Labour markets, Amazon and cost of living - all in a Prime package:

Sunday Times 9th July 

Amazon has introduced robots to its factories, raising fears of job losses

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Amazon warehouse operatives and delivery drivers up and down the country are this week gearing up for Amazon Prime Day, the discount bonanza that marks one of the busiest days in the online giant’s calendar.

As their colleagues prepare for action, however, hundreds of workers at Amazon’s warehouse in Coventry are downing tools.

The GMB trade union claims that from Tuesday up to 880 workers will strike for three days in protest at what they deem to be inadequate pay rises. That would mark the biggest walkout yet in almost a year of disruption at the warehouse. The unrest can be traced back to last August, when Amazon doled out a non-negotiable 50p an hour pay rise — announced to little fanfare on giant screens hung in the warehouses. The below-inflation increase came after a pandemic-era boom in sales that catapulted net profit to a record $33.4 billion (£26 billion).

The workers who helped deliver that were expecting much more — especially since they swiftly found themselves at the sharp end of the cost of living crisis.

“It was like, ‘Great news, everyone! Here is a 50p pay rise!’ It just sparked everyone off,” said Nick Henderson, 46, who has worked at the Coventry facility for more than four years and will be on the picket line this week. “Amazon were making record profits — they could easily have paid us more.”

The GMB is demanding that Amazon pay workers £15 an hour — up from the current starting rate of between £11 and £12 an hour. Henderson, who works most days loading boxes on to the back of a truck, where temperatures can soar above 30C in the summer, said that the underwhelming pay rises fuelled long-standing disgruntlement over physically arduous work and demanding productivity targets.

In Coventry, Amazon has installed robotic arms which move crates around at a speed that humans can’t match. One insider said the only reason they had not been installed on both floors of the warehouse was because it would require Amazon to reinforce the upper floor.

“The robots have increased productivity four, five or six-fold – probably more. They don’t need breaks or go to the toilet. As a human being, there is no way you can compete with that,” said one warehouse worker.

At Coventry, workers scan items for ten hours a day with two 30-minute breaks, one of which is unpaid. Supervisors constantly monitor productivity and are alerted when a worker hasn’t scanned an item for five minutes. The least productive workers are marked up for an “adapt”, in effect a soft warning. Workers themselves have no way of seeing how productively they are working relative to colleagues. These adapts can be handed out simply for returning a minute or two late from a break, according to workers.

After recruiting 700 members at Coventry, the GMB bid for formal recognition at the facility in May, believing that it had passed the 51 per cent mandatory threshold. However, the union claims Amazon thwarted its efforts by flooding the Coventry warehouse with new workers, in effect diluting their voting power.

Insiders at the warehouse say that in the weeks after GMB’s bid for recognition, there was a steady stream of new recruits shown around each day — a ritual known as “day zero”. These were predominantly international students studying at nearby Nottingham, Warwick and Coventry universities.

“We regularly recruit new team members, across the country and across the year . . . this year is no different,” said a spokesman. Amazon has increased minimum rates of pay by 10 per cent within the past year.

Still, Amazon’s actions in America, where workers at its warehouse on Staten Island, New York, organised successfully last year, underline the company’s determination to keep unions out of its business. Amazon unsuccessfully sought to overturn the unionisation and spent $14 million last year on anti-union consultants.

Last summer, it was contending with an unprecedented wave of impromptu walkouts at warehouses in Coventry, Bristol, Swindon and Tilbury Docks. While the GMB has had significant success at Coventry, it has made little headway elsewhere. The union is currently balloting 100 workers for strike action at Amazon’s distribution centre in Rugeley in the West Midlands. The results will be known on Friday.

If Amazon can see off unions during the worst squeeze on living standards for a generation, collective bargaining may never catch on, especially with the looming threat of automation hanging over workers.

The economic slowdown and changing shopping habits pose other threats to job security, too. Amazon’s UK sales fell 5.6 per cent to $30.1 billion last year. The online giant announced in January that three of its 30-plus UK warehouses would close, although two new ones will be opened in the coming years.

Despite these challenges, Amazon’s Prime membership scheme has been a huge success. Subscribers pay £8.99 per month for free next-day delivery, as well as access to Amazon’s TV and music streaming services.

