Industry watchers have expressed concern over the fragile state of the labour market following the publication of government statistics yesterday, amid fears that private sector job creation will be unable to offset heavy public sector job cuts.
The figures released by the Office of National Statistics showed a mixed picture for the three months to July. While unemployment fell by 8,000 to stand at 2.47 million, the equivalent of 7.8% of the workforce, the number of benefit claimants rose by 2,300 in August to 1.47 million. Analysts had expected unemployment to fall by between 35,000 and 40,000, however.
Moreover, although the number of people in employment rose by 286,000 to 29.2 million, representing a 0.4% increase – the biggest quarterly rise since 1971 – the number of job vacancies dropped by 14,000 to 467,000.
Graeme Leach, chief economist at member organisation the Institute of Directors, said: “The latest labour market statistics are a concern, despite the 286,000 surge in employment. Claimant unemployment is up and vacancies are down to their lowest level this year and all of this before the public sector shake-out has really begun.”
Public sector employment had dropped by 18,000 over the last year and the risk was that private sector employment growth would now slow, thus making it “insufficient to offset the crunching job losses expected in the public sector”, he added.
“Two things look certain over the next six to nine months. First, a softer labour market will put downward pressure on earnings growth. Second, industrial unrest in the public sector will multiply. At worst, we could be facing a winter of discontent. At best, I feel, a bad recovery,” Leach warned.
Nigel Meager, director of the Institute for Employment Studies, was equally worried. The rise in the claimant count was “an unwelcome reminder of how fragile the labour market remains” and suggested “a weakening picture”, he said.
The fall in the number of vacancies during the quarter was entirely the result of a “drying up” of job creation in the public sector, which was “barely offset” by limited growth in the private sector.
“The figures highlight how delicate the balance will be over the coming months and suggest that current private sector growth may not be adequate to ameliorate the impacts of reduced public sector employment,” Meager said.
As a result, John Philpott, chief economic advisor at the Chartered Institute of Personnel and Development (CIPD) called on the coalition government to introduce public sector job cuts more slowly by ‘back-loading’ 80% of them until after 2013.
He recommended that such cuts be limited to no more than 125,000, about one in five of those in the pipeline, between now and the end of fiscal year 2012 and 2013. This would mean that the majority of job losses would “fall closer to 2015-16 than 2013-2014”.
Because forward-looking indicators suggested that the UK jobs situation was about to take another turn for the worse, Philpott said: “It’s imperative that those cuts are implemented in a way that minimises adverse effects on the government’s wider objectives for growth, jobs, welfare to work initiatives and public service reform.”
Such a strategy would prevent total UK employment from rising above 2.8 million by 2012 because, while the rate of net private sector job creation will be “insufficient” to start offsetting the impact of public sector job losses before 2013, it should start increasing after that.
Moreover, a delay would also give staff at risk of losing their jobs more time to prepare for alternative employment and give those who remain more space to adjust to a changed workplace, “thereby minimising any negative impact of staffing cuts on public service quality”, Philpott said.
“A more aggressive approach to public sector job cuts would push unemployment close to three million and be especially harmful to those regions of the UK least well placed to enjoy an early and significant improvement in private sector employment,” he added.