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Analysis: Private sector fails to offset public sector jobs cull as unemployment soars

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14th Sep 2011
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Unemployment has experienced the largest quarterly hike since August 2009, driven by a faster than expected public sector jobs cull that a slowing private sector is failing to offset.

According to official labour market figures published by the Office for National Statistics, unemployment stood at 7.9% or 2.51 million for the three months to July, up 0.3% on the quarter. The 80,000 increase was the highest since the UK was in the middle of recession.   The number of unemployed men rose by 39,000 to hit 1.45 million, while the number of unemployed females grew by 41,000 to reach 1.06 million – the highest figure since the three months to April 1988.   But those aged between 18 and 24 were even worse hit, with the number of unemployed in this group jumping by 77,000 to 769,000. In fact, according to a report by the OECD, the UK now ranks ninth out of 32 nations in terms of the number of its school leavers being classed as Neets or not in education, employment or training.   Almost one out of 10 were without a job or college place in 2009 – the latest comparable data – placing the UK only behind Spain, Italy and Ireland in the EU league table.  Public sector job losses  But the number of people who were employed by the public sector also fell by a “staggering” 111,000 to 6.04 million during the quarter – the largest drop since comparable records began in 1999.   The Centre for Economics and Business Research suggested that this meant job cuts were “occurring at a much more rapid rate than anticipated”. The Office for Budget Responsibility had expected general government employment to drop by only 20,000 over the 2011/2012 fiscal year.   But the fact that the private sector had managed to create only 41,000 jobs (to reach 23.13 million) during the three months to July appeared to confirm that it would be “unable to offset public sector job losses in the short-term”, said the Cebr. As a result, it anticipated that unemployment would creep up to 8% over the coming months.   Carmen Watson, managing director of Pertemps Recruitment Partnership, was particularly concerned by the toll that public sector job losses were taking on women, however.   “Women have been disproportionately affected by this and we’re worried that cuts to childcare and benefits will make the situation more difficult in the coming months,” she said.  Labour market prospects  Nonetheless, a leaked Downing Street memo has floated the idea of shortening school holidays to try and improve families’ work-life balance.   Other proposals drawn up by the No 10 policy unit in a bid to try and appeal more to female voters, with which the coalition government is less popular than men, included ‘frontloading’ child benefit to help families with young children and giving mothers-to-be more freedom to shop around for maternity services.   Despite such suggestions, John Philpott, chief economic advisor at the Chartered Institute of Personnel and Development, remained pessimistic about short- to medium-term labour market prospects.   “It’s clear from the large quarterly fall in employment and very sharp rise in headline unemployment that the UK jobs market is weakening significantly and that we can expect unemployment to continue to rise well into next year,” he said. “What’s most worrying is that the private sector jobs recovery has slowed markedly, while the public sector jobs cull is accelerating rapidly.”   The number of people in employment who were aged 16 and over dropped by 69,000 on the quarter to hit 29.17 million, although the figure amounted to a 24,000 increase on the year. Those claiming Jobseeker’s Allowance also rose by 20,300 in August compared with July, however.  Government action  But according to a report by the IPPR think-tank, things are unlikely to get better any time soon. It claimed that the UK faced a “long and difficult” path back to full employment, indicating that up to two million new jobs would need to be created to take the country back to pre-recession levels.   The problem was that the public sector had been making up for insufficient private sector job creation over the last 20 years, but the trend was now being reversed by the Government’s spending cuts.   In addition, even a hoped-for 1.5 million newly-created jobs over the next five years would not be enough to replace those lost in the public sector or to bring down unemployment to any significant degree, the report warned.   It likewise predicted that the majority of new positions created over the next decade would be skilled ones in the service sector in areas such social care. Low skilled jobs would continue to disappear.   But Tony Dolphin, the IPPR’s chief economist, said that it was unlikely that the private sector could “meet the challenge” over the next four years without support from the coalition government, not least because simply cutting corporate tax rates, deregulation and the creation of new Enterprise Zones was an “inadequate response”.   “The Government should work with others, including skills providers and welfare-to-work providers, to do more to support growth in the short-term and to avoid the problem of discouraged workers leaving the labour market by doing more to encourage retraining, to improve job-matching and to get the long-term unemployed back into work,” he said.    

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By Garlanc
15th Sep 2011 10:55

I think there is a missing issue here. It is not just cuts in public sector jobs that are increasing unemployment it is also down to the amount of shops that are closing down in favour of on-line ordering services which can be manned off shore with lower overheads . Shopping centres have emtpy units and local high streets have many empty premises. I personally find this very worrying.

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