Economic and employment trends to 2020 and beyond

Mark Beatson

Chief Economist

HR lecture to Defence College of Logistics, Policing and Administration, 21 January 2015

Economic and labour market trends to 2020 and beyond• The economy will grow more

slowly in 2015 than it did in 2014

• The labour market will continue to expand but wage growth growth likely to remain in 1-2% corridor – but lower inflation means real terms increase?

• Wage and productivity growth expected to be higher in 2016 – but not a given

• Europe remains a risk

• Population ageing and technology have visible effects

Why HR has to become more strategic

There is a gap in perception between business leaders and HR leaders

HR is seen as lacking strategic capability

The UK economy

7

UK economic growth is expected to continue

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019-5

-4

-3

-2

-1

0

1

2

3

4

5GDP growth

% c

hang

e p.

a.

Sources: Past data OECD, forecasts from OBR Autumn Statement 2014 Economic Forecast.

Forecast

Emerging economies continue to support global economic growth

World USA Euro Zone Japan UK China India0

1

2

3

4

5

6

7

8

GDP growth

2014 2015 2016

% c

hang

e p.

a.

Source: IMF World Economic Outlook., January upate.

Business confidence remains positive but has dipped slightly since the summer

Capital investment now exceeds pre-recession levels but there is a potential backlog

1998

Q1

1999

Q2

2000

Q3

2001

Q4

2003

Q1

2004

Q2

2005

Q3

2006

Q4

2008

Q1

2009

Q2

2010

Q3

2011

Q4

2013

Q1

2014

Q2

0

5000

10000

15000

20000

25000

30000

35000

40000

45000

50000

Investment by sector, £ million)

Business investmentGeneral government investment

1998

Q1

1999

Q2

2000

Q3

2001

Q4

2003

Q1

2004

Q2

2005

Q3

2006

Q4

2008

Q1

2009

Q2

2010

Q3

2011

Q4

2013

Q1

2014

Q2

0

5 000

10 000

15 000

20 000

25 000

30 000

Investment by asset, £ million)

Transport equipmentOther machinery & equipmentDwellingsOther buildngs & structuresIP products

Source: ONS.

Intangible investments may have held up better than tangibles

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

0

20

40

60

80

100

120

140

Tangibles Intangibles

£ bi

llion

Source: NESTA Innovation Index 2014

Fiscal consolidation – more to come

12

32

34

36

38

40

42

44

46

48

50

1948-49 1958-59 1968-69 1978-79 1988-89 1998-99 2008-09 2018-19

Per c

ent o

f GDP

Current receipts

Total managed expenditure

Forecast

Source: ONS, OBR

Shrinking public sector employment – more to come

2010-11 2011-12 2012-13 2013-14 2014-15 2015-16 2016-17 2017-18 2018-19 2019-200

1

2

3

4

5

6

General government employment (millions)

Source: OBR

The UK labour market

The labour market continues to expand

2009

Q1

2010

Q1

2011

Q1

2012

Q1

2013

Q1

2014

Q1

2015

Q1

2016

Q1

2017

Q1

2018

Q1

2019

Q10

1

2

3

4

5

6

7

8

9

ILO unemployment

% o

f lab

our f

orce

2009

Q1

2010

Q1

2011

Q1

2012

Q1

2013

Q1

2014

Q1

2015

Q1

2016

Q1

2017

Q1

2018

Q1

2019

Q125

26

27

28

29

30

31

32

33

Employment

Mill

ions

Source: Office for Budget Responsibility

Employers still expect to recruit

Spring 200

9

Summer 20

09

Autumn 2009

Wint

er 200

9/10

Spring 201

0

Summer 20

10

Autumn 2010

Wint

er 20

10/11

Spring 201

1

Summer 20

11

Autumn 2

011

Wint

er 20

11/12

Spring 201

2

Summer 20

12

Autumn 2012

Wint

er 201

2/13

Spring 201

3

Summer 2013

Autumn 2013

Wint

er 20

13/14

Spring 2

014

Summer 20

14

Autumn 2

014

-19

-10-3 -5

5 211

-3

3

-1 -3-8

6 5 7 59

14

2416

26 2330

Three months ahead employment expectations

Net

em

ploy

men

t bal

ance

The net employment balance is the difference between the % of firms expecting to recruit over the next three months and the % expecting to make redundancies.Source: CIPD Labour Market Outlook.

