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UK graduate labour market update: 15 November

November 2022

Charlie Ball looks at the IFS's work on race and ethnicity in higher education and the labour market, as well as a report on the role of lifelong learning in counteracting skill depreciation

The UK's GDP is estimated to have fallen by 0.6% in September 2022, the Office for National Statistics (ONS) reported.

Services fell by 0.8% in September 2022 - the largest contribution to the fall came from a 3.2% fall in information and communication activity, a major employer of graduates. However, this period did include an extra bank holiday for the Queen's funeral on 19 September and the ONS estimates that half the fall in the month's GDP is because of this.

Business investment fell by 0.5% in the third quarter of 2022.

The latest rapid indicators of economic and social change are now available from the ONS:

  • During the latest week, the total number of online job adverts remained unchanged from the previous week, despite numbers in 16 of the 28 categories decreasing, and was 20% below the number of the equivalent week of 2021. The largest week-on-week decrease was in the HR and recruitment category, which fell by 21%.
  • In the latest week, 9 of the 12 UK countries and English regions saw decreases in the number of online job adverts. Only the North West saw an increase this week (1%), while the number of job adverts in Wales and London remained unchanged.

The Recruitment & Employment Confederation (REC) new Report on Jobs shows a decline in permanent placements for the first time since last February:

  • Recruiters signalled a renewed drop in permanent placements and stagnant temp. There was a further slowdown in rates of vacancy growth for both permanent and temporary staff.
  • Economic uncertainty but also candidate shortage are the main drivers, two factors pointing in opposite directions in terms of the strength of the labour market, and the next few months in recruitment are likely to be a story of the tensions between the two.
  • Greater hesitancy to look for or switch roles alongside a generally low level of unemployment led to a further steep drop in the supply of workers.
  • The sustained decline in candidate numbers and cost-of-living pressures continued to place upward pressure on starting pay, although pay growth has slowed substantially.

Asian students systematically choose subjects with higher financial returns, whereas Black and white British students have higher propensities to choose lower-returning subjects.

The Institute of Fiscal Studies (IFS) have released this widely-reported section of their ongoing Deaton Review on equality, looking at race and ethnicity:

  • Students from almost all minority ethnic groups are more likely to attend university than their white British counterparts. However, significant attainment gaps exist for these students once at university.
  • University drop-out rates are higher for all ethnic minority groups than among white students, and particularly for Black students. Across all higher education undergraduate students, the non-continuation rate in 2017/18 was 15.5% for Black students, 10.2% for Asians and 8.9% for white students.
  • Similarly, among those who complete their degree, attainment is considerably lower among all ethnic minority students than among white students. Relative to their white counterparts, all ethnic minorities - including the Chinese and Indian groups that have high average attainment at school - are less likely to attain 'good' degrees once at university.
  • Labour market outcomes show varied fortunes across and within groups over time. Overall, ethnic employment gaps have closed substantially since the 1990s, and especially among men. In the 1990s, Pakistani men were nearly 20 percentage points less likely to be in employment than the white majority. By 2019, this gap was closed to two percentage points.
  • Despite this, statistical analysis that controls for individual characteristics continues to find large, unexplained employment gaps for many minority groups. Discrimination, preferences, norms and local opportunities may play differing roles for different groups. Median earnings gaps appear to be more persistent, and even where educational and occupational successes have facilitated faster relative wage growth (such as for Indian men), unexplained wage penalties remain.
  • Data from linked school, university and tax records for England's 2002 to 2007 GCSE cohorts (Longitudinal Education Outcomes data) shows positive returns to undergraduate degrees at age 30 for all ethnic groups, but highlight substantial heterogeneity as well.
  • For the most part, estimated returns are higher for women, and highest for Pakistani women at 40%, with Bangladeshi, Indian and White British women also receiving high returns.
  • Among men, Pakistanis (36%) again are estimated to have the highest returns, and again Indians (16%) and Bangladeshis (14%) also have high returns. White British men have a more modest 6% return.
  • While Black African men and women earn strong returns, Black Caribbeans have much lower estimated payoffs than most groups. Unpacking these numbers suggests different drivers are at play. The very high returns of Pakistanis, for instance, partly reflects the very low earnings of non-graduates in this group - in fact, median earnings of university graduates remain lower than any other ethnicity for both men and women.
  • Subject choice emerges as an extremely important factor: Asian students systematically choose subjects with higher financial returns such as business, law and computing, whereas Black and white British students have higher propensities to choose lower-returning subjects such as sociology, creative arts and social care.
  • This report has a huge amount of fascinating a rich labour market analysis, particularly on topics such as occupational concentration by ethnicity (11% of working Bangladeshi men work in food preparation or hospitality and a further 17% in road transport driving) and details of pay differentiation by ethnicity and gender, so don't just rely on media reporting, have a read of the whole report, it will reward your time.

