Western governments are coming out of the financial crises with a sore head and the realisation that they need to think afresh about how to get their economies back on their feet. The result is often a debate about the best way to boost growth and employment, but while ‘growth' and ‘employment' are often used in the same breath, to what extent are they natural soulmates?
The past 30 years has seen huge changes to the composition of most Western economies, with the UK at the forefront of many of those changes. During that time we have witnessed the gradual erosion of the UK's manufacturing base and the growing dominance of the service sector as we become a greater consumer society.
Many manufacturing jobs have moved to countries that can produce the same goods at a cheaper rate. Some professional service jobs have also gone the same way and have moved off-shore. Many of the people who were formerly in these jobs have found their way into other sectors.
Despite the fact that this labour outsourcing is now fiercely debated, at the time this trend didn't go unnoticed. During that late nineties and noughties, successive UK governments implemented policies to try and stimulate the demand and supply of higher value skills and jobs to ensure we could compete globally.
Today, the government's industrial strategy identifies sectors such as aerospace, advanced manufacturing and creative media, as it believes they will boost the UK's growth and employment. I don't think any sensible person would critise the government for trying to focus limited resources on the sectors that will provide the greatest return. The challenge is more about the assumed link between growth and employment. Most of these sectors are indeed high growth areas, high value and dependent on skilled workers, so it is surely right to be stimulating their growth – but what will be their impact on jobs?
There is increasing evidence that the historic relationship between productivity and employment is breaking down. No longer does higher productivity mean an increase in employment. One reason for this is the impact of technology, which is reducing the demand for jobs – an analysis sagely outlined by Erik Brynjolfsson and Andrew McAfee in their book ‘Race Against the Machine'. How the government manages this change could have significant implications on the rest of the economy.
There are large parts of the economy not included in the industrial strategy. Despite their exclusion, they are still contributing to the economy in terms of both growth and jobs. Critically, under the right conditions, that contribution could be increased to create more jobs and greater growth.
The sectors making up the tourism and visitor economy are among those not included in the industrial strategy. It's true that their productivity rates are smaller than high value sectors such as aerospace and advanced manufacturing, however, they employ one in five jobs and its employment projections are higher than that of the econonomy as a whole. The need to boost productivity is critical and a modest increase could have a significant impact given the size of the sector. The same goes for other major sectors such as agriculture and logistics, just to name two.
I'm not suggesting that the industrial strategy should be jettisoned; simply that it needs to be accompanied by broader policy thinking that takes a wider view and doesn't put all its eggs in one basket. Governments in countries like Germany and the Netherlands have found ways to empower each sector to create conditions to increase growth and employment, despite some receiving greater support.
We will see to what extent the industrial strategy facilitates or prevents this happening in the UK; whatever happens, a greater acceptance that growth does not necessarily bring significant employment opportunities will mean we can take a broader view on the economy and the labour market and as a result increase the speed of our economic recovery.
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