Income inequality affecting the masses, expected to continue

25 July 2016 Consultancy.uk

Income inequality in the West continues to increase, hitting the young with low skills the hardest. In the UK, 60% of the population has seen a stagnation or decrease in their disposable income. In the US, those below 30 with low levels of education were 15% worse off in 2012 than in 2002. Continued low growth and the possible acceleration of automation and digitalisation are likely to exuberate the situation, with the income of up to 80% of the workforce stagnant or declining to 2025.

Income inequality has become an issue for a range of stakeholders, forming a political flashpoint, as well as fuelling discontent. The level of changes in income is less clear, however, while the reasons for the decreases are also not well understood. In a new report, McKinsey & Company’s MGI explores recent changes in real income and disposable income for six key western countries: Italy, the Netherlands, Sweden, France, the US and the UK, and considers a number of scenarios for the coming decade.

The report, titled ‘Poorer than their Parents? Flat or Falling Incomes in Advanced Economies’, looks at changes in income inequality rather than wealth inequality, the latter is, according to the firm, accelerating faster than changes in income inequality. Through the research, which also considers future scenarios for changes in income distribution, the firm hopes to highlight the issues so that policy measures can be considered.

Income and disposable income changes

The research shows that in almost all countries looked at, a significant portion of the population has seen their income stagnate or fall. In terms of real market income, the weighted average stands at between 65-70%, while disposable income has fallen by 20-25%. Regionally, however, there are considerable differences. In Sweden, for instance, real income has declined or stagnated for only 20% of the population, while disposable income has stagnated or declined for <2%. In France, while real market income is stagnant or declining for 63% of the population, disposable income has been dropped or declined for a mere 10%.

The Netherlands, the UK and Italy have been hit the hardest since 2005, according to the analysis. Real market income in the UK is down or stagnant for 70% of the population, while disposable income is down or stagnant for 60% of the population. In the Netherlands the figures come in at 70% and 70% respectively, while in Italy, almost everyone has seen their income stagnant or decline while everyone has seen their disposable income stagnant or decline.

Affected by changes

The effect of the stagnating or declining income are relatively stark. The number of households in 25 western countries living below the poverty line has increased slightly, up from 13% in 2005 to 15% in 2014 of the relative populations. The research also found that the gap between income segments across those countries is increasing, with fewer and fewer able to catch up to the next income segment – nearly two-thirds of all income groups, or between 540 million and 580 million people have not advance economically over a decade.

Younger and less educated most affected

The study further highlights that it is the young and uneducated that have seen the steepest declines, although even the better educated as well as older groups have seen their incomes fall. In France, for instance, lower educated people under 30 have seen their real incomes fall by -10% between 2002 and 2012, the mid-education level has seen a -10% decline while the highly educated have seen a -2% drop. In the US young people have been even harder hit, with those below 30 with low levels of education seeing a decline of -15% between 2002 and 2012, the mid-level seeing a decline of -14% and the highly educated young adults seeing a -6% decline.

Change in employment and status

The decline in income is not the only way in which lower skilled employees have been hit in recent years. In many of the major economies, low skill employment rates have dropped significantly since 1994. In Sweden, for instance, employment rates for the low skilled dropped from around 60% in the 2000s to around 48% today, while at the same time, the number of people on temporary employment contracts for the group has jumped significantly. The Netherlands too has seen a large portion of its employee base find themselves on temporary contracts. The research highlights an across the board increase in temporary contracts for the low skilled; temporary employment contracts were also up for the middle skill group. For those with high levels of skill, temporary contracts have crept up since 1994, although not as significantly as for the other two segments.

Future scenarios

Besides the stagnation and income decline seen so far, the research in addition looked into possible future scenarios. In the low economic growth scenario, employment gains will be low. Major factors influencing income, besides GDP and employment, are changes in demographics – primarily ageing and smaller households – and changes to the labour market, such as acceleration of automation and increases in temporary or freelance contracts. The result is a continued wage stagnation or decline, with between 70-80% of the population affected. To stabilise the situation, considerable income transfers will need to take place between groups.

In the second scenario, in which there is robust growth and the labour market picks up, the level of inequality will decelerate, with only 10-20% of the population seeing their market incomes fall. The third scenario sees automation and digitalisation come to rapidly affect middle and low skill jobs, thereby reducing their opportunities for employment. The effects, given the pace of development, may not allow for the creation of additional employment opportunities for these groups, which would negatively affect their income – with, as a result, 30-40% of the population facing flat or falling incomes, requiring a transfer of between 5-10% to provide stability.

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Project management industry adds £156 billion of value to UK economy

15 April 2019 Consultancy.uk

Project management has grown into one of UK’s largest areas of business over the past decade, amid the increasing ‘projectification’ of work. With the gross value added to the UK economy by project management estimated to be £156 billion, this trend is likely to continue in the coming era.