The 2022 edition of Cranfield University's Female FTSE Board Report finds that the percentage of women on FTSE 100 boards is 40% and the parallel percentage for FTSE 250 boards is 39%.

Overall, women hold 413 directorships across FTSE 100 boards but the increase in women comes primarily as usual from female non-executive directorships (NEDs). The number of women in executive directorships (EDs) has increased marginally from 31 to 36. A similar profile emerges for FTSE 250 companies where women hold 752 directorships, of which 705 are NED and only 47 are EDs.

This means that 17% of FTSE 100 and 12% of FTSE 250 executive directors are women. There has been no change in the number of women EDs in three years.

Workers in softer occupations earn on average lower wages but experience higher longer-term employment probabilities.

The CIPD's new Labour Market Outlook for Autumn 2022 suggests that employers still plan to increase headcount in the three months until the end of December:

  • The net employment balance - which measures the difference between employers expecting to increase staff levels and those expecting to decrease staff levels in the next three months - remained positive at +29, which was down from +34 last quarter. This continues to exceed pre-pandemic levels, pointing to strong employment intentions.
  • 46% of recruiting employers have hard-to-fill vacancies. These are most common in transport and storage (60%), voluntary (56%) and healthcare (55%).
  • The top response to hard-to-fill vacancies has been to upskill existing staff (47%), followed by raising pay (44%), which is up from 29% in the previous quarter. However, fewer employers plan to raise wages in the future in response to hard-to-fill vacancies (24%).
  • Redundancy intentions remain low but are increasing. 16% of employers are planning to make redundancies in the three months to December 2022, which is up from 13% last quarter.

Eurostat data shows that across Europe 74.7% of young people aged 15-29 who were not in formal education were employed in the second quarter of 2022. This is EU data, which means the UK does not figure - but Ireland does and is one of the better performers.

There are two interesting papers from the German Institute of Labor Economics, the IZA, both taking Swiss data but with wider applicability.

The first looks at the role of lifelong learning in counteracting skill depreciation and obsolescence:

  • 'Hard' skills - which are mainly based on knowledge, not experience (e.g. using particular machines or certain programming languages) are initially more valuable in the labour market but quickly lose their value over time, as implied by flatter age-earnings profiles but higher starting levels. These skills require constant maintenance through lifelong learning to keep workers' employability from deteriorating. This is seen particularly in occupations in science, technology, engineering and mathematical (STEM) fields which exhibit flatter age-earning profiles and that workers in these fields more often sort out of these occupations.
  • In contrast, workers in softer occupations earn on average lower wages but experience higher longer-term employment probabilities. Moreover, in these occupations, training participation is accompanied by larger wage gains.
  • In harder occupations, with large shares of fast-depreciating hard skills, the role of lifelong learning is primarily as a hedge against unemployment risks rather than a boost to wages.
  • As soft skills suffer less or not at all from skill obsolescence, workers in softer occupations likely add new and up-to-date skills to value-stable skill sets, thereby enhancing productivity beyond previous levels.

Universities of Applied Sciences (UAS), are new bachelor-granting three-year Swiss colleges that teach and conduct applied research, offering a new career path for middle-skilled workers (with vocational training). This paper examines their effect on skills in the Swiss labour market:

  • In regions with the newly established UASs, not only job descriptions of the new UAS graduates but also job descriptions of workers without this degree (i.e. middle-skilled workers with vocational training) contain more high-skill job content.
  • This upskilling in job content is driven by an increase in high-skill R&D related tasks and linked to employment and wage gains. The task spillovers likely occur because UAS graduates with applied research skills build a bridge between middle-skilled workers and traditional university graduates, facilitating the integration of the former into R&D-related tasks traditionally monopolised by the latter.

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