Keeping up with the Jones’: My other car’s a bus load of PRP

Please click on the following link to read the article this blog post refers to.

http://news.bbc.co.uk/1/hi/business/8068926.stm

Middle Britain is not happy; the credit crunch has significantly reduced availability and size of lines of credit, rendering our high-spending consumer economy temporarily lame. As if reduced spending, falling house prices and ailing pension pots weren’t enough to test the resolve of the British public, recent publicity regarding certain investment bankers’ take home pay per annum at the height of pre-crunch Britain, and MP’s liberal usage of their expenses forms have done nothing but add a volatile catalyst to the nation’s temperament regarding the current state of the economy. As the public’s rage continues to be fuelled by superficially matter-of-fact journalism and media coverage and the witch hunt for overall culpability continues, one is left wondering, what it shall take to satisfy the mob? 

The BBC Business article delivers some insightful statistics upon Britain’s average and median income. The findings presented in the article clearly demonstrate that the issue we face as British economic agents is not so much the large gap between ‘middle Britain’ and the ‘super-rich’ the 4% at the top of the pay scale, but rather; primarily the fact that income figures of £200-275 per week represent the largest percentage of the UK’s population secondarily the fact that in spite of over 40% of the UK population attending higher education, the mean point for national salaries £450 per week (already skewed by income data from the ‘super-rich’) constitutes fairly average pay a recent graduate can expect to take home within the first 2 years of their first post. Household number whom take higher pay then plunge along the graph as salaries increase up to the £1100 per week (under £55,000 a year, a total increase of approx 120% over starting graduate salaries). This suggests there is a fundamental error in the post-graduate labour market’s, as with 40% of Britain attaining qualifications which would enable them to gain recruitment at a graduate level, one would expect at least 20% of each year’s graduating classes to progress along the pay scale with a steady momentum, and for the line not to plunge, but rather to remain relatively level. 

The reason for the first finding (peak numbers of UK workers earning £200-275 per week) is obvious; the largest proportion of British economic agents take home minimum wage or just above it before tax, furthermore given the steep rise on the income distribution graph prior to that point, a far greater proportion of the UK take home what constitutes either below minimum wage or perhaps more commonly work in minimum wage jobs part time, than those UK workers whom earn graduate and post-graduate salaries. This finding is disturbing for a variety of reasons. Most evidently, the findings lead one to contemplate what exactly quantifiably constitutes the breadline. The breadline is an interesting concept, not least because the price of bread continues to rise with inflation, but the majority of those salaries that would amount to being above or below it by 1 or two standard deviations, are not index linked to account for inflation. Consequently, wherever one draws the breadline, its undeniable fact that the largest proportion of economic agents within Britain are actually getting poorer, and have been for decades, even within the ‘boom years’ pre-crunch. The breadline as an older pre-fordist concept has not evolved to incorporate the greatly expanded product and service market’s offerings. Consequently, one cannot say with any accuracy that if one adjusts for inflation, the breadline in the UK will amount to the same amount relatively speaking to that which it amounted to 30 years ago. This brings one to contemplate whether internet usage, mobile phone usage, computer usage, and the ability to find cost-effective entertainment and engage in social activities such as go to the cinema or the pub constitute necessities, without which an individual economic agent cannot lead a healthy life. One may draw the line at the point it is currently drawn; anything that constitutes a boon to lifestyle beyond not collapsing from malnutrition constitutes a ‘luxury’. However, one may agree that with prevailing technology and cost-efficiency that the internet and the subsequent ownership of a computer supply constitute necessities without which ensuing issues such as reduced expenditure-efficiency, reduced communication ability, increased searching costs (be it for jobs or commercial products/services) and a small element of free entertainment and information (free TV via BBC I-player, and free access to the BBC news pages for example) occur, and are significantly retrograde to quality of life and thus increase the risk of both suicide and health risk factors due to increased stress, and/or development depressive disorders. If one agrees with the latter attribution, then its evident that those UK citizen’s in work earning anywhere below £13,000 a year and whom decide admirably not to be reliant upon state aid such as council housing, are for the most part entirely excluded from maintaining such a lifestyle. Thus a decision has been made; it is not the responsibility of employers to ensure their employees earn enough money per week to maintain the barest minimum of positive lifestyles, but rather such a responsibility falls upon the government, whom is currently generously maintaining the largest portion of cross-generational individuals in the UK with council housing, assisted housing, and/or other benefits, whilst steadfastly refusing to pay more than lip service by raising the minimum wage considerably and thereby creating a far more sustainable income distribution within the UK. 

