Employment and Income in Science Based Occupations and Industries by Staffordshire University

Employment and income in science based occupations and industries – what’s happened and where things are going

A report for Staffordshire University

September 2012

Contents 1. Executive summary ....................................................................................... 3 2. Introduction.................................................................................................... 4 3. Trends in employment ................................................................................... 6 4. Trends in earnings....................................................................................... 10 5. Graduate prospects for unemployment and underemployment ................... 13 6. Authorship, acknowledgements and disclaimer........................................... 16

1. Executive summary This report presents Cebr’s analysis of employment and earnings in science- and technology-based industries in the UK, examining past trends and future developments. The report draws on official data in addition to Cebr’s economic models and forecasts. Key findings 



While the UK as a whole continues to show weak economic growth, some sectors of the economy are experiencing a more robust performance. Output in science- and technology-based sectors is higher now than before the financial crisis, unlike overall UK economic output. Employment growth among science- and technology-based occupations has been much higher than overall employment growth in recent years. Over the period 2004/05 to 2011/12, annual growth in employment for the UK as a whole averaged 0.3%. For science, research, engineering and technology occupations, however, the average was 1.3% - a full percentage point higher. We expect this trend of relatively faster employment growth to continue over the next five years. Overall, our forecasts suggest that the annual employment growth in science, research, engineering and technology occupations will average 1.4% between 2012/13 and 2016/17. This is much higher than the average annual growth of 0.4% that we predicted for total UK employment. Science- and technology-based job creation will account for about a quarter of UK job creation over the next five years. By 2016/17, employment in science, research, engineering and technology occupations will be c. 140,000 higher than in 2011/12, with job growth in this occupation category accounting for about a quarter (26.6%) of UK net job creation over the time period. Annual wage growth across science, technology and engineering occupations is forecast to be faster over the 2012-17 period than during the 2008-11 post-crisis period. Wage growth in science, engineering and technological occupations is forecast to be faster than in public sector professional occupations going forward. However, pay growth across professional occupations as a whole is forecast to be faster than in in science, engineering and technological occupations over the forecast period. Historical pay growth amongst science, technology and engineering occupations has favoured those at the bottom end of the pay-scale. Pay growth has been more equitable amongst these occupations than across the economy as a whole. Since the financial crisis, graduates of STEM (science, technology, engineering and mathematics) subjects enjoyed lower levels of unemployment and underemployment than non-STEM graduates. This situation is forecast to continue.

2. Introduction While headline UK economic growth remains weak, some parts of the economy are continuing to show strong performance. Robust growth in some sectors – including science and technology – could help drive economic recovery going forward. The UK economy continues to struggle to grow following the financial crisis, which got underway in 2007. National income stood 4.3% below its pre-crisis peak in the second quarter of 2012, as shown in Figure 1 below. Figure 1– UK gross domestic product (2007 = 100) 110 105 100 95 90 85 2012 Q2

2011 Q2

2010 Q2

2009 Q2

2008 Q2

2007 Q2

2006 Q2

2005 Q2

2004 Q2

2003 Q2

2002 Q2

Source: ONS However, behind this bleak overall picture, analysis of economic growth in different sectors paints a more mixed picture. Some parts of the economy are showing robust growth and are now producing more output than before the financial crisis. Over 20072011, output for the entire UK economy fell by 2.5%. In contrast, output in the telecommunications sector grew by 16.7% and in the computer programming consultancy sector output grew by 6.1%. In 2011, output in these two sectors was higher than before the financial crisis, as shown in Figure 2 below.

