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Public sector cuts and the labour market

Source: Public Sector Executive Nov/Dec 2012

PSE talks to Ian Brinkley, director of The Work Foundation, about its new report suggesting the Government is ‘flying blind’ on the effect public sector jobs cuts are having and will have on the wider labour market.

The Government is pushing ahead with policies that will result in major reductions to the public sector workforce without any real understanding or forecasting about what it is likely to do to the rest of the labour market, and therefore the economy, a new report suggests.

In ‘Public Loss, Private Gain?’, the Work Foundation calls on the Government to put some real effort into understanding the likely effects, and to research especially the number of people leaving the public sector and moving into inactivity, rather than ending up elsewhere in the labour market.

Those supporting the Government’s approach have always hoped that prioritising defi cit reduction and hence public sector cuts will allow more private sector growth and job creation, to more than make up for job losses in the public sector.

OBR forecasts suggest the public sector will shed 700,000 jobs between 2011 and 2017, but that overall employment will grow by 1m. However, without more detailed studies into the labour market and the public sector workforce, the evidence for the Government’s claims seems minimal.

We asked Ian Brindley, Work Foundation director, how it is the Government has found itself in the position of having to base such a key part of its economic policy on optimism rather than data.

He said: “There are two reasons. One is a very longstanding structural issue, which is that the ability to take an overview of the public sector labour market has been weak under both Labour and Conservative governments.

“The last Labour Government was the fi rst time anyone had done a really comprehensive overview of the public sector labour market, and that was once in 10 years. It’s a very decentralised system, so all the decisionmaking has been passed down the line. There’s a longstanding inability, at the moment, to take that wider view across the public sector labour market as a whole.

“The second is the absolute priority to get savings into the system, and in particular to get them in quickly enough. The key study for me was the NAO research looking at the civil service redundancies, which found that once you run the numbers, the big savings tend to come either from the ending of support contracts – IT and so on – or selling off buildings. Obviously, organisations have been moving quite quickly to deliver savings within the spending review period. So the emphasis has been on getting the savings out as quickly as possible, and thinking about the long-term consequences later.”

The job cuts in the public sector so far have been frontloaded – in some cases following the pattern in budget cuts coming from central Government, but in other cases because organisations have been trying to achieve savings as quickly as possible.

Brinkley said the long-term implications of badly thought-through job cuts is that some will have to be reversed.

He said: “You can easily imagine that in some key areas, departments are going to have to re-hire the people they got rid of, or at least re-hire into those functions.

“At the moment, making these very rapid changes without actually transforming the way you do things means you’re going to end up with fewer services, not services performing better. Longterm it could lead to a deterioration of quality of services.”

A key point made in the report – and one that bears repeating – is about the proportion of managers in the public vs private sectors, and how the reality is the reverse of the rhetoric.

As the report puts it: “About 5% of the public sector workforce are managers compared with 12% in the private sector workforce, 38% are professionals compared with 13% in the private sector, and 16% are associate professionals and technical staff compared with 13% in the private sector. In other words, the public sector employs roughly twice as many professionals and associate professionals and less than half the number of managers, proportionately, as the private sector.”

Brinkley told us: “That probably would come as a surprise to most people: I’ve been trying to make that point for many years, but people don’t get that. The political rhetoric in particular is about bureaucracy: a public sector full of managers and paper-shuffl ers, ripe for completely painless cuts.

“The private sector does have a lot of managers – and that’s the reason the UK, proportionally, has a lot more managers than say Germany or France.”

Similarly, comparisons with other countries are often made based on assumptions, not facts.

The report highlights the common trope that more successful (and often ‘Anglo-Saxon model’) economies are the ones that cut back their public sectors to boost their private sectors.

But Brinkley said: “If you look at some of the Anglo-Saxon economies – Canada, the US, one or two others – they’ve actually expanded their public sectors over time. It’s not really surprising, because they’re facing the same impulses that we are. They’ve expanded particularly in education and healthcare: two big areas of growth pretty much everywhere.

“Going forward, we’re becoming less and less clear on what’s ‘in’ the public sector and what isn’t. This is particularly the case with the growth of institutions sitting just outside the public sector, as far as the statistics are concerned, but are actually publicly-funded and delivering essentially public services. We’ve seen that very recently with the transfer of the further and higher education colleges back into the private sector.

“Countries like Germany and the Netherlands, which by our standards have small public sectors, have a lot of bodies in that position, sitting just outside the public sector.

“The idea that Anglo-Saxon economies have very small public sectors isn’t true, and it isn’t true that they have been cutting back like mad: they simply haven’t.”

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