Analysts from Mintel estimate that Amazon has 20 million Prime subscribers in the UK. GlobalData, another research firm, reckons that 68 per cent of all UK consumers have access to a Prime account, even if it is not held in their name.

On Prime Day, which runs over Tuesday and Wednesday this week, subscribers are showered with discounts on everything from ear buds to power tools and air fryers.

While Amazon anticipates this week’s strikes will not have any impact on Prime Day deliveries — because the Coventry warehouse only receives goods from suppliers and distributes them to other Amazon facilities — it will certainly disrupt work at Coventry. Amazon has called the police to previous strikes, claiming that non-striking workers were prevented from clocking in on time, and individuals were behaving in an intimidating fashion.

The GMB insists that the strikes are peaceful — and entirely justified. “People are doing 60 hours a week to make sure they can feed their family,” said Henderson.

“The guy I was working with today logs on to the Uber Eats app to do deliveries in the evening just so that he can put food on the table. It’s not right. We will keep doing this for as long as it takes.”

UK Labour market

British pay hits new peak

resolutionfoundation.org

INSECURE “GIG” JOBS ARE STILL ON THE RISE

This month’s numbers on the labour market from the Office for National Statistics represent “a landmark moment for living standards”, says Nye Cominetti. Twelve years since the financial crisis, average pay has finally hit a new peak in real terms. Average weekly regular earnings were £511.60 in the three months to December 2019. The previous peak, adjusting for CPI inflation including owner occupiers’ housing costs, was £511.30, set in August 2007.

That’s clearly good news.  But it’s something of “a bittersweet moment”. It means that, in 12 years, the average pay packet has grown by just 30p.  If instead real pay had continued to grow at its pre-recession trend of 2.1% per year, average weekly pay today would be £141 higher in real terms. That’s an “extraordinary amount of lost ground”. According to the Bank of England, the only comparable pay squeeze in the past 150 years was in the 1920s.

A MIXED RECORD ON JOBS

The jobs picture is similarly mixed. The good news is that employment continues to hit new highs. The employment rate for 16- to 64-year-olds is now 76.5%, reversing the dip seen at the end of last year.  The unemployment rate, at 3.8%, remains at its lowest level in more than four decades.

The bad news is that the number of people on zero-hours contracts is also breaking new records. They total 974,000 in the latest data, amounting to 3% of total employment. This is surprising given the tightness of the labour market – four different measures of the amount of slack all show that there is as little or less slack in the labour market as there was before the crisis. Given this, you might expect workers to “use their bargaining power to secure more standard contracts, given the problems associated with unpredictable hours”.

Self-employment – a far bigger proportion of the workforce than the much-hyped subdivision of the so-called “gig economy” – also reached a record high of 5.03 million – up by about one million since the financial crisis. This is a “further reminder that the rise of atypical work is not just a cyclical effect”, but a structural change in the economy.

We can “cheer the good news and scratch our heads over why it’s taken so long … and resolve to avoid it ever happening again”. But the big picture is that the labour market is both growing and changing – and that that change can bring insecurity for some. To change that, action in the form of labour-market regulation and changes to the tax system will be needed.

Part Economics, part career information - public sector salaries

Great example of "spotting the hidden". In the long term, what is a gold-plated pension worth? Apart from the fact it pokes fun at Robert Peston (bless him, the author of WTF! [on my bookshelf...]), it shows you, as economists, that just looking at headlines leads to incorrect assumptions:

Don't write off the public sector

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YESTERDAY 

By: Thomas Hale

There is a widespread view of the job market which goes something like this. Tech, finance and other blue-chip industries pay such lucrative salaries that qualified graduates seeking a lifetime of high earnings wouldn't think of looking anywhere else. Especially not the government.

The latest example of this mantra comes from the journalist Robert Peston, who yesterday pointed to the gap between public sector salaries and those from the most prestigious private sector employers, as part of an argument about the career path to becoming a diplomat:

Robert Peston

✔@Peston

So you are a super-bright 22 year old with a great degree and you are weighing up job offers from Goldman and Google which immediately pay you 15 times the starting pay at the Foreign Office and over 20 years will pay you 100 times what can be earned in public service. And...

9:31 AM - Oct 31, 2018

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The argument that “rational” graduates concerned with financial security would automatically aim for these sectors, rather than the public sector, has a few things going for it, especially when it comes to the housing ladder. But it misses one crucial detail.

