Chapter 4
Exercise 1
Examine the figures in the table below. What has happened to labour supply and demand
since 1985? In what ways are the data incomplete and what statistics would be needed to
complete the picture?
Year
Economically active
persons (000s)
All in employment
(000s)
Unemployed
(000s)
March-May
1985
27550
24430
3118
1990
28823
26833
1990
1995
28155
25689
2466
2000
28900
27267
1633
2002
29183
27659
1524
Source: Annual Labour Force Survey
Answer guidelines

The ‘Economically active persons’ column can be seen as indicating the supply of labour
since it includes those in work and those actively seeking work. However, it is an
incomplete indicator, since it does not include those who are capable of work and who
would like to do so but who have ceased to look for work, usually because previous
attempts have been unsuccessful. Therefore we need data on how many of these
‘discouraged workers’ there are.

The number of economically active persons has risen on trend since 1985, indicating a
growing supply of labour. However, note the drop between 1990 and 1995. This reflects
the impact of the early 1990’s recession. In recession jobs are cut. In some cases older
workers who lose their jobs withdraw prematurely from the labour market by taking early
retirement. Other workers who lose their jobs and find it hard to regain work may become
part of the ‘discouraged’ workforce described above. Therefore activity rates decline in
recessions.

The number of people in employment can be taken as an indicator of labour demand but it
is also an incomplete measure since it only measures the number of people in jobs and
does not take account of unfilled vacancies. Therefore we really need to add the number
of job vacancies to the total in work to get a complete picture of labour demand.
The figures show a rising trend in demand for labour although again note the dip during
the early 1990’s caused by the recession.

The unemployment figures in the third column show that over the period as a whole,
labour demand has risen relative to labour supply. This is indicated by the fall in the
number of unemployed. Again, note the temporary rise in unemployment during the early
1990’s, when recession meant that demand fell relative to supply.
Exercise 2
The table below contains labour turnover figures and data on the completed length of service
of leavers for selected economic sectors in the UK. Can you explain why some sectors have
turnover rates in excess of 20% per annum and a high proportion of short-service leavers
while others have turnover rates of under 10% and a low proportion of short-service leavers?
Think in terms of the types of employment systems that you might associate with the high
turnover and the low turnover sectors.
Sector
Labour turnover
(% p.a)
Leavers’ length of service
(% with)
< 2 years
> 2 years
Retail & wholesale
Media and broadcasting
Publishing
Hotel/leisure
Professional services
39.2
26.3
25.9
23.7
20.2
72.5
47.8
51.5
74.3
55.5
27.5
52.2
48.3
25.7
45.5
Oil/mining
Paper & packaging
Transport/distribution
Government agencies
Chemical
General manufacturing
Local government
9.9
8.6
8.7
7.7
7.3
6.7
6.5
10.1
16.7
45.9
13.8
29.7
32.4
28.2
89.9
83.3
54.1
86.2
70.3
67.6
71.8
Source: Edwards, J. and Burn, D. (1997) ‘Benchmarking turnover: CBI results for
1996’, CBI Human Resources Brief, July, pp. 2 & 4.
Answer guidelines

Higher turnover rates are associated with open external labour markets (OELMs) and
with structured occupational labour markets (SOLMs) when the demand for occupational
skills is buoyant. High turnover in OELMs reflects the relatively casual nature of
employment. High turnover in SOLMs reflects workers moving from organisation to
organisation in response to promotion offers and better earnings opportunities. Low rates
of turnover are associated with internal labour markets, since skills are specific to the
organisation and job/career progression is pursued internally.

The retail and wholesale and hotel/leisure sectors stand out in terms of their high turnover
rates coupled with the very high proportion of leavers who have less than 2 years’ service.
This reflects the relatively casualised forms of employment in these sectors, i.e. heavy
reliance on relatively low-paid part-time and temporary staff in many jobs. In other words
it reflects these sectors’ tendency to develop employment systems based on OELMs.

Media, publishing and professional service organisations also have high turnover rates
and a substantial proportion of those who leave have less than 2 years’ service.
This reflects active occupational labour markets based on recognised occupational skills
and qualifications. It also reflects developments in the operation of these sectors over the
last twenty years as they have made increasing use of freelance workers to supply specific
services and workers employed on fixed term contracts. Therefore, this pattern is
indicative of an active occupational labour market, albeit one in which employment has
become more casualised and market-regulated as opposed to institutionally regulated.
For some useful studies of employment patterns in these sectors, see Stanworth, C. and
Stanworth, J. (1997) ‘Managing an externalised workforce: freelance labour use in the UK
book publishing industry’, Industrial Relations Journal, Vol. 28, No. 1, pp. 48-55; Dex, S.
et. al. (2000) ‘Freelance workers and contract uncertainty: the effects of contractual
changes in the television industry’, Work, Employment and Society, Vol. 14, No. 2, pp.
283-305; Fraser, J. and Gold, M. (2001) ‘Portfolio workers: autonomy and control
amongst freelance translators’, Work, Employment and Society, Vol. 15, No. 4, pp. 67997.

With the possible exception of transport and distribution, the low labour turnover sectors
are dominated by large organisations that have developed internal labour market systems
over the years. This reflected the need to develop organisation-specific training and skills
and trade union pressure for enhanced job security and opportunities for internal
promotion and earnings progression. The relatively low proportion of short-service
leavers also indicates the presence of internal labour markets as workers, once trained,
have incentives to remain with the organisation, i.e. relative job security, internal
promotion opportunities and the knowledge that their skills will not command the same
wage premium elsewhere.