Despite the huge success of project management in recent years, until now there has been relatively little data available on the size of project activity. As a result, there has been a great deal of debate on things like the number of people involved in the sector, the number of projects, and how it contributes to economic output. Due to this need for clarity, APM, the UK’s professional body for project management (the largest organisation of its kind in Europe, with 28,000 individual members) commissioned economists from PwC to shed light on the industry's economic impact.

The research concluded that the profession makes a more significant contribution to the UK economy than the financial services sector. 2.13 million full-time equivalent workers (FTEs) were employed in the UK project management sector, generating £156.5 billion of annual gross value added (GVA). In comparison, the financial services sector contributes £115 billion, and the construction industry adds £113 billion.

Gross value added to UK economy

Commenting on the discovery, Debbie Dore, Chief Executive of APM said, “Project management runs as a ‘golden thread’ through businesses, helping to develop new services, driving strategic change and sector-wide reform.”

Who is a ‘project manager’?

To reach these estimates, PwC’s researchers used detailed models to map out the value of project management activity. They ultimately defined relevant ‘projects’ as “temporary, non-routine endeavours or rolling programmes of change designed to produce a distinct product, service or end result… [with] a defined beginning and end, a specific scope, a ring-fenced budget, [and] an identified and potentially dedicated team with a project manager in charge.”

Building on this, they then went on to define what the act of project management actually is. The job consists of applying “processes, methods, knowledge, skills and experience” so that clients can meet their objectives and bring about planned outputs or outcomes. The analysts added that this includes “initiating the project, planning, executing, controlling, quality assuring and closing the work of an identified and dedicated team according to a specified budget and timeframe.”

Importantly, it should be noted that the profession is not exclusive to only roles explicitly labelled as ‘project manager’, but to any role where specialist project management skills are used. This means that across sectors these roles can have very different titles, from the self-explanatory contract managers of procurement, or the campaign managers of advertising, to the likes of festival co-ordinators in the events sector, and many more. The roles in question also span all strategic levels of the profession, from strategic to tactical and operational positions.

Gross value added of project management profession

From a sector perspective, the financial and professional services, construction and healthcare industries make up almost two-thirds of the total project management GVA. At the same time, understandably, the UK Government has a huge project portfolio, which further drives the size of the GVA the sector contributes, thanks to megaprojects like HS2 and Crossrail.

Commenting on this to the report’s authors, Oliver Dowden, Minister for Implementation remarked, “Project delivery is at the heart of all Government activity, whether it’s building roads and rail, strengthening our armed forces, modernising IT or transforming the way government provides public services to citizens. Getting these projects right is essential if we are to ensure that we build a country that works for everyone.”

Throughout 2019, 26 major government projects were delivered, representing a fifth of the overall Government Major Projects Portfolio (GMPP) of 133 projects. According to the IPA annual report 2017-18, these represented a whole life cost of £423 billion. In addition to this were a plethora of smaller scale projects, and those in early development.

Elsewhere, with the increasing digitalisation of the economy impacting entities of all shapes and sizes, IT and digital transformations tended to dominate the projects of the UK scene alongside new product development projects, with a respective 55% and 46% of organisations in the research sample having undertaken these types of project in the past year. At the same time, this varied across sectors, and unsurprisingly, in the construction and local government sectors, fixed capital projects were the main project type undertaken.

Outlook

Looking to the future, 40% of business leaders expect project management will grow in the coming years due to the increased use of projects – or the ‘projectification’ of the UK. In a trend that has been witnessed elsewhere, organisations have to rapidly and continuously change in the digital age of business, driving the need for project management.

Outlook for project management services

An increased focus on value over cost – especially in the construction sector – and a forecast increase in the number of international projects are predicted to be key drivers of growth, according to the expert contributors. However, this will not happen in the absence of challenges; more than half of organisations expressed concern over the perceived impact of political uncertainty in the UK. Skills and capability shortages were also cited as a potential barrier by a third of organisations.

With regard to budgets, meanwhile, a third of those surveyed by PwC said they expect the size of project budgets will increase in the coming three years, while 40% anticipate a growth in project size. As the profession continues to mature, and as the recognition of the importance of good project management grows, it is expected that a greater proportion of project work will gain more distinct attribution to the profession itself, giving more recognition and appreciation to the role of the project manager.

Speaking on the findings of the study, Sandie Grimshaw, a Partner at PwC, concluded, “The project management profession is relatively new compared to some other professions, such as lawyers, teachers and doctors. However, as project management is a core competence vital to organisations in the UK, the profession is critical and will continue to grow in stature.”