Labour at a crossroads

Economic adviser Dr John Philpott explains why the UK's economy and labour market are at the crossroads.

Dr John Philpott, chief economic adviser to the Chartered Institute of Personnel and Development, comments on the UK’s unemployment level.

The economy and the labour market are at a crossroads. From an optimistic viewpoint, even though there’s been a rise in unemployment, it’s not as bad as some forecasters expected.

Overall evidence suggests that private sector job creation is just about offsetting public sector job losses. Despite the difficulties that the economy is facing, the labour market is fairly stable.

A more pessimistic view to take is that the number of public sector job cuts will increase this year, while the considerable uncertainty about background economic conditions suggests that the pace of private sector job creation will slow.

As a result of that, the likelihood is that unemployment will rise further throughout the course of the year. My current expectation is that by the end of this year unemployment will reach 2.7 million.

On the face of it, there should be a large pool of talent for businesses to draw on because unemployment is high and rising. But within manufacturing, for example, there are specialist skills shortages. The fact that the labour pool is substantial doesn’t necessarily mean it’s of the right quality to meet employer demand.

Having said that, if there was a big mismatch between supply and demand, one would expect to be seeing considerably faster growth in wages than we are seeing. Wage inflation is still relatively modest.

If we get to a situation where the labour market remains stable then that will be a remarkably good outcome given the degree of pressure that the economy is facing.

John

Dr John Philpott

Dr John Philpott, chief economic adviser to the Chartered Institute of Personnel and Development.

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