That detail is pensions.

Facebook and Google both offer their employees defined contribution pension schemes in the UK. For those unfamiliar with the terminology, schemes of this kind are simply savings from earnings, topped up by employer contributions, and invested in some mixture of equities, bonds and other asset classes.

These schemes contrast with defined benefit pension schemes, where payments are made in return for a guaranteed lifetime income in retirement. In the UK over the past few decades, these schemes have been mostly phased out of the private sector due to their costs (except for legacy members). But not the public sector.

If you start working at the civil service today, you get a defined benefit pension. According to the current scheme, Alpha, your retirement income increases by 2.32 per cent of your pensionable earnings each year. The contributions vary depending on salary, but they are all below 10 per cent of annual income. You have access to the pension you have built up at whichever is older - 65, or the state pension age.

It's worth going over some back of the envelope calculations showing just how generous this retirement income is.

Let's assume that a civil servant earns £40,000 every year over 40 years. For the moment, we'll ignore inflation and pay rises over the working period (obviously earnings would be lower earlier on, and higher later on). Upon retirement, he or she would have accrued an annual income of £37,120, which would rise with inflation thereafter.

To come close to this kind of retirement income, savings in a defined pension contribution scheme would need to be enormous — a significant proportion of overall earnings — even without the inflation linking. The contributions from a salary of £100,000 (assuming 5 per cent contributions matched by the employer, for a total of 10 per cent), over the same period, would not come close.

It is true that defined contribution savings would be invested in financial markets, and if markets provided significant returns above inflation, then the size of the private retirement income would increase. But this is not a good argument in favour of the attractiveness of defined benefit contribution pensions. It simply illustrates their high level of dependency on market performance. Confidence in the vast uncertainties around this performance tend to be unjustifiably based on postwar historical trends, rather than meaningful estimations about the future state of the world.

The civil service pension is not directly exposed to markets. Instead, the savers' exposure is to the UK government; the risks are sovereign default, or extraordinary retrospective legislative shifts that would necessitate a broader repudiation of legal norms. It's worth asking yourself which exposure you'd prefer — this, or a diversified basket of financial securities — if push came to shove.

The final thing to consider is the duration risk of employment. There is clearly some threshold at which private sector earnings more than compensate for the absence of a defined benefit pension. Once pension pots are factored in, employees at prestigious firms are probably still significantly ahead, especially if stock options or bonuses are included.

However, the long-term viability of a lucrative salary at a private sector company is exposed to more risks than the long-term viability of employment in the civil service. It is easier to imagine any number of prestigious private sector companies going out of existence, as they already have done, than it is the civil service.

While it might in many cases seem true that a lucrative private sector job implies higher lifetime earnings including pensions, this is likely to bring with it additional risk. On a risk-adjusted basis, it is not clear cut which sectors' earnings are more lucrative. If working hours, rather than years, are used to make the comparison, that will tend to weaken the private sector's claim further.

Taken all together, the widespread practice of comparing private and public labour markets on the basis of present-day salaries, with minimal attention to either the duration risk of employment or the post-employment generosity of pension benefits, is misleading. The power of a defined benefit pension is common knowledge for anyone above a certain age, and barely acknowledged by anyone below a certain age.

This informational deficit gives rise to a kind of generational arbitrage opportunity. The most astute graduates would seek to exploit that, rather than blindly follow the crowd.

Related links:The post-crisis generation game - FT Alphaville
Saving for old age: the global story (part I) - FT Alphaville
Saving for old age: the global story (part II) - FT Alphaville

Supply-side to the fore:

http://www.ft.com/cms/s/0/79e5323e-cbfb-11e4-beca-00144feab7de.html#ixzz3UcyBazLC

March 17, 2015 12:04 am

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UK apprentices awarded 20% pay increase

Elizabeth Rigby, Kadhim Shubber and Sarah O’Connor

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Meaty rise: An apprentice with deputy prime minister Nick Clegg

 

Pay for apprentices will jump by a fifth from October after the government decided to do ignore advice from the Low Pay Commission.

 

David Cameron and Nick Clegg on Tuesday announced a 20 per cent rise, 57p, in the pay for apprentices to £3.30 an hour, well above the 2.6 per cent increase to £2.80 suggested by the commission.