Employers find that most vacancies attract sufficient applicants

Low skill Medium skill High skill

3225

14

20

15

8

Mean number of applicants for each vacancy advertisedNot suitable Suitable

Source: CIPD Labour Market Outlook survey, Autumn 2014.

Employers’ pay expectations remain modest

Wint

er 20

09/10

Spring 201

0

Summer 20

10

Autumn 2010

Wint

er 20

10/11

Spring 201

1

Summer 20

11

Autumn 2011

Wint

er 201

1/12

Spring 201

2

Summer 20

12

Autumn 2012

Wint

er 201

2/13

Spring 201

3

Summer 201

3

Autumn 2

013

Wint

er 20

13/14

Spring 201

4

Summer 20

14

Autumn 2014

1.5 1.6 1.5 1.51.3

1.6 1.5 1.51.7

1.5 1.6 1.7 1.8 1.7 1.7 1.6

2 2 2 2

Average predicted annual pay award (% p.a.)

Based on all employers expecting to have a pay review in the following 12 months.Source: CIPD Labour Market Outlook.

Jan 0

1Ju

l 01

Jan 0

2Ju

l 02

Jan 0

3Ju

l 03

Jan 0

4Ju

l 04

Jan 0

5Ju

l 05

Jan 0

6Ju

l 06

Jan 0

7Ju

l 07

Jan 0

8Ju

l 08

Jan 0

9Ju

l 09

Jan 1

0Ju

l 10

Jan 1

1Ju

l 11

Jan 1

2Ju

l 12

Jan 1

3Ju

l 13

Jan 1

4Ju

l 14

-1

0

1

2

3

4

5

6

Average regular pay CPI

% c

hang

e p.

a.Average earnings growth and CPI inflation

Source: Office for National Statistics.

The ‘cost of living crisis’ is largely a pay and productivity issue

2001

Q1

2001

Q4

2002

Q3

2003

Q2

2004

Q1

2004

Q4

2005

Q3

2006

Q2

2007

Q1

2007

Q4

2008

Q3

2009

Q2

2010

Q1

2010

Q4

2011

Q3

2012

Q2

2013

Q1

2013

Q4

2014

Q3

80

85

90

95

100

105

110

Output per hourReal earnings deflated by CPI

2008

Q1

= 10

0

Earnings data are the Average Weekly Earnings index, GB, seasonally adjusted. The middle month is used for each quarter, e.g. Q1 uses the February observation.Source: Office for National Statistics.

Official forecasts show little growth in real earnings until at least 2016

2013 2014 2015 2016 2017 2018 2019-2

-1

0

1

2

3

4

5

Nominal earnings growth Real earnings growth (deflated by CPI)Real earnings growth (deflated by RPI)

% c

hang

e p.

a.

Source: Office for Budget Responsibility, Autumn Statement 2014 forecast.

Europe remains a source of concern

The Euro Zone is growing - just

EuroZone Germany France Italy Spain-1

0

1

2

3

IMF forecasts of GDP growth2014 2015 2016

% c

hang

e p.

a.

Source: IMF World Economic Outlook, January update.

Is potential deflation in the Euro Zone a worry?

