Jobs: A tale of two markets as cuts begin to bite

The Labour Market Outlook from the Chartered Institute of Personnel and Development (CIPD) and KPMG suggests that job creation in the private sector offers some hope to the overall employment picture, which is still forecast to head downwards.

The survey of 750 employers indicates that overall employment levels, which have held up relatively well in 2010, are heading for a fall in 2011. The Labour 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 first quarter of 2011, has fallen to -3 from +11 in the past three months.

However, the private sector will continue to generate jobs growth, with manufacturing (+20) and private sector services (+20) providing the majority of the jobs. In sharp contrast, two thirds of public sector organisations (-66) will be looking to reduce the size of their workforces in the first quarter of 2011.

Redundancy intentions have risen to their highest level since the survey began across the whole economy and are highest in the public sector where more than half (52 per cent) of public sector employers intend to make redundancies in the first three months of 2011. More than three-quarters (77 per cent) of local government employers plan to make cuts to their workforces.

The report’s twelve-month index, which gives a longer-term perspective on recruitment and redundancy intentions, has also fallen to -9 from +1. One in three (33 per cent) of employers say they will be looking to employ fewer people in 2011 as a result of the Comprehensive Spending Review.

Gerwyn Davies, public policy adviser at the CIPD said: “The first quarter of 2011 was always going to be a quarter of reckoning for the jobs market, and it seems that last year’s modest recovery will be reversed by a modest relapse this year. Encouragingly, the private sector continues to generate new jobs, but we are some way off the jobs boom that we are all hoping for.

“While private sector jobs generation is encouraging, it’s more important than ever that the government continues its growth efforts in the private sector so as to offset the jobs gloom in the public sector.”

Malcolm Edge, Head of Markets at KPMG, said: “These figures show that there continues to be a marked divide in the UK jobs market, with the public sector still fearing the worst while the private sector shows signs of better health. Manufacturing and services are engines of the national UK economy so it is encouraging to see positive growth there and with this resurgence in the manufacturing sector, one hopes that that trend will continue.

“However, the private sector recovery is not yet fully established and therefore remains susceptible to shocks. However government stimulus with the banks to increase business could provide much needed finance for growth. Medium sized enterprises are the life blood of the UK economy and this could be a very beneficial boost for them.”

Downward pressure is also expected on wages. Basic pay increase expectations have fallen to 1.3 per cent from 1.5 per cent during the past three months. Average pay settlements in the public sector are expected to fall to -0.33 per cent which compares with 2.3 per centin the private sector.