The second finding the graph indicates; plunging numbers of incomes above the graduate salary line constitute a different only slightly less disturbing issue, that again has to do with government regulation of the private sector, and the UK private sector’s hiring practices and the UK’s overall labour market. The prevalent hiring practice the UK private sector utilises is horizontal insertion, rather than the prevalent hiring practice utilised by mainland Europe; vertical insertion. Horizontal insertion constitutes organisations recruiting candidates from their external environment (the labour market) for posts they require to be filled along their organisational hierarchy; graduate, experienced hired, senior hire, expert, departmental directors etc. Organisations that follow a vertical insertion recruitment strategy recruit from the internal labour market, for the same posts. It is very important to understand that the internal labour market is not limited to those employees they currently employee but rather constitutes the entirety of candidates with the requisite skills and industry specific rather than transferrable experience required for such a role. Consequently, Vertical insertion has its pick of all those individual economic agents whom have worked or currently work within a certain industry or sector.

A major example of two such industries in France and Germany, would be both countries application of vertical insertion within their manufacturing sectors, especially the motor industry, at the lower end of the pay scale and their banking services at the highest end of their pay scale. It is important to note that both horizontal and vertical insertion strategies confer inherent advantages and disadvantages upon an organisation and if found in prevalent usage upon a national economy. The global recession has pressed into sharp relief the inadequacy of nations decisions to operate nationwide prevalent insertion strategies. It is clear that the UK is entirely dependent upon GDP generated in London and given the varying levels of expertise required to work in such an environment horizontal hiring practices to a certain extent confer upon the city and organisations within it the ability to pick and choose the best workers for the posts they need to fill, and thus attain optimum organisational performance. However, the same strategy is applied across the UK, within urban and rural centres of economic productivity when the organisational need to hire from an extremely varied candidate pool for specific posts does not exist nearly to the same extent as it does in the financial services rich London. Consequently, when an organisation within the retail, hospitality, manufacturing, construction, administrative, educational or many other sectors entertains applicants from all over the UK from all other sectors and industries for the position it needs to fill, it is utilising an highly inefficient recruitment and selection device, to the extent that while competition for the post shall theoretically be a lot higher than if recruitment were limited to internal labour markets, the focus of the recruitment effort is not to find the candidate whose industry specific skills and experience most behove the post but rather the candidate whom is best at convincing employers that he or she’s demonstrative lack of industry experience is inconsequential due to the highly transferrable nature of their previous education and experience in unrelated industries.

Clearly, the ability of each companies HR department to determine whether a candidate is a good fit or not varies, and many companies whilst encouraging external labour market applications, do evaluate potential candidates with industry specific education and experience as slightly lower risk hires. However, the very fact that someone with an English literature degree and operations management experience within the airline industry is entertained as a relatively equally attractive hire for the post of logistics director for a furniture retailer as someone with a business studies degree with a specialisation in supply chain management and experience as an assistant logistics manager for a rival furniture company, inextricably decreases the likelihood that the furniture retailer shall hire the best candidate for the post. Consequently, their organisational performance shall suffer as a result, whilst at the same time massively decreasing job security and employment stability across all unrelated industries due to the tenuous nature of transferrable education and skills. It is now apparent that the usage of nationwide insertion strategies in areas where one particular strategy simply is less efficient and problematic than the other, for the sake of following the model of those hubs within a country which provide the greatest GDP such as London, Stuttgart, Paris etc has made national labour markets entirely unstable and is the major contributing factor to unemployment rates within the EU. It is also clear that whilst the need for organisations to reduce overheads by reducing workload is undeniably the case at times in a recessionary climate, companies operating a vertical insertion strategy and thus those that cultivate extremely specific skills rich competent labour markets, cannot afford to do so to the same extent as those companies whom operate horizontal insertion strategies for the sake of them, as the former cannot afford to anger or disenfranchise its smaller better trained pool of candidates, whereas the latter can do so for the sake of short term benefit with no regard to long term consequences for their own organisational performance or indeed a national economies wellbeing. Similarly, those economies that operate vertical insertion strategies within economic hubs that specialise in the financial services sector are significantly disabling themselves from being adaptable in any climate let alone a recessionary one, due to over-commitment to hiring only a certain type of individual for a post and thus decreasing the likelihood that they shall remain fit and survive. 

This brings us to two questions; firstly how prevalent hiring structure in the UK maintains social inequality and actively reduces private sector organisational performance and thus profit. Secondly as a nation, where does the UK go from here, to ensure a more stable, more profitable economy based upon a more aspirational, but more efficient form of capitalism?