Figure 2 â&#x20AC;&#x201C; Index of economic output for different sectors (2007 = 100)

120 115 110 105 100 95 90 85 2011

2010

2009

2008

2007

2006

Telecommunications Computer programming consultancy and related activities Whole economy Source: ONS, Cebr analysis Some sectors have, therefore, shown very solid growth in recent years, despite recession and a continued fragile global economic backdrop. Technological and sciencebased industries seem to be proving resilient in the face of overall global economic weakness at present, meaning that these sectors are likely to be a significant driver of economic growth going forward. The analysis which follows in this report suggests that strong economic performance of science- and technology-based industries is translating into favourable labour market outcomes. Earnings in science and technology based occupations are higher than average in the UK and compare well with other professional occupations. Employment in these sectors is likely to increase over the coming years on the back of growing demand. Graduates with science and technology based degrees are also relatively less likely to be under-employed (in low skill work) than graduates with non-science-based degrees.1

This reportâ&#x20AC;&#x2122;s defines a graduate as being underemployment when he or she is in a job which does not fully utilise his or her skills. A graduate is defined as being underemployed if he or she is in an administrative or secretarial, sales or customer service, personal services, elementary, or machine operative role. Copyright ÂŠ Centre for Economics and Business Research Ltd, 2012

3. Trends in employment The number of science and technology based jobs in the UK is higher now than before the financial crisis and this number is expected to grow further over the next five years. Following the onset of the financial crisis, employment in the UK declined and has yet to return to its pre-crisis peak. Data from the ONS Annual Population Survey show that employment among those aged 16-64 in the UK was 0.7% lower in the 2011/12 fiscal year than in 2007/08 – that is, there were 212,500 less individuals in employment. As Figure 3 shows, the number employed as science, research, engineering and technology professionals and associates has held up much better since the financial crisis. Indeed, in 2011/12, employment in these occupation categories was 1.5% higher than in 2007/08 – an increase of 28,800 jobs. Figure 3: Employment among those aged 16-64 by occupation, millions

1.85

28.60

1.80

28.40

1.75

28.20

1.70

28.00

1.65

27.80

2011/12

28.80

2010/11

1.90

2009/10

29.00

2008/09

1.95

2007/08

29.20

2006/07

2.00

2005/06

29.40

2004/05

2.05

Science, Research, Engineering and Technology Professionals and Associates Total UK employment Source: ONS Annual Population Survey, Cebr analysis As Figure 4 shows, annual growth in employment has for the most part been stronger among science and technology based occupations. Over the period for which we have actual data, 2004/05 to 2011/12, annual growth in employment for the UK as a whole averaged 0.3%. For the number employed in science, research, engineering and technology occupations, however, this average was 1.3% - a full percentage point higher.

Figure 4: Annual growth in employment among those aged 16-64 by occupation 5.0% 4.0% 3.0% 2.0% 1.0% 0.0% -1.0%

2011/12

2010/11

2009/10

2008/09

2007/08

2006/07

2005/06

-2.0%

Total UK employment Science, Research, Engineering and Technology Professionals and Associates

Source: ONS Annual Population Survey, Cebr analysis We have produced forecasts of employment in science, research, engineering and technology occupations over the next five years, shown in Figure 5 below. Overall, our forecasts suggest that the annual growth in employment in these occupations will average 1.4% between 2012/13 and 2016/17. This is much higher than the average annual growth of 0.4% we expect for total UK employment, which will be held back by a combination of global economic weakness and public sector job shedding. By 2016/17, employment in science, research, engineering and technology occupations will be 139,703 higher than in 2011/12, with job growth in this occupation category accounting for about a quarter (26.6%) of UK net job creation over the time period. Figure 5: Annual growth in employment among those aged 16-64 by occupation 5.0%

Forecast

4.0% 3.0% 2.0% 1.0% 0.0% -1.0%

2016/17

2015/16

2014/15

2013/14

2012/13

2011/12

2010/11

2009/10

2008/09

2007/08

2006/07

2005/06

-2.0%

Total UK employment Science, Research, Engineering and Technology Professionals and Associates

Source: ONS Annual Population Survey, Cebr analysis Copyright ÂŠ Centre for Economics and Business Research Ltd, 2012

