By Claire West

The latest quarterly Institute of Personnel and Development (CIPD)/KPMG Labour Market Outlook (LMO) survey report — published today — indicates that private sector job creation will more than offset public sector job cuts in the final quarter of 2010.

The autumn 2010 LMO survey, conducted by Ipsos-MORI, finds a net positive balance of +11, which measures the difference between the proportion of employers that intend to increase total staffing levels and those that intend to decrease total staffing levels, between the proportion of employers intending to increase staff levels in the fourth quarter and those intending to decrease staff levels. This is the third quarter in a row to record a positive balance, with the balance rising to +11 from +2 in the summer survey.
As in the spring and summer LMO surveys (and subsequently confirmed by official labour market statistics), increased demand for labour in the private sector is offsetting a fall in demand in the public sector. However, the gulf between the sectors has widened in the autumn survey, with the private sector net positive balance rising to +39 while the public sector is recording a net negative balance of -44 (compared to +19 and -35 respectively last quarter). Meanwhile, employers as a whole appear far more cautious about prospects for 2011, with the LMO survey’s 12 month net positive balance standing at just +1.

Dr John Philpott, Chief Economic Adviser at the Chartered Institute of Personnel and Development (CIPD) comments: “Signs of not only sustained but also increasing buoyancy in private sector job prospects is encouraging, especially since some other forward looking economic and labour market indicators have been subdued of late. What remains to be seen is how much of this good news is merely a pre-festive season surge in private sector jobs or evidence of a sustained improvement that will continue to offset large scale public sector job cuts which, as the LMO survey shows, are already well underway and on a scale in line with the CIPD’s current forecast for total public sector job losses by 2015-16. With employers clearly far more cautious about the 12 month than the 3 month jobs outlook it is far too soon to conclude that the UK will avoid a rise in unemployment in 2011.”

Expected increases in employment levels this quarter are particularly strong in manufacturing and production (net positive balance of +51) and private sector services (+26), particularly in the IT industry (+71), consultancy services (+44), and finance, insurance and real estate (+44). Falls in employment are expected in central government (-95), local government (-65), transport and communications (including media) (-39) and education (-34). Falling demand in the public sector is due to a combination of reduced hiring and an increase in redundancies.

More than 4 in 10 (41%) of public sector organisations intend to make redundancies by the end of the year and expect these to affect 14% of their workforces. The overall average cost of making employees redundant across organisations approaches £12,000 per redundancy. However, the average cost of making a worker redundant in the public sector (£19,600) is more than double that in the private sector (£9,350).

Alan Downey, head of public sector, KPMG, says: "This is encouraging news, because it suggests that the first phase of the government's deficit reduction plan, to launch the cuts in 2010-11 rather than waiting to 2011-12, will be achieved without an increase in unemployment.

"It is clear that employers in the public sector have recognised that headcount will have to reduce substantially and are implementing recruitment freezes and redundancy programmes. For the moment at least, the planned retrenchment in the public sector is likely to be more than offset by the growth plans of private sector employers, particularly in the manufacturing and IT sector.

"It is a cause for concern that the cost of redundancies in the public sector is so high - more than double the cost in the private sector on average. Unless the government decides to tackle this problem, many public sector employers may rely on normal staff turnover, rather than redundancy, to achieve headcount reductions. That will have the effect of slowing down the rate of reduction, which is a double-edged sword: it will allow more time for the economy to recover, but it may also mean that public bodies lose some of their best people and that it takes longer than expected to restore the public finances to good health."

The LMO survey finds an expected average pay settlement in the twelve months to September 2011 of 1.5%. Evidence from our members suggest that it will be some time yet before pay settlements rise consistently above 2% - implying a sustained period of squeeze on real incomes given the current high rate of price inflation — although there is