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Nearly one million could face unemployment due directly and indirectly to public-sector cuts

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Almost half a million private-sector jobs could be lost as a result of the upcoming public-sector spending cuts and private-sector gross output could be reduced by around 46 billion per annum by 2014/15, due to the impact on suppliers to the public sector, according to a report out today from PricewaterhouseCoopers (PwC).

When combined with public-sector job loss forecasts, nearly one million could face unemployment due to public-sector cuts.

But the report also highlights the potential for job creation in the private sector resulting from more employment opportunities coming from increased activity in areas such as the outsourcing market and interest rates staying lower for longer, due to the fiscal consolidation.

John Hawksworth, chief economist at PwC, said: "Predicted levels of public and private-sector job losses will be a drag on the pace of the economic recovery, but should not derail it altogether. While private-sector employment may be affected as much as the public sector, this could be mitigated by increased labour market flexibility on wages and hours worked, as we saw in 2008-09 recession. Evidence from the 1993-99 fiscal consolidation showed a net rise of around 1.2 million in private-sector employment during those years.

"Although the recovery may not be as strong this time as in the 1990s, we would expect at least some rise in private-sector employment over the next five years despite the fiscal squeeze, bearing in mind that this squeeze should allow interest rates to remain lower for longer."

For the UK as a whole, total job losses arising from the public-sector spending cuts including knock-on effects on the private sector might amount to around 3.4% of total employment (around 943,000 jobs in absolute terms) in 2014/15. For Northern Ireland this might rise to around 5.2% (around 36,000 jobs in absolute terms), compared with around 3.1% in London and the South East. However, the latter two regions could see around 230,000 job losses in absolute terms, given the larger size of their economies. Scotland might suffer job losses of around 95,000 and Wales around 52,000. Impacts also vary within regions – within Yorkshire and Humberside, for example, the analysis shows that Leeds may suffer less than Hull due to its stronger private services sector.

Hawksworth added: "The business services sector faces the largest impacts in absolute terms with a potential output loss of around 4% and around 180,000 job cuts due to reduced public sector demand in current areas of operation. There are signs that the Government may shift the boundary between the public and private sector in some areas, so opening up potential new areas for business services – for example, working with voluntary-sector organisations on offender rehabilitation. Therefore, while the business services sector will employ fewer people in existing areas of public-sector work, new areas will be created over time, resulting in offsetting employment opportunities.

"The construction sector could see even larger relative cuts with an output loss of approximately 5% leading to around 100,000 job cuts. This reflects the greater exposure of this sector to cuts in public-sector capital investment, which are particularly severe. Other smaller sub-sectors, such as office machinery and defence contractors, could experience even larger relative cuts in output and jobs given their heavy reliance on public-sector customers. The challenge for these businesses will be to diversify into other markets, both in the UK and overseas."