They also confirmed a 3 per cent increase in the national minimum wage to £6.70 an hour, the biggest real terms rise since 2007.

The increases come on the eve of George Osborne’s pre-election Budget, when the chancellor is expected to introduce measures intended to convince voters that the recovery is benefiting them.

Economists say the public finances look healthier than at the time of the Autumn Statement in December, giving Mr Osborne more opportunity to introduce some voter-friendly sweeteners.
One Liberal Democrat adviser said on Monday that the Vince Cable, the business secretary had pushed hard for the apprentices’ wage rise. “We were very keen on this, we believe apprenticeships have been a success story of our government and we believe it will continue to be so: this increase will make a huge difference to young people.”

But the CBI employers’ group said the rejection of the commission’s recommendation on apprentice pay was disappointing.

“The national minimum wage has been one of the most successful policies of recent years thanks to the independence of the commission — its politicisation is worrying,” the CBI said.

 

The commission warned in its report last month that “large increases in the level of the apprentice rate could pose risks to provision,” and opted instead for the “more cautious step” of recommending a 2.6 per cent increase.

It is the second time that the government has rejected the commission’s views on apprentice pay. In 2013, the government increased the apprentice rate 1 per cent, ignoring a recommendation to freeze it.

Mr Osborne is also expected to use Wednesday’s Budget to delay any decision on a new profit levy on tobacco companies, amid concerns that duties on cigarettes might be a more effective way of raising money from the sector.

 

The chancellor announced a consultation on a levy in the Autumn Statement but is understood to have decided not to press ahead with the idea, seen as a rival to a similar plan by Labour, on the grounds that the case for a new tax has not been made.

Other measures expected on Wednesday include a review of business rates, an extension of a £500,000 tax-free allowance to encourage capital investment until the end of 2016 and a plan to build 45,000 new homes on brownfield sites.

The chancellor is expected to use whatever savings he can generate to fund an increase in the personal tax allowance from a planned £10,600 to £11,000. Mr Osborne confirmed at the weekend that pensioners would be given the right to sell their annuities, continuing the coalition government’s plan to give people more say over their retirement income.

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• UK employment

A look at wages from the Sunday Times

One of the most surprising features of the economy in recent years has been the behaviour of the labour market. It proved remarkably resilient during the recession, but its behaviour since then has been truly astonishing.

Normally, a recovery in the economy brings an increase in demand for labour, pushing up both wages and employment. But economists have learnt not to use the words “normal” and “recovery” in the same sentence. This time, real wages have fallen further despite a huge rise in employment. Last year, inflation- adjusted earnings were 8% below their value in 2007, the largest fall since records began in the middle of the 19th century. It seems a combination of greater flexibility — both in terms of wages and the nature of employment — and strong growth in the supply of labour have been responsible for this unusual outcome.

Immigration has picked up strongly since the end of the recession in late 2009, helping to hold back wages. The coalition’s payroll and benefit cuts and the welfare-to-work programme have had similar effects. However, the most important factor has been the move from early to late retirement. This has greatly increased the number of older people in the workforce, leading to a rise in what economists call labour force participation.

The number of people over 50 in work, or looking for work, has increased by 1.125m since the end of 2009 — over 90% of the increase in the total workforce. Labour force participation for the 50-64 age group has risen to 71.5%, its highest level since the early 1950s. More than 10% of people aged 65 or over are in some sort of job, higher than at any time since 1973.

These trends reflect legislative changes. Government policies in the 1980s encouraged early retirement to free up jobs for youngsters. Now the theme is “active ageing”. Since October 2011, employers have been unable to insist that workers retire when they reach state pension age. And, since 2010, for women this age has risen from 60 to a planned 65 in 2018.

However, I think the economics of retirement have been more important. The annuity rate — the annual income you can get for a £100,000 pension pot, retiring at 65 — was £11,000 in 1963, rising to £16,700 by 1979. The catch was that inflation was high and volatile, spiking up to 24% in 1975, making retirement a very uncertain financial prospect. At that time, about 70% of those aged 50 to 64 were either in work or looking for work.

This prospect began to improve in the early 1980s when RPI inflation-indexed gilts were issued, allowing pension funds to offer indexed-linked annuities. Moreover, inflation fell back sharply and the government made a commitment to hold it down, eventually adopting an inflation target in 1992. However, it took a long time to convince investors, and gilt yields and annuity returns fell back only gradually, encouraging early retirement. Labour participation fell to just over 61% for the 50-64 group in 1993 and to less than 5% for older people.

