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Prospects for private sector jobs growth in SW England - detail: Prospects for private sector jobs growth in SW England - detail Shane Vallance, SW Economy Module

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Aging population Less political and domestic appetite for debt Hollowing out of middle-wage occupations Technological change favouring jobless growth Shift from full-time working Double real wage pressure (nominal wage + inflation) Difficult to forecast significant structural shifts to favour private sector employment growth Particularly strong enough to offset public sector withdrawal on top of ‘normal’ trends The Macro Outlook

Construction & manufacturing – cyclical effects:

Construction & manufacturing – cyclical effects Construction driven by cyclical trends – inevitable it suffers sharper contraction Manufacturing – structural decline, less affected by recession Recessionary contraction

Services – period of long expansion:

Services – period of long expansion Now appears that parts of service sector growth were unsustainable, only suffering minor correction Unlikely to see similar growth in coming decade – labour market adjustment hasn’t fully worked through

Recessions cause labour market divergence:

Recessions cause labour market divergence Chart - Dispersion of UK regional U E Chart - Dispersion of SW sub-regional U E Downturns tend to quickly expose weaker labour markets Differences are persisting with the weak labour market

Weak growth – weak unemployment effect:

Weak growth – weak unemployment effect History - +2/2.5% sustained growth is needed to reduce U E Indications are that if 2% approached then U E begins to increase

The shift from full-time to part-time/temporary:

The shift from full-time to part-time/temporary Shift from FT to ‘forced’ PT highlights complexity of labour market. Simple analysis of unemployment or employment rates does not tell the full story of deterioration in ‘value’

The ‘ Hourglass effect’:

The ‘ Hourglass effect’ Middle income (skilled) jobs have been most badly affected in ST & LT (EU)

The ‘hourglass’ and the ‘escalator’:

The ‘hourglass’ and the ‘escalator’ The hollowing out of middle-wage occupations has had particular effect upon men – showing effect of manufacturing and construction industries Recession has speeded up structural change - now greater job creation in lower-wage occupations meaning people needing to take lower-paid jobs Low-skilled have suffered in recession as skilled people are ‘bumped down’ – employment rate for unskilled increased markedly, probably due to competition Damaging aspect is additional barrier to earnings mobility. Evidence suggest that in UK 1/3 remain in bottom decile (60% in bottom three deciles)

Public sector retraction (1):

Public sector retraction (1) Local Government have experienced greatest pain – 5% decline Job losses are running more quickly than OBR forecasts – 242,000 in UK (exc. public corp) since 2010 - 310,000 forecast

Public sector retraction (2):

Public sector retraction (2) SW - the largest relative & absolute (exc. London) decline - down 8.2% from peak Lost 45,000 jobs since Q4 2009

Local authority job loss announcements:

Local authority job loss announcements Chart - LA budgets – total announced losses Chart - LA budgets – announced losses per 1000 employees

Local authority job loss announcements:

Local authority job loss announcements Chart - Absolute LA grant reduction & gross announced losses Chart - LA job losses related to revenue

Local authority job loss announcements:

Local authority job loss announcements Only announcements – likely that many will be through natural wastage Also, they are media announcements – data unavailable from LAs directly However, shows the different pace of local authority announcements – some appearing to make larger announcements Could suggest that more job loss announcements may come from some LAs as budget adjustment continues to take place 65% employees are female, compared to 41% in private sector On average, public sector employees earn 7.8% more than private sector, accounting for differences in qualifications – therefore adjustment required

Wider impact of public sector cuts - estimates:

Wider impact of public sector cuts - estimates ‘Sept 10’ exercise made on OBR forecast of 600,000 job losses (June 10) – based on fiscal targets to 2015 Redone in ‘July 11’ based on CSR spending cuts of 19% - using baseline of £42.5bn Gov. expenditure in SW in 2010/11 Estimates that 119,000 direct (88,000) and indirect (31,000) jobs could be lost – broadly comparable to ‘Sept 10’ exercise Could now be underestimate given LA average budget cut of 27% and that 45,000 jobs already cut since end of 2009 and still 4 years to go

High growth firms & employment growth:

High growth firms & employment growth NESTA research – 6% of businesses who experienced sustained 20% growth responsible for 54% employment growth (2005-08) This relationship still held firm during recession (2007-10) and proportion of firms growing at over 20% remained similar Creates policy issues – importance for job creation but difficulties in identifying winners Using past growth as indicator of future growth is unreliable – using 1998 start-ups, less than 40% that achieved growth in single year had another episode of high-growth in that decade Growth not necessarily associated with start-ups, majority (70%) of high-growth firms are over 5 years old

Manufacturing & problems of job creation:

Manufacturing & problems of job creation Over past two decades manufacturing output growth has primarily been due to productivity rather than employment growth Chart – annual contribution to manufacturing growth

Learning from previous evaluation:

Learning from previous evaluation Difficult to draw consistent conclusions but evidence suggest that strongest job creation is when support is for single organisations (obviously taking into account State Aid) Support is strategic, large-scale(!!) and important in location decision making Evidence of job creation in programmes i.e. spread across many businesses is weaker Because support is less intensive, businesses themselves struggle to make link between support and job growth Does this lead to concentrating limited resources on fewer, but larger, investment opportunities?


Conclusion Over half of new jobs in previous decade were in public sector – this ‘leg of the stool’ has been taken away and means future will be different Significant announcements already made – we now expect numbers to exceed forecasts Likely to affect older and female workers most Private sector job creation has recently slowed Likely to continue the ‘hourglass effect’ – with implications for those at bottom Difficulty is to stimulate job creation as well as instigating necessary structural change Need for private sector to create jobs ‘above trend’ to compensate for public sector losses PLUS population change

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