BulgariaSpain

CroatiaCyprus

HungaryPortugal

DenmarkLuxembourg

SwedenCroatia

LithuaniaFrance

Czech RepublicLatvia

United KingdomRomania

-2.5 -2 -1.5 -1 -0.5 0 0.5 1 1.5 2

HICP inflation rate (% change p.a., November 2014)

Jan-14

Feb-14

Mar-14

Apr-14

May-14

Jun-14

Jul-14

Aug-14

Sep-14

Oct-14

Nov-14

Dec-14

0

0.2

0.4

0.6

0.8

1

1.2

1.4

1.6

1.8

2

HICP “core” inflation for Euro area (% change p.a.)

“Core” HICP excludes energy, food, alcohol, tobaccoSource: Eurostat.

Most Euro Zone governments are heavily in debt

Euro Zon

e

German

y

France Ita

lySpain

Portuga

l

Irelan

d

Greec

e

Cypru

s0

20406080

100120140160180200

General Government debt/GDP ratio2014 2015 2016

% o

f GD

P

Source: European Commission, autumn 2014 forecast.

Unemployment will remain high in much of Europe

Germany UK EU Euro Zone

Spain Italy Portugal Greece Cyprus0

5

10

15

20

25

30

Unemployment as % of labour force

2014 2015 2016

Source: European Commission, autumn 2014 forecast.

Slow growth in Europe affects the UK because of trade links

USA

German

y

Netherla

nds

France

Irelan

d

Belgium

/Luxe

mbour

gChin

aIta

lySpa

inUAE

13.2

108.5

6.96.1

4.6 4.32.9 2.9

2

UK top ten goods export markets, 2013 (% of total exports)

Source: Office for National Statistics.

Labour market conditions in Europe are likely to continue to affect migration patterns

YE Dec

03

YE Jun 0

4

YE Dec

04

YE Jun 0

5

YE Dec

05

YE Jun 0

6

YE Dec

06

YE Jun 0

7

YE Dec

07

YE Jun 0

8

YE Dec

08

YE Jun 0

9

YE Dec

09

YE Jun 1

0

YE Dec

10

YE Jun 1

1

YE Dec

11

YE Jun 1

2

YE Dec

12

YE Jun 1

3p

YE Dec

130~

20

40

60

80

100

120

140

69

48

Work-related migrants into UKEU15 A8

Tho

usan

ds

Source: Office for National Statistics.

Impact of long-term trends

Emerging economies will become bigger global players

23%

7%

16%

3%15%

18%

7%

12%

Global GDP 2012

USAJapanEuro AreaUKOther OECDChinaIndiaOther non-OECD

18%

4%

12%

2%

13%

28%

11%

12%

Global GDP 2030

USAJapanEuro AreaUKOther OECDChinaIndiaOther non-OECD

Source: OECD, “Looking to 2060: Long-term global growth prospects”, OECD Economic Policy Paper No. 3, November 2012.

15-24 25-49 50-64 65+

-677

-94

1,387

770

-305

186

1,235

1,956

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.

Population ageing means the workforce will in future contain more over 50s

32

The “hourglass” labour market? Jobs growth strongest in highly skilled occupations (and some low skill ones)

Source: UKCES “Working Futures 2012-22”

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

0 1000 2000 3000 4000 5000 6000 7000 8000

Employment by occupational group (millions)2022 2012 2002

And just for fun … Who will stay ahead of the machines?Job Probability that total employment will

fall in next 20 years

Recreational therapists 0.003

Dentists 0.004

Athletic trainers 0.007

Clergy 0.008

Economists 0.43

Technical writers 0.89

Retail salespersons 0.92

Accountants and auditors 0.94

Telemarketers 0.99

Source: Frey and Osborne, 2013

To find out more and join the debate

• Visit our website http://www.cipd.co.uk/cipd-hr-profession/whats-new/megatrends.aspx

• Read the Megatrends report and our five follow-up reports

• Watch the video, listen to the podcast, look at the infographic

• #megatrends

What does it mean?

• Impact on HR practitioners:• Little scope for pay rises (especially in public sector)• Will recruitment become more difficult?

• Impact on the policy debate:• More public expenditure cuts/tax increases• Low pay/productivity• Migration/Europe

Thank you