Of course, many other influences were at work, including house and share prices. Employers were encouraged by the high annuity rates and a favourable tax treatment to set up company pension plans. These were mainly direct benefit schemes, which gave protection from swings in the stock market and, often, inflation.

These conditions lasted well into the 1990s, until gilt yields caught up with the low rate of inflation and Gordon Brown, the chancellor at the time, removed the tax breaks in 1997. The increase in longevity and, more recently, the financial crisis have reduced annuity rates even further. Direct benefit schemes have become very expensive to provide and few workers have them now.

So it is no surprise people are staying in work much longer than they used to. The jobs market is adjusting to this change smoothly, partly because most of these people are skilled and already in work. Changes in the demand for staff may also have helped. High-skilled occupations (managerial, professional and professional groups) account for 71% of the increase in employment since 2009. At the other end of the pay scale, a quarter of the increase in jobs over the same period was accounted for by low-skilled occupations. However, there has been hardly any growth in middle skill level jobs (typically clerical and manufacturing), leading to the so-called hourglass effect. Technical progress seems to be playing a part in this, too, as computers replace people doing clerical and other routine tasks.

Nevertheless, like immigration, late retirement is having important economic and social effects. It holds back responsibility and remuneration for younger workers and holds back pay in professional and managerial jobs. The labour market also has to cope with people coming off welfare and the public sector payroll. The numbers employed in public administration and defence have fallen by 211,000, or almost 14%, over the past five years, putting further pressure on managerial and clerical pay scales. Besides being flexible on pay, people have had to adapt to new ways of working. Many have moved from full-time to part-time work or become self-employed.

The weakness in wages since the financial crisis also reflects the weakness of labour productivity, particularly the decline of high wage sectors such as North Sea oil. This was an important factor during the recession, which hit financial services as well as the supply of finance and working capital. Employers were generally prepared to keep people on in exchange for greater flexibility, so employment fell back much less than output. However, the link between productivity and pay has arguably worked in reverse during the recovery: the huge increase in the number of workers depressed real wages as they priced themselves into jobs. Employers took on more staff to meet increased demand rather than investing in capital and this has held back labour productivity.

The labour market played the starring role in the upturn in the economy since 2012. The easing of the eurozone crisis has helped, but exports certainly did not trigger this upturn. The classic recovery begins as companies decide they need to hire more workers to increase production as they restock the shelves, but we have seen little stock-building this time. Instead, consumer spending increased because the huge growth in employment offset the weakness of wages. At the same time, people became more confident about their jobs and decided they did not need to save as much for a rainy day.

The employment scene is changing as demand in the economy strengthens, spurred by the fall in world energy and commodity prices. Unemployment has fallen to 5.7% and earnings are at last picking up. What happens now depends on whether the demand for labour outpaces the supply. Public sector employment and welfare budgets will be cut back further after the election no matter what the outcome. Unless there is a strong rebound in the eurozone, immigration is also likely to remain high. The increase in the state pension age will keep more women in the workplace. However, I expect participation by older men to stabilise and the labour market to tighten, allowing real wages to recover. The more flexible pension funding arrangements that come into effect in April should have this effect. And, after all, you can put off retirement for only so long, no matter how dire your finances look.

Peter Spencer is professor of economics and finance at the University of York and chief economic adviser to the EY Item Club

Trade unions & pay - join a union

We’ve written several times here that we don’t think the current balance between corporate profits and ordinary salaries is sustainable. The chart below makes the point nicely.

Profits in the US have risen hugely as a percent of GDP in the last decade or so. Wages have fallen as a percentage of GDP – from near 50% to near 40% – and are now far from their historical average level.

If you believe at all in reversion to the mean, you will wonder how long this can last. The answer might be not as long as the deflationistas might think.

In his recent letter to investors, Crispin Odey looks at “how differently private sector wages are growing in America for unionised labour forces and non-unionised”. The second chart (from Odey) shows this.

It suggests, as Odey puts it, “that there is huge value in being in a union at the moment.” It also suggests that those who are not in unions don’t yet appreciate the negotiating power they have with their employers given that unemployment is currently sitting at only 5.6% in the US. Surely they soon will.