As a result of this job creation, we expect science, research, engineering and technology occupations to make up a growing share of the UK workforce. By 2016/17, these occupations will account for 7.1% of UK jobs, up from 6.6% ten years earlier. This is shown in Figure 6 below. Figure 6: Number of science, research, engineering and technology professionals and associates as a share of total UK employment

6.9%

7.1% 7.0%

7.0%

2015/16

6.9%

2013/14

7.0%

2012/13

Forecast

2014/15

7.2%

6.6%

2007/08

6.7%

2009/10

6.6%

2006/07

6.8%

2008/09

6.8%

6.6% 6.4% 6.4%

6.3%

6.2% 6.0%

2016/17

2011/12

2010/11

2005/06

2004/05

5.8%

Source: ONS Annual Population Survey, Cebr analysis The analysis above suggests that growth in the number science and technology based occupations in the UK could help boost economic performance. However, it is worth noting that regional statistics suggest that some parts of the country will benefit much more than others. London, the South East and the East of England accounted for just over two fifths (43.9%) of science, research engineering and technology jobs in the United Kingdom in 2011/12. Employment in these occupations also makes up a higher share of total employment in these regions, as shown in Figure 7 below. London, the South East and the East of England are, therefore, likely to benefit disproportionately from science and technology based job creation over the coming years. Regions such as Northern Ireland and Wales, where employment in science and technology based occupations makes up a smaller share of total employment, are likely to benefit less from job creation in these occupations.

300 250 200

Northern Ireland

North East

Wales

East Midlands

Yorkshire and The Humber

West Midlands

Scotland

South West England

North West England

East of England

London

150 100 50 0

South East of England

Thousands

Figure 7: Number of science, research, engineering and technology professionals and associates, and number as a share of total employment, by region, 2011/12.

10% 8% 6% 4% 2% 0%

Number of Science, Research, Engineering and Technology Professionals and Associates Science, Research, Engineering and Technology Professionals and Associates as a share of total employment Source: ONS Annual Population Survey, Cebr analysis

4. Trends in earnings Earnings growth declined for scientific, technology and engineering occupations when the financial crisis hit. Wage growth slowed down relative to general professional wage growth in the wake of the crisis. Going forward, growth in scientific, technological and engineering professionalsâ&#x20AC;&#x2122; pay is forecast to pick up at an increasing rate as strength returns to the economy. Historically, those in scientific occupations saw wage growth which outstripped that of professionals in general (although not public sector professionals). Technology and engineering professionals experienced wage growth which was in line with that of general professional wage growth. From 2003-11 nominal wages across all professional occupations grew at an average rate of 2.5% per year, although this wage growth was lower in 2008-11 during the financial crisis and its aftermath, averaging only 1.7% per year. By contrast, over the 2003-11 period, wages for public sector professionals grew at an average rate of 4.7% per year, although this slowed to 2.8% per year during 2008-11 period as Government sought to rein in public spending following the financial crisis. Science professionals saw wage growth which out-performed the average for professional occupations, growing at 2.8% per year between 2003 and 2011. Technology and engineering professionals experienced annual wage growth of 2.1% and 2.3% respectively over the historical period, slightly underperforming typical professional pay increases of 2.5%. The following graph compares year-on-year nominal wage growth between these three technical occupations, professionals in general and public sector professionals from 2002 to 2011. Notice that wage growth in the technical occupations is centred about wage growth amongst professionals in the economy as a whole, but public sector professional wages tended to grow faster than those of all other occupations. Figure 8: Annual nominal wage growth for scientific, technology, engineering, general professional and public sector professional occupations

Source: ONS Annual Survey of Hours and Earnings, Cebr analysis Copyright ÂŠ Centre for Economics and Business Research Ltd, 2012

