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Labour market survey is pessimistic about ability of growth in private sector to offset decline in public sector


Labour demand in private sector is offsetting the 'sharp fall' in demand in the public sector, but not for long, a new report shows.

The latest CIPD/KPMG Labor Market Outlook survey indicates that the employment recovery has stalled, but that the disparity between the public and private sector remains significant. But worse is to come as redundancy intentions have picked up among the 600 employers surveyed, representative of the whole economy.

The Labor Market Outlook net employment index, which measures the difference between the proportion of employers that intend to increase total staffing levels and those that intend to decrease total staffing levels in the third quarter of 2010, has stabilized and remains just in the black, but has fallen to +2 from +5 in the previous spring report. 

But differences between sectors are striking with the net employment intentions balance for the private sector coming in at +19 compared with the balance for the public sector at -35. 

The decline in net employment in the public sector is particularly evident in public administration and defense (–59), and especially local government (-74). Within the private sector, the areas of most growth are manufacturing and production (+40) and private sector services (+15), particularly the IT industry (+42) and consultancy services (+38).

While recruitment intentions generally remain stable, the proportion of employers intending to make redundancies has increased for the second quarter in succession, returning to levels last seen a year ago. A third of employers (32%) expect to cut jobs during the next three months, up from 29% in the spring quarter and 26% in the winter quarter. The survey findings reveal organizations in the public sector are once again going to be the most affected; a reflection of substantial budget cuts. Over a third of public-sector employers (36%) are planning to make redundancies during the next three months, compared with 30% in the private sector and 24% in the voluntary sector.
But a slight increase in redundancy intentions masks the overall effect this will have on job losses, with organizations that are planning to make redundancies expecting to make more of their workforce redundant this quarter – 5.5% on average, up from 3.6% in the spring report, which represents a 50% jump in the past three months.

Berwyn Davies, public policy adviser and author of the report, CIPD, said: "The quarterly Labor 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. Most striking this time is that, while the number of employers planning to make redundancies is similar to that in the spring report, this trend masks the true extent of forthcoming job losses in the third quarter of the year; as the proportion of the workforce that will be affected by these redundancy programmers has jumped by 50%.  As is being widely reported, this is being driven chiefly by public-sector organisations, where redundancies will affect almost 8% of the workforce on average.

"On balance, therefore, the CIPD, like the Office for Budget Responsibility (OBR), 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, where expectations are that employment is to increase by 200,000 next years. 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."

Alan Downey, head of public sector, KPMG, added: "Managers in the public sector have woken up to the scale of the financial crisis that they face, and many are now contemplating redundancy programmers. Surprisingly, 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 to offset the downturn in the public sector. Are we about to return to strong and sustained economic growth, or will we experience a faltering recovery in which unemployment will rise steadily because of the retrenchment in the public sector? The survey suggests it is too close to call."