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Jobs: brace yourself for a soft landing?

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Paul Mason | 11:01 UK time, Friday, 11 July 2008

All the truisms accumulated during the economic boom now have to march up and be tested in the line of fire against the current downturn. No more boom and bust? We're busting rapidly. Inflation targeting? It's off target. No return to fiscal activism? Just listen to Yvette Cooper MP extolling fiscal activism (Newsnight iPlayer Tuesday 5 July).

However there is one phenomenon of the boom that I believe could stand up to the test of this downturn: the reformed UK labour market. We may get massive job losses and a fall in total hours worked, but we may not see the same kind of mass unemployment as we did in 1981 during the Thatcher-Howe recession. Here's why...

...In the first place, the UK labour market is massively dependent on migrants, and not just East European ones. Since 1995, when the UK's liberalised economy really began to take off, most population growth has been driven by non-A8 migration. In addition, since 2003, A8 migration has added, according to the Bank of England, about half a million workers to the workforce.

Second, workers in the UK, and particularly migrants, are prone to doing a lot of overtime; about £23bn a year of unpaid overtime according to the TUC and lot more of it paid.

Third, because of what Tony Blair once said was the "most deregulated labour market in Europe", there is a large amount of temporary work.

Official labour market statistics do not move fast enough to reflect the developments of the past month. The ONS June figures refer to Q1 of 2008 and show, if anything, a labour market at its absolute peak.
• The number of people in employment actually grew by 76,000 in the first quarter of 2008; if you look at it over 12 months the British workforce actually grew by not far off half a million last year!
• There were 1.64 million people unemployed - up 38,000 in three months but DOWN compared to a year earlier.
• But the number of job vacancies was 679,000 - steady over the three months but UP compared to a year earlier.

To me this represents the cliff off which the employment figures will now fall: 8,000 job losses in the housebuilding sector announced this week, combined with about 30,000 expected in the financial sector will certainly spread out and inflict pain on the rest of the economy, and thus affect employment. Mark Clare, the boss of Barrat Developments, warned yesterday there could be 60,000 job losses in housebuilding alone.

The question is, however, how fast can other sectors of the economy soak up these rapid job losses in the specifically-hit sectors? In the past you would have been pessimistic. Now however there is anecdotal evidence to counter this.

I spoke yesterday to recruitment boss Paul Moran of Hill McGlynn, which specialises in construction recruitment. He told me he had managed to place people whose CVs he'd been sent from the afflicted housebuilders "within 48 hours"; he lambasted the newspapers for talking up recession and said the first 6 months of 2008 had, for the agency, been better than the previous year.

If anything all that's happening is that a skills shortage, which has sucked in skilled labour from as far as South Africa and Australia has cooled off to the point at which it is approaching equilibrium, he said. Mr Moran also pointed out that the skills shortage has had a benign spin off: many construction managers and professionals now have highly transferable skills. Somebody who's been a quantity surveyor in housebuilding for 10 years, says Mr Moran, can easily be repurposed to go and build a bridge, railway or Olympic venue. And, because of public investment commitments, there will be a lot of this work about until 2012.

This to me suggests that large parts of UK industry and services have a more skilled and versatile workforce than 25 years ago.

The second anecdotal point comes on migration. Everybody I meet with experience of it is telling me "the Poles are going home". Obviously not all of them, but there is a trend. I went to Catholic Mass last Sunday in Oswestry with my mother, who believes there are far fewer recent Polish migrants attending than before; this is confirmed by professional sources.

Mike Stevens, who heads up the Support Services practice at KMPG told me that overtime is a crucial component of migrants' wages - and if there is less overtime around, they will not stick around just to earn basic money. In this context, just look at the ONS figures for hours worked in 2006-08, which we will see in hindsight as the boom before the bust: total hours per week worked in the UK (seasonally adjusted) rose from 930m to a peak just under 950m. While a lot of this has to have been worked by that extra half million who joined the workforce, a lot of it is probably overtime.

Mike's , released on Monday, shows that the demand for permanent staff has failed to grow for the first time in five years, signalling the start of a jobs downturn; even so, the same data shows the high peak we have to fall from - in every one of the previous years demand for permanent staff has grown faster than supply by a large margin.

So here's a potentially benign scenario for the jobs market - a soft landing where the amount of overtime falls, together with a fall in temporary and part time work, the return of some temporary migrants to their home countries and a more rapid process of re-skilling, fuelled by all that labour market infrastructure the government has put in place (skills councils, lifelong learning etc). The main losers in such a process will be the people the boom dragged into the workforce: pensioners, women with children and A8 migrants. I only call it benign because it has a chance of not creating the kind of feedback loop that flattened places like Sheffield., Liverpool and Glasgow in the 1980s, economically (although it may impact parts of Poland badly).

It could, however, happen in reverse: a hard landing where the core workforce get their cards first, ahead of the migrants and temporary workforce; managers try to squeeze more out of the existing workforce, pushing up overtime for those in work (this happened markedly in the first phase of the early-80s recession I remember); huge pockets of semi-skilled unemployment open up on top of the existing pools of long-term incapacity benefit recipients in places which have never quite recovered from the 1980s. Quite apart from the economic blight this will cause - and remember the "new" industrial belt of Britain stretches from London to Cheltenham and all points south west - it would play havoc with politics.

Which scenario do I expect? It's actually a matter of policy, struggle and competition as well as economic laws.

It would be nice to hear from politicians about how they intend to manage the jobs downturn: they will be tempted to say they can't - but actually the shape of it will be determined by law, regulation and public investment policy. Crossrail and the 2012 Olympics for example are what will ensure the South East's construction economy continues to thrive even if the rest of the UK sees a downturn.

At present I am cautiously optimistic - I hope I'm right: the first time I ever stood in a dole queue was in Sheffield in 1981. It was terrifyingly long - not like the ones in The Full Monty, which only stretched to the back of the room. This one stretched right round the building and onto the road for about 100 metres and was four deep: I still remember the look on the faces of the steelworkers in it.

Comments

  • Comment number 1.

    Paul,

    On the specific question of A8 migrants, it is important to bear in mind that very few of these people see the migration as permanent. A young friend of ours flew over today to take up a job in the UK. She is quite clear that she is going for a limited time to 'brush up on her English and send a few pounds home'. This is a common approach.

    If things get tough, these people may rethink their timing but will stick to the plan. Those who plan to stay are actually a small minority.

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