2.9 2.9
2
UK top ten goods export markets,
2013 (% of total exports)
Source: Office for National Statistics.
22.7
6.6 6.4
5.7
4.8 4.5 4.1
2.1 1.8 1.6
UK top ten service export
markets, 2013 (% of total exports)

8. Labour market conditions in Europe are
likely to continue to affect migration patterns
74
48
35
0~
20
40
60
80
100
120
140
160
180
YE Jun 05YE Jun 06YE Jun 07YE Jun 08YE Jun 09YE Jun 10YE Jun 11YE Jun 12YE Jun 13YE Jun 14
Thousands
Work-related migrants into UK
EU15 EU8 EU2
Source: Office for National Statistics.

9. UK economy

10. It’s been a bumpy few years and sustained
growth took longer than expected
370,000
380,000
390,000
400,000
410,000
420,000
430,000
440,000
-0.4
-0.2
0.0
0.2
0.4
0.6
0.8
1.0
1.2
2010 2011 2012 2013 2014 2015
GDP (£ million) QonQ growth
Source: Office for National Statistics.

11. Jobs growth since the recession has surpassed expectations
68
69
70
71
72
73
74
27,500
28,000
28,500
29,000
29,500
30,000
30,500
31,000
31,500 Jan-Mar2007
Apr-Jun2007
Jul-Sep2007
Oct-Dec2007
Jan-Mar2008
Apr-Jun2008
Jul-Sep2008
Oct-Dec2008
Jan-Mar2009
Apr-Jun2009
Jul-Sep2009
Oct-Dec2009
Jan-Mar2010
Apr-Jun2010
Jul-Sep2010
Oct-Dec2010
Jan-Mar2011
Apr-Jun2011
Jul-Sep2011
Oct-Dec2011
Jan-Mar2012
Apr-Jun2012
Jul-Sep2012
Oct-Dec2012
Jan-Mar2013
Apr-Jun2013
Jul-Sep2013
Oct-Dec2013
Jan-Mar2014
Apr-Jun2014
Jul-Sep2014
Oct-Dec2014
Jan-Mar2015
Number employed ('000) Employment rate (%)
Source: Office for National Statistics.

12. But productivity is still below its pre-recession
level seven years on
92
93
94
95
96
97
98
99
100
101
102
Output per hour worked 2008Q1 = 100
Source: Office for National Statistics.

13. Which helps explain why average earnings have
fallen in real terms since 2008
-1
0
1
2
3
4
5
6
Mar01
Sep01
Mar02
Sep02
Mar03
Sep03
Mar04
Sep04
Mar05
Sep05
Mar06
Sep06
Mar07
Sep07
Mar08
Sep08
Mar09
Sep09
Mar10
Sep10
Mar11
Sep11
Mar12
Sep12
Mar13
Sep13
Mar14
Sep14
Mar15
%annualincrease
Average regular weekly pay growth (3 month average) CPI inflation
Source: Office for National Statistics.

14. The official economic forecast for the next five years
is better – but doesn’t recover ‘lost’ output
-6
-4
-2
0
2
4
6
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
Percentagechangeonayearearlier
Source: ONS, OBR

15. UK labour market

16. Labour market expansion continues … although
at a slower rate
0
1
2
3
4
5
6
7
8
9
27
28
29
30
31
32
33
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
Employment (LHS, millions) Unemployment rate (RHS, %)
Source: Office for Budget Responsibility.
Forecast

17. The OBR expect wage growth and productivity
to increase in the coming year
-2
-1
0
1
2
3
4
5
6
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
Annual%change
Average earnings Output per hour RPI inflation CPI inflation
Source: Office for Budget Responsibility.
Forecast

18. CIPD survey data show little signs of this
happening just yet
-30
-20
-10
0
10
20
30
40
Netemploymentbalance
Three months ahead employment
expectations
0
0.5
1
1.5
2
2.5
Average predicted annual pay
award (% p.a.)
Source: CIPD Labour Market Outlook surveys.

19. Impact of the National Living Wage?
National Living Wage expected to:
• Produce small reductions in employment and hours worked
• Produce increases in productivity and average earnings
• Have small net negative effect on GDP (0.1% by 2020).
0
1
2
3
4
5
6
7
8
0.00
0.40
0.80
1.20
1.60
2.00
2.40
2.80
3.20
3.60
4.00
4.40
4.80
5.20
5.60
6.00
6.40
6.80
7.20
7.60
8.00
8.40
8.80
9.20
9.60
10.00
10.40
10.80
11.20
11.60
12.00
%ofworkforce
£ per hour
Distribution of hourly earnings in 2020
Excluding NLW Including NLW

20. The public sector

21. Fiscal consolidation - more to come
-10
0
10
20
30
40
50
60
1964-65
1966-67
1968-69
1970-71
1972-73
1974-75
1976-77
1978-79
1980-81
1982-83
1984-85
1986-87
1988-89
1990-91
1992-93
1994-95
1996-97
1998-99
2000-01
2002-03
2004-05
2006-07
2008-09
2010-11
2012-13
2014-15
2016-17
2018-19
2020-21
%ofGDP
Expediture minus receipts (deficit) Current receipts Total managed expenditure
Source: Office for Budget Responsibility.
Forecast

22. Shrinking public sector employment – more to
come
0
1
2
3
4
5
6
2010-11 2011-12 2012-13 2013-14 2014-15 2015-16 2016-17 2017-18 2018-19 2019-20 2020-21
General government employment (millions)
July Budget March Budget
Source: Office for Budget Responsibility
Forecast

23. Impact of longer-term
trends

24. -677
-94
1,387
770
-305
186
1,235
1,956
15-24 25-49 50-64 65+
Illustrative projections of change in employment by age group from
2012 baseline, thousands
2022 2032
Sources: CIPD calculations based on ONS 2012 Principal population projections and revised mid-year estimates for 2002
and 2007 , employment rates for May-Jul 2002 and 2012 based on the Labour Force Survey and CIPD assumptions for
employment rates for 2017 onwards.
The workforce will in future contain more over 50s

25. The “hourglass” labour market? Jobs growth
strongest in highly skilled occupations (and
some low skill ones)
30
Source: UKCES “Working Futures 2012-22”
0
1
2
3
4
5
6
7
8
Elementary Process,
plant
operatives
Sales and
customer
services
Caring,
leisure and
other
services
Skilled
trades
Admin and
secretarial
Associate
professional
and
technical
Professional Managers
and senior
officials
Employment by occupational group (millions)
2012 2022

26. But do we have the right skills – or know
how to use them?
30
22
0 10 20 30 40
France
Japan
England/N. Ireland (UK)
Russian Federation³
Australia
Ireland
Canada
Estonia
Germany
Average
Spain
Korea
Austria
Czech Republic
Norway
United States
Sweden
Denmark
Slovak Republic
Finland
Poland
Cyprus
Flanders (Belgium)
Netherlands
Italy
Increased educational
attainment
% over-qualified (self-reported)
England/
NI
266
England/
NI
257
Average
279
Average
271
Literacy Numeracy
UK falling behind in skills?
Mean test scores for 16-24 year
olds in international benchmark
test
Source: OECD PIAAC survey, 2012.

27. To summarise …
• The international environment would be more benign
than for some years … if not for Europe
• UK economy set for period of sustained if
unspectacular growth
• Expect further increases in employment, some
labour market tightening
• Sustained real wage growth unlikely unless
productivity recovers
• Further consolidation in the public sector
• Employment growth concentrated in the over 50s
• Demand greatest for higher skill jobs – is there the
supply?