"The employment situation looks like a case of the good, the bad, and the ugly!"

  13th August 2010      
 Company News

Recent survey indicates stalled employment recovery, but the difference between public and private sector remains significant

The latest quarterly CIPD/KPMG Labour Market Outlook survey shows that the labour demand in the private sector continues to offset the sharp fall within the private sector, although this looks to be changing soon. Worse is expected to come as redundancy intentions have increased among the 600 employers included in the survey, which is representative of the entire economy.

The Labour Market Outlook net employment index measures the difference between the number of employers intending to increase or decrease staffing levels in the third quarter of this year. This shows that the proportion has stabilised, but has slightly fallen from +2 in the previous report to +5.

On the contrary, the difference between net employment intentions within private and public sector are substantial, with the private sector at +19 compared to -35 in the public sector. The net employment decline in the public sector is most evident in the local government (-74) and public administration and defence (-59). The largest areas of growth within the private sector are manufacturing and production (+40) and private sector services in the IT industry (+42) and consultancy services (+38).

The full anticipated impact on job losses is masked by the overall slight increase in redundancy intentions. Organisations that are intending to make redundancies expect to do so with a larger average of 5.5% of their workforce, an increase of 50% from the previous quarterly report.

Public Policy Advisor and author of the report, Gerwyn Davies, says that “the quarterly Labour Market Outlook once again offers a good early indication of recruitment and redundancy intentions. The employment situation looks like a case of the good, the bad and the ugly.” He says it is striking that, while the redundancy intention is similar to the Spring report, these figures conceal the large, 50%, increase of affected workers and the true extent of these redundancy programmes.

“On balance, therefore, the CIPD expects employment to remain stable in the coming months. However, the medium-term employment outlook is likely to be weaker than the forecasts made by the OBR.” The office for Budget Responsibility expects employment to increase by 200,000 next year.

Although the forecasts by the CIPD and the OBR for the next few months are similar, Davies continues to explain that “the CIPD believes that a rise in unemployment in the next two years remains a distinct possibility, as the private sector recovery is offset by the 600,000 public sector job losses the Government expects over the next five years.”

The head of the public sector, KPMG, Alan Downey adds: “Managers in the public sector have woken up to the scale of the financial crisis that they face, many are now contemplating redundancy programmes. Surprisingly, though, some are still intending to recruit, albeit at a reduced pace.

“In the months ahead we will see a substantial reduction in public sector headcount as the cuts begin to bite. That is the painful but inevitable consequence of the coalition government’s determination to tackle the UK’s massive structural deficit.

“The big question is whether the private sector can create new jobs in sufficient numbers, and quickly enough offset the downturn in the public sector.” Downey questions whether the country is about to return to strong and sustained economic growth, or will experience a faltering recovery with unemployment steadily rising because of the cutbacks in the public sector. “The survey suggests it is too close to call.”

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