THE BLOG
11/28/2011 10:47 am ET | Updated Jan 28, 2012

Central Reservations

Ed Miliband may have falling poll numbers, but lexicographers like him. The compilers of the Oxford English Dictionary last week chose his minting of "the squeezed middle" as their word of the year. At the time, Miliband was mocked for his inability to define precisely what that middle was, but he may have stumbled on a real issue.

In April 2011, the OECD, a rich-country thinktank, released its latest figures on income inequality in the industrialised world. So far, so bureaucratic. But the gap between rich and poor that these statistics highlighted was one of a number of growing gaps between the top and the bottom that are coming to dominate the lives of millions.

The OECD based its findings on how income is distributed within a country. Income inequality across the rich world has been rising since the 1980s and this trend continued over the last year with just a few exceptions. The effect of this in the UK has been picked up in the recently coined term "the squeezed middle". Ed Miliband, the Labour leader, said in 2010 that his reason for being in politics was to help the "people who feel squeezed financially and they are people who are low paid but also people who will be earning a decent income." At the time, Miliband was mocked for his woolly definition of the middle he felt was squeezed, but he may have stumbled on a real issue. The Resolution Foundation, a thinktank, has published research arguing that low-to-middle income wages stayed flat from 2003 to 2008 while household costs rose. The cash of those in the middle is being squeezed. And so are the numbers of people there.

The UK has seen a reversal of one trend experienced by other advanced economies. Our birth rate has increased whereas most rich countries saw their fertility decline over the last twenty years. Take Japan for example. It is not simply fascination with technology that has inspired Japanese research into creating 'near-human' robots. The country's demography is such that cybernetic care assistants may be the only way that the needs of the elderly can be met. In line with the West, Russians are also having fewer children.

The Economist recently ran a tongue-in-cheek graph showing that, if current trends continued, Russia would cease to exist around the year 3500. Without large inward migration, potentially destructive effects are likely long before that. Britons are bucking this trend and having more children, but demography is a long game. Yes, there are more young children, but there are more elderly people too. The arithmetic of this growth at the top and bottom means that, again, it is the proportion in the middle that is declining.

Similarly, forecasts by the UK Commission for Employment and Skills suggest that even the middle of the labour market is experiencing a squeeze. The occupations predicted to see the highest growth in coming decade require high skills; those predicted to decline require lower skills. But a number of low-skill occupations will remain - jobs which do not require high qualifications, but are unable to be offshored or outsourced.

Driving instructors, retail staff, and refuse collectors cannot easily be replaced by machines or spun out to East Asia. The people who should worry for their careers are those whose talents can be reproduced in an office or a factory on a different continent. Overwhelmingly, these jobs fall in the middle of the market. They require skill and craft, but are being overtaken by automation and "processisation". This awkward word refers to the way in which many jobs can be broken into collections of simplified tasks and then bundled off to sub-contractors for a lower cost. Also known as Taylorisation, after the American industrialist who used scientific measurements to increase efficiency in his steel plant, this trend is well known in manufacturing but increasingly is affecting office jobs. The preparatory research process of a paralegal in London can be distilled and sent to a firm in Manila. Software companies restrict 'permission to think' to their UK workers, while the 'grunt work' takes place in Eastern Europe. The middle ground is falling away.

Demography, income, the labour market. What ties these areas together? They are interleaved, and an influence on one will knock on to all three. Globalisation is the most obvious underlying trend. UK fertility rates have been supercharged by inward migration. Taylorised work can be sent abroad due to trade agreements, global capital, networked workplaces. And UK income inequality saw its fastest increase from the beginning of the 1980s - when 20th century globalisation lifted off.

For the UK, these three linked, globalised trends need not be negative. The middle of the jobs market is becoming a hard place to be. But the increase in the numbers of graduates has shown that the UK can produce large numbers of high-skilled people. A common criticism of university graduates is that they end up doing jobs that do not require a degree. What is needed is not fewer graduates, but an increase both in high-skilled jobs and in employers who are prepared to take responsibility for developing their staff to get them into these jobs. The workplace also needs non-graduates with aptitude, attitude and skills. And we need employers to train both because ultimately what we need are jobs. This will not be easy. As our birth rate increases, more young people will enter the world of work. Developing their skills will be vital. But putting them to work - good, productive high-skilled work - is even more vital. And it is only by linking the solutions to these two squeezes that the UK will be able to address the growing gap in income, the most important middle in our unequal society.