Have public-sector jobs cuts reached their peak?

The surprising strength of private-sector jobs growth has deflected attention away from what’s been happening to those in the public sector, says John Philpott, former chief economic adviser at the CIPD and director of independent research organisation The Jobs Economist. Here, he offers a brief recap.

At the end of 2012, 5.72 million people were employed in the UK public sector, comprising 5.24 million in “general government” (i.e. central and local government) and 0.48 million in public corporations. This total is 640,000 lower than the peak in Q3 2009 and 600,000 lower than in Q1 2010, the final full quarter before the coalition Government was formed.

Part of the total fall in public-sector employment is due to a statistical re-classification of people employed in English further education (FE) colleges and sixth form colleges in the public and private sectors. Adjusting for this, the underlying reduction in public-sector employment between Q1 2010 and Q4 2012 is 410,000 (6.5%). This is a better indicator of the net impact of public-sector job cuts on the overall labour market.

The Office for Budget Responsibility (OBR) projections for public-sector jobs relate only to general government employment. Adjusting for statistical reclassification, there was an underlying fall in general government employment of 340,000 (-5.9%) between Q1 2010 and Q4 2012, slightly less than half the total underlying fall of 700,000 (-12.1%) the OBR projection predicts for Q1 2010 to Q1 2015. Given the current quarterly rate of decline in general government employment, the OBR projection points to a further total reduction of 340,000 between Q1 2013 and Q1 2015.

If the OBR projection proves correct, the total fall in general government employment of 700,000 between 2010 and 2015 will match the rise in general government employment from its trough in Q2 1999 to the peak in Q4 2009. Consequently the coalition will, in five years, cut as many general government jobs as the former Labour Government created in the decade to the end of 2009.

As a point of comparison, during the most recent previous period of UK public-sector downsizing in the 1990s, general government employment fell by a total of 590,000 (10.8%) with an average reduction of 75,000 per year. The annual average projected fall in general government employment between 2010 and 2015 is 140,000. On the current OBR projection, the coalition Government is therefore cutting general government employment at almost double the annual amount achieved in the 1990s.

The projected average reduction in general government of almost 43,000 per quarter between now and the general election due in 2015 is considerably higher than the average reduction of 30,000 per quarter since the 2010 general election. However, although this points to a quickening in the pace of public-sector downsizing, the actual underlying reduction in general government employment has slowed to around 20,000 per quarter since mid-2012.

If the OBR is right, the full effect of public-sector jobs cuts expected in the current five year Parliament is still to be felt. This will almost certainly further exacerbate tension between the Government and public-sector trade unions at a time when talk of a general strike is in the air.

But an important caveat should be applied here – as I have continually pointed out over the past couple of years, the OBR methodology for projecting public-sector employment takes no account of what’s happening on the ground in public-sector workplaces. This raises the possibility that the OBR, which – in 2010 – greatly underestimated the scale of public-sector job cuts in 2011 and 2012, may now be overestimating the scale of future cuts. If the current actual quarterly rate of reduction were to persist, the fall in general government employment between now and 2015 would be 160,000, limiting the total fall between 2010 and 2015 to 520,000. If so, the worst of the public-sector job cuts in this Parliament are already behind us.

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