Somewhat ironically some of the lowest paid sectors in the UK irrespective of location actually offer some of the most vertical insertion friendly posts such as in the case of retail; Sales assistant, assistant manager, manager, regional manager, and yet the majority of those that enter the retail world and do not attain promotion within the first 5 years often languish low down the ladder and pay scale and thus a large pool of candidates exist forming an internal labour market, competition for such promotions to assistant manager, or manager are so ridiculously fierce due to the extremely low barriers to entry (specific retail education and experience not required), that the usage of horizontal hiring practice actively decreases the likelihood that such promotions shall be filled via promotion, thus killing the idea of a ‘career in retail’. Consequently, the internal labour market for minimum wage retail work maintains a huge surplus of supply for the amount of posts needing to be filled, thus prompting a large proportion of prospective candidates to seek welfare benefits and employees whom due to their disgruntled attitudes toward the lack of respect their experience and efforts have earned them find it very difficult to get promotions and thus secure their financial independence. This ‘trend’ is not limited to the retail industry by any means, but rather extends across the majority of industries around the UK. The prevalence of such due to inaccurate usage of horizontal hiring in the UK in fact creates a delineating line between the majority of previously thought of ‘white collar work’ within the services rather than trade sectors such as (retail management, or hotel management), separating the majority of workers and prospective workers in such a form of work from the minority of workers whom due to accurate implementation of horizontal hiring structure within the financial services sector of white-collar work may well earn large salaries and huge performance related pay bonuses, by virtue of the fact that companies value their ‘expertise’ far more than they do the common pool’s industry expertise. 


Thus there exists a great inefficiency within the UK labour market which acts as a major variable that shall if not corrected deepen the recession and prevent economic growth for years to come. The answer lies, broadly in UK private sector organisations re-examining under governmental duress the insertion strategies they utilise. Whilst financial regulations on the risk evaluation of securities must be maintained to a high standard, and whilst the IMF, the Bank of England, and every investment bank must actively employ expert individuals to monitor the state of the economy and operational standards, London must not succumb to any Euro zone pressure to adopt vertical insertion strategies, lower its risk tolerance significantly and become a less lithe financial centre even if such battening down of the hatches would halt the recession, such a shift would cause London to lose its crown as financial centre of the world and thereby GDP would be reduced which would prevent economic recovery from occurring rapidly. However, The rest of the UK, must be made to abandon horizontal insertion strategy as the prevalent insertion strategy, and move toward a far more stable (in light of greatly lower GDP generation potential of all other economic hubs excluding London in the UK) vertical insertion approach. That constitutes the broad solution, however, in practice a paradigm shift from horizontal to vertical insertion is fraught with danger, and the spectre of political correctness and societal anomie surround such a shift, if it is not perfectly executed over a sufficient timescale of 25 years, with momentum increasing slowly at first, and upon reaching critical mass in the next 5 years maintaining momentum and increasing slowly but steadily till a peak point where paradigm shift can quantifiably be seen to have been accomplished. Toward such a shift in the labour market and its interactions with the private sector, government organised educational reform is key. The purpose and efficiency in achieving that purpose of universities across the academic and reputational spectrum must be re-examined. The governmental goal to send 50% of the school leaving population to university must be recognised as an extremely foolish move that has served to and shall continue to increase inequality in income distribution and arguably decrease quality of life within the UK, in spite of its theoretical foundation; decreasing inequality by increasing levels of broad unfocused education and the numbers of citizens with degrees instead of industry specific qualifications and experience. In principle it was a nice idea; lunging toward a more meritocratic model. However, in practice, UK wide adoption of horizontal hiring practice and the reformation of the education system to attempt to meet that formats needs has caused great inequality by allowing only a few to succeed, and the majority whom, due to the unsuitability of the specific form of higher education that university represents for their learning needs, to languish somewhere slightly above or below the breadline, or unhappily passed up for promotion within fiercely competitive for the sake of it expanded candidate pools. 

 A more meritocratic system which promotes qualification and experiential achievement in all UK citizens must be created toward a more stable yet efficiently aspirational UK economy and toward increasing quality of life and decreasing inequality within the UK. The education system must be reformed to match the landscape of extra-London vertical insertion, and yet also optionally cater successfully toward London, and specific niche organisations horizontal insertion needs. The model that must be applied expects a 100% successful participation within higher education however, the boundaries and limitations of the concept of HE within the model have been expanded from purely university awarded qualifications to include the establishment of departmental specific professional training colleges, trade schools, supplemented by cross-sector apprenticeships which provide lower pay in return for extensive training and several years of pre-qualification experience, with near certain employment prospects after such a formative period for all school leavers whom do not want to enter either academia, the medical or legal professions, become scientists or enter a field which requires a candidate to attain a great level of education instead of training supported on the job experience. It is extremely important to recognise the need for the private sector to re-define its appreciation of what constitutes good business qualification, to the extent that the study of business, or the aspiration toward departmental expertise within fields such as; advertising, investment banking, marketing, sales, accounting, human resource management and operations management are objectively best attained (from a quality assurance perspective) through business apprenticeship schemes for school leavers with structured training toward both organisation specific certificates and departmental specific diplomas. In short the tri-partite education system needs to be revived and at the same time extensively remodelled to include the majority of professions rather than only trade professions. Such a political/business endeavour constitutes a difficult pill to swallow for the already dissatisfied, change adverse British public across the income distribution scale, however, if such a pill can be swallowed the UK economy and people shall be far better for in both the short term and very long term, and shall become the single greatest aspirational economy in the world.