The Real Meaning Of Job Insecurity

It is widely believed that job insecurity among British men has risen significantly over the past two decades. A new research report by President of the Royal Economic Society Professor Stephen Nickell, Patricia Jones and Glenda Quintini confirms the truth of this view. But their analysis, which is published in the latest issue of the Economic Journal, shows that higher job insecurity has not come about because of greater insecurity of employment – an increase in the chances that men will lose their jobs. Rather, it is because the actual cost of job loss has risen dramatically, as has the risk of a substantial fall in real wages for those who stay in employment. What''s more, earnings insecurity has gone up by more for employees with higher skills.

Nickell and his colleagues'' report looks at three aspects of job insecurity facing British men in the last two decades: the probability of becoming unemployed; the cost of unemployment in terms of real wage falls; and the probability that the continuously employed will experience substantial real wage declines. The following facts emerge from their research:

  • There is little or no evidence of any trend increase in the average chances of men becoming unemployed over the last twenty years. But lower level non-manual workers do appear to have faced a secular rise.
  • There has been a strong tendency for the costs of unemployment in terms of wage losses to increase for all men except perhaps those in the lowest skill group. The losses in hourly earnings consequent on unemployment for men outside the bottom skill group rose by around 40% or more between the early 1980s and the early 1990s, with the largest losses affecting the two highest skill groups.
  • For men who were continuously employed in the same job and for those who changed jobs, the chances of a substantial year-on-year decline (10% or more) in real hourly pay increased by 20-30% from the early 1980s to the mid-1990s. Older workers and those in the top skill group saw a worsening of their relative position in this regard. Despite this, those in the bottom skill group were still far more likely to experience a substantial year-on-year drop in real wages than were those in the top skill group. A similar pattern holds for longer-term changes in real hourly pay.
  • These overall changes are not due to an increase in the dispersion of wage changes but mostly to the fact that the average annual rise in real pay in the 1990s was smaller than that in the mid-1980s. This suffices to shift the whole distribution of wage changes to the left, thereby increasing the chances of a 10% decline. But it does not explain the changes for the old and the high skilled.
  • The increase in earnings insecurity has not been concentrated among workers in declining industries. Indeed, the financial services industry has seen one of the largest increases in both earnings insecurity and employment.

''A Picture of Job Insecurity Facing British Men'' by Stephen Nickell, Patricia Jones and Glenda Quintini is published in January 2002 issue of the Economic Journal. Nickell is President of the Royal Economic Society, Professor of Economics at the London School of Economics (LSE), a senior research associate of the LSE''s Centre for Economic Performance and a member of the Bank of England''s Monetary Policy Committee; Jones is at Vassar College in New York; and Quintini is at Credit Suisse First Boston. The research was conducted under the auspices of the programme on The Labour Market Consequences of Structural and Technological Change funded by the Leverhulme Trust.