If the government pursues large and rapid reductions in public sector jobs without giving the recovering private sector time to absorb them, it will risk creating a long-term unemployment problem, experts have warned.
According to Ian Brinkley, associate director at research and consultancy body The Work Foundation, rising employment in the private sector could absorb public sector job cuts of about 500,000 and return employment to pre-recession levels relatively quickly.
But if figures are more like one million, any “plausible” private sector jobs growth would be overwhelmed and make the overall recovery in unemployment much more drawn out. Companies would effectively be “swamped” with candidates whose existing skills and experience make it hard for them to take on new private sector posts.
Such a situation would be particularly true in the regions, which rely disproportionately on the public sector for employment due to a relatively weak private sector presence. The figures are based on the recovery from recession in the 1990s and the latest growth forecasts from the Office for Budget Responsibility.
“Unemployment will start to fall if job cuts in the public sector are more in line with the lower estimate presented above, but it will take much longer to get unemployment back down if cuts are closer to the top end of our estimates,” said Brinkley.
As a result, it was crucial to ensure that the pace and scale of change was “well-managed and in line with the recovery of private sector employment,” he added.
But as well as managing such cuts in a “responsible and careful” way, the government also needed to help the jobs situation by providing support in key potential high growth areas such as high tech and related services, advanced manufacturing, cleantech and the cultural and creative industries.
“Unemployment in any scenario is likely to remain above pre-recession levels for many years as the number of job seekers is expected to grow,” Brinkley cautioned, however.
Economist Owen James also agreed that, based on official figures released by the Office for National Statistics (ONS) yesterday, the weak state of the labour market meant that it was ill-prepared for deep public sector cuts.
The ONS indicated that the number of unemployed rose by 23,000 to 2.47 million during the three months to April, up to 7.9% of the total workforce compared with 7.8% in the quarter to January.
Growth in private sector jobs (12,000) slightly outweighed a fall in public sector jobs (7,000), but were mainly part-time, temporary positions or filled by the self-employed. Moreover, while the number of people claiming Jobseeker’s Allowance dropped by 30,900 to 1.48 million in May, the number of people classed as economically inactive – those out of work and not seeking employment – rose by 29,000 to 8.19 million during the quarter.
James said that the data pointed to a “fragile” UK labour market that may be starting to stabilise but was not yet on the road to recovery.
“With the private sector recovery to remain sluggish, the public sector recession only beginning and the UK economic recovery lacklustre, unemployment is likely to continue increasing throughout 2011 and 2012,” James said. “Over the medium-term, things are only likely to get worse before they get better for the UK labour market.”