As of the financial crisis, these established trends broke down. The crisis pushed the UK economy into a state of structurally slow wage growth across all occupations, including the three technical occupations. This economic malaise is expected to continue over the medium to long terms as a host of weak economic fundamentals - fiscal austerity, spillovers from the Eurozone crisis, slowing emerging market demand and subdued private sector confidence – all supress wage growth. Despite this dispiriting backdrop, the statistical relationships identified by Cebr indicate that over the 2012-17 period science, technology and engineering wages will grow more rapidly than in the 2008-2011 crisis period. Wages for scientific, technology and engineering professionals grew by 1.0%, 0.6% and 1.1% over the crisis period. Average wage growth for these three scientific occupations is forecast to accelerate over the 2012-17 forecast period. Notably, wages in technical occupations are projected to increase at a faster rate than public sector wages over the forecast period, owing to the Coalition’s attempts to arrest public sector wage growth. The policy is expected to dampen growth in public sector wages, but not freeze them entirely. However, we forecast that technical occupation employees will experience slower wage growth than those in professional occupations in general. Over 2012-17, all professional wages are forecast to grow by an average of 2.9% per year, but wages in scientific occupations are forecast to grow by only 1.7%. Nevertheless, these estimates represent an uptick in wage growth relative to the 200811 post-crisis period. The post-crash trend of slower wage growth in science occupations and faster wage growth across professional occupations is expected to continue. Technology and engineering employees can expect a similar outcome: their rates of wage growth will increase, but will still be slower than those for professional occupations. Average annual wage growth is forecast to be 1.0% and 1.9% for these occupations respectively for 2012-17. The Government’s pay restraint policies mean that public sector professional wages are forecast to grow at only 1.2% per year over the 2012-17 period. This will be slower than wage growth in scientific and engineering occupations and comparable to wage growth in technology occupations. The following graph compares forecasted year-on-year nominal wage growth between the three technical occupations, professionals in general and public sector professionals for 2012 to 2017. Notice that wage growth is expected to increase markedly as economic growth becomes more robust further in the future.

Figure 9: Annual wage growth for scientific, technology, engineering, general professional and public sector professional occupations (nominal, forecast)

Source: ONS Annual Survey of Hours and Earnings, Cebr analysis Historically, for each of the three technical occupations, wage growth rates have varied with an employeeâ&#x20AC;&#x2122;s position in the pay scale. As a general rule, rates of pay growth were higher the lower down the pay scale an employee was. This is the opposite of what occurred in general professional and public sector professional occupations, indicating that pay growth has been more equitable for scientific, technology and engineering occupations than across the wider economy. For science and technology professionals, wages grew by 2.4% and 1.9% per year over 2002-11 for the very lowest paid workers (those in the 10th percentile). By contrast, wages grew by 2.2% and 1.8% respectively for the highest paid workers (those in the 90th percentile). Only engineering, saw higher pay growth at the top end of the pay scale than at the low end. Even then, the disparity was marginal: those at the top end of the engineering pay scale saw 2.5% annual pay growth over the period whereas those at the bottom end saw only 2.2% growth. In contrast to the science, technology and engineering occupations story of faster pay growth for lower paid workers, those at the top end of the general professional pay-scale saw annual wage growth of 2.5% over the 2002-11. Those at the lower end of the payscale saw annual growth of only 1.9%. The corresponding figures for public sector professionals were 5.0% for high earners and 3.5% at the bottom end. Overall, pay growth amongst the three technical occupations has favoured those at the bottom end of the pay-scale. This is the opposite of what has happened in the wider economy. This indicates that pay growth has been more equitable amongst these occupations than across the economy as a whole.

