Job Done? Assessing The Labour Market Since 2010 And The Challenges For The Next Government

26th June 2024

The UK labour market has transformed almost beyond recognition since the government changed hands in 2010 - from skyrocketing employment during the 2010s, to a pandemic that has arguably had more of a lasting impact on the labour market than any other area of economic policy. All against the backdrop of a historic wage stagnation.

In this briefing note, we assess the labour market legacy the next government stands to inherit, the likely policy challenges over the rest of the 2020s, and what the two main parties are offering in their manifestos.

The Conservatives' record on the labour market during their 14 years in office is mixed. On employment, rapid employment growth of the 2010s (driven by rising employment rates, not just a growing population) has been partially reversed since the pandemic, with the UK one of only six countries of 38 in the OECD whose employment rate has fallen since 2019. On pay, the record since 2010 is of a long-standing wage stagnation - average wages are now only £16 a week higher in real terms than they were at the time of the 2010 election.

Pay growth has slowed post-financial crisis in other countries too, but the UK's stagnation has been worse: had our wages grown at the same rate as the US or Germany since 2010, the average British worker would be earning £3,600 more each year. More positively, minimum wage increases have driven up pay in low-paid occupations.

The Conservatives and Labour have very different plans for labour market policy. While the Conservatives would like to stick with the status quo, Labour are planning the biggest overhaul of labour market policy in a generation. Labour are yet to fully spell out their plans in some areas - which makes the impact of their proposals uncertain - but plans include a higher minimum wage (perhaps linking to the real Living Wage), ‘day one' rights to protection from unfair dismissal (although potentially with probationary periods), and giving workers on zero hours contracts minimum guaranteed hours reflecting their normal hours worked.

Key findings
The record since 2010

The 2010s saw rapid growth in employment, which reached a record high working-age employment rate of 76.2 per cent at the start of 2020, up from 70.3 per cent in 2010. This rise was concentrated among lower-income households and women, in part driven by households increasing their labour supply to make up for income shocks following the financial crisis, and by older workers as the State Pension age went up.

Post-pandemic, progress has been reversed: the UK is one of only six countries of 38 in the OECD whose employment rate has fallen since 2019 - it stood at 74.3 per cent in early 2024. This has been partly driven by an increase in ill-health among working-age adults.

The 2010s were marked by a long-standing wage stagnation, driven first by the post-financial crisis squeeze (and sluggish recovery) and then compounded by the cost of living crisis. Average wages are now only £16 a week, or 2.5 per cent, higher in real terms than they were at the time of the 2010 election.

Other countries have also seen slower wage growth post-financial crisis, but the UK's slowdown has been greater. Had our wages grown at the same rate as the US or Germany since 2010, the average British worker would be earning £3,600 more each year.
But while the record on average wage growth since 2010 is poor, successive Conservative governments have boosted pay for the lowest earners with ambitious increases in the minimum wage.

Between 2011 and 2023, real hourly pay rose by 26 per cent for bar staff, 24 per cent for waiters and 20 per cent for cleaners, compared to just 1.9 per cent at the median. Inequality in the bottom half of the hourly pay distribution (measured as the ratio between the median and the tenth percentile) is the lowest since at least the mid-1970s.
Comparing Conservatives' and Labour's policies on the labour market

There is significant divergence between the two main parties on labour market policy. On the minimum wage the Conservative Party has suggested it would maintain the minimum wage at two-thirds of typical hourly pay, which implies a rise to just under £13 in 2029 given current forecasts for wage growth. The Labour Party has hinted at greater ambition by pledging to make the minimum wage "a genuine living wage" that "[accounts] for the cost of living" - but what they mean by this remains unclear. One interpretation is that the minimum wage will be increased to match the real Living Wage – an ambitious policy, raising the bite of the minimum wage to 70 per cent if implemented today.

On wider labour market reform, the Conservative Party does not have proposals for changes, while the Labour Party proposes a comprehensive overhaul. Perhaps the most radical suggestion is the proposal to introduce a ‘day one’ right to protection against unfair dismissal. The UK’s current two-year wait for this right is unusually long compared to other nations (and the UK’s past). But Labour’s exact policy here is not yet clear – it has said it would maintain probationary periods, which would allow firms to more easily dismiss new hires – but we do not know what their duration might be or exactly how this would work.

The overall link between employment regulations and the unemployment rate is very weak, but there is more evidence of a trade-off with hiring rates, highlighting the need for careful implementation and effective use of probationary periods.

Labour’s other proposals include:
Extending Statutory Sick Pay (SSP) to all employees, bringing into scope 1.1 million people who currently earn too little to qualify, as well as increasing the level (by an unspecified amount) and getting rid of the three-day waiting period.

Giving workers a right to a contract that reflects the hours that people actually work and a minimum notice period for shifts.
A ‘Fair Pay Agreement’ covering the 1.7 million workers in the social care sector, where poor pay and conditions are contributing to a recruitment and retention crisis.

A new Single Enforcement Body to police labour market rights, building on proposals put forward by the last Conservative government.

Read he full Resolution Foundation report HERE
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