What could those public sector job losses add up to for the economy?

I’ve been delving into a few economic numbers and issues over the weekend. I’m a spod, it fascinates me, and some of the numbers will help us understand what’s going during an unhelpfully febrile political period.
Some sectors of the economy have now clearly moved on from the crunch. They’re dealing now with those difficulties which crop up as an economy comes out of recession.
Others are still dealing with problems which quite definitely have their origins in the property collapse, notably construction. It got knocked for six by a collapse in private sector work which followed the catastrophic fall in asset values which pole-axed the banks.
Here we are, four years on, and it is now dealing with a second wave of failures, brought on by a sharp fall in public sector work. While the current cutbacks aren’t helping, the pipeline of council/NHS contracts actually started to dry up early last year when the public sector realised it was in for a pasting whoever won the election.
In some areas of construction it is a pretty poisonous climate right now – below-cost tendering simply to gain cash flow, disputes over work and payment, reopening contract negotiations. And clients watching to make sure a cheap tender doesn’t lead to corners being cut.
In property, occupiers want shorter leases, introductory incentives, better break clauses. All of which makes property investment difficult unless you’ve got a solid business you trust paying the rent.
Other parts of the economy are bobbing up and down quarter-on-quarter as businesses who delayed replacing stock or equipment decide they need to keep the show on the road. But their spending is about cyclical replacement, not building up resources to make the most of growth. In other words, once they’ve replaced that knackered old machine they shut the wallet again.
That’s typical of the immediate aftermath of recession – people and business spend only what’s necessary until they’re confident of the way ahead.
To my eyes, the debate about whether the economy is growing properly or not has run ahead of itself. People – politicians especially – seem to have forgotten that our economy suffered the equivalent of a devastating physical injury which left it in intensive care for months after October 2008.
When you suffer one of the worst financial shocks in living memory and a predictably deep recession in its wake, no one should be surprised that the economy is taking time to get back into gear. You don’t suffer a devastating physical injury without pain, serious surgery and lengthy rehabilitation. The same is true for the economy.
Don’t forget, either, that what the economy is going through at the moment is not mainly the result of government policy inputs right now – they may affect current confidence and nudge quarterly numbers up or down a fraction, but the broad direction UK plc is taking is still a reaction to severe recession, weak credit conditions, and the policy inputs of 6-18 months ago.
Of course, we’ve yet to see the impact of the VAT rise, April’s National Insurance increase and the public sector cutbacks. The consensus here is that they will hold back growth but are unlikely to send it plummeting back into the depths of recession.
This may surprise some who think the public sector cutbacks in particular will be a hammer blow to the economy. They’ll hurt anyone who loses their job, of course, but bear in mind that the public sector workforce accounts for just under 20 per cent of those in employment in the UK. The job losses will account for a small percentage of that percentage.
The estimates for the total number of public sector job losses have ranged from 600,000 (the Office of Budgetary Responsibility) to 725,000 (the Chartered Institute of Personnel and Development). Whichever figure you favour, these are big numbers, but they need putting in proportion. The jobs will be lost over a period of at least five years, they are smaller than the public sector job reductions of the early 1990s (when, says the CIPD, 800,000 jobs went).
But what do the numbers actually mean? Accoding to the Office for National Statistics, the public sector workforce is just over six million people, so the losses on the basis of the CIPD’s worst case scenario amount to around 11 per cent of public employees over five years. In other words, it’s a small proportion of a part of the economy over a period of time.
The NHS is the biggest public sector employer, providing jobs for just over 1.6 million people according to Government statistics from September 2010 – 27 per cent of the publicly-funded workforce.
Education is another 23 per cent of the public sector total, at 1.4 million.
Large-scale job losses in health or education are not on the agenda, though below-inflation increases in funding mean some jobs may be lost and employment growth is unlikely.
Public administration – which takes in national and local government – accounts for 20 per cent of the public sector or roughly 1.2 million people. It’s here where most of the noise about job losses has been.
This all sounds like a pretty sub-human way of analysing people’s livelihoods, but I hope it illustrates that whether you agree with these cuts and/or the way they’re being done they’re unlikely in themselves to pitch us back into recession – especially when they’re spread over a number of years.
This is only an economic assessment, of course. There are other concerns about the impact these cuts will have on the people who need these services, questions over whether the private sector is capable of balancing quality and profit in an equitable manner if it takes over services, and the issue of what happens to long-standing public sector workers who suddenly find themselves looking for work in what may appear to be almost a foreign environment.
As I said, you don’t suffer a severe economic shock without severe consequences. But at a time when the economy is still bumping along the bottom these consequences will not be easy to absorb.