5. Graduate prospects for unemployment and underemployment Graduates of STEM (science, technology, engineering and mathematics) subjects have experienced lower levels of unemployment and underemployment than their counterparts who graduated in other disciplines since the beginning of the financial crisis. STEM graduates have also seen comparatively low growth in their rates of unemployment and underemployment. Cebr forecasts that unemployment and underemployment will continue to rise as the UK’s overall economic outlook remains uncertain. In the face of fiscal austerity, weak private sector confidence and economic uncertainty in the Eurozone (the UK’s largest trading partner), we forecast an overall 0.6% contraction in economic output for 2012. We predict this will be followed by anaemic growth in of 0.5% in 2013 and by growth of roughly 1.5% per year over the 2014-17 period – structurally lower than pre-crisis growth rates. Unemployment and underemployment are forecast to grow more slowly for STEM than non-STEM graduates until the end of the forecast period of 2017. For the 2007/08 financial year, the unemployment rate for all STEM graduates was 7.8%. This compared favourably with an unemployment rate of 8.9% across non-STEM graduates in that year. By 2010/11 the financial crisis had impacted all areas of the labour market, although STEM graduates proved resilient compared to their non-STEM counterparts. By 2010/11 the STEM graduate unemployment rate had risen by 0.6 percentage points to 8.4%. It had risen by more, 0.9 percentage points, for non-STEM graduates to 9.8%. (See Figure 10 for these high level historical data and for a disaggregation to each of the STEM occupations.) These data indicate that the financial crisis coincided with a rise in unemployment for all graduates, although STEM graduates were less susceptible to the crisis. Looking to the future, in the 2012/13 financial year, the unemployment rate for all STEM graduates is forecast to be 9.2%. This compares well with a forecast unemployment rate of 10.8% across non-STEM graduates in that year. By 2016/17 the STEM graduate unemployment rate is projected to rise 1.5 percentage points to 10.7%. It is forecast to rise by more, 1.9 percentage points, for non-STEM graduates to 12.7%. (See Figure 10 for these aggregate forecasts and forecasts for each of the STEM occupations.) These forecasts indicate that continuing weakness in the UK economy will coincided with a rise in unemployment for all graduates, although STEM graduates are projected to fair better than others.

Figure 10: Unemployment rates for STEM and non-STEM graduates Forecast

Source: ONS Annual Survey of Hours and Earnings, Cebr analysis For 2007/08, the STEM graduate underemployment rate was 22.8%. This compared well versus an underemployment rate of 41.4% across non-STEM graduates. By 2010/11 the financial crisis had pushed up underemployment across the labour market and many new graduates could not find jobs which enabled them to make full use of their skills. By 2010/11 the STEM graduate underemployment rate had risen by 3.3 percentage points to 26.1%. Underemployment increased by less, 1.7 percentage points, for non-STEM graduates to 43.1%. Despite the higher growth in STEM graduate underemployment, these data indicate that underemployment has affected non-STEM graduates more than their non-STEM counterparts. It seems that STEM graduates are more able to find employment which fully utilises their skills than non-STEM graduates. Going forward, in the 2012/13 financial year, the underemployment rate for STEM graduates is projected to be 27.6%. This compares favourably with projected underemployment rate of 43.5% across non-STEM graduates. By 2016/17 the STEM graduate unemployment rate is forecast to have risen to 30.3%. It is forecast to rise to 44.3% for non-STEM graduates. These forecasts indicate that underemployment will continue to affect all graduates going forward, although non-STEM graduates will be more affected by it.

Figure 11: Underemployment rates for STEM and non-STEM graduates

Forecast

Source: ONS Annual Survey of Hours and Earnings, Cebr analysis

6. Authorship, acknowledgements and disclaimer Authorship and acknowledgements This report has been produced by Cebr, an independent economics and business research consultancy established in 1993, providing forecasts and advice to City institutions, government departments, local authorities and numerous blue chip companies throughout Europe. The main authors of the report are Scott Corfe, Cebr Senior Economist, Daniel Solomon, Cebr Economist, and Rob Harbron, Cebr Economist. Disclaimer Whilst every effort has been made to ensure the accuracy of the material in this document, neither Centre for Economics and Business Research Ltd (Cebr) nor the reportâ&#x20AC;&#x2122;s authors will be liable for any loss or damages incurred through the use of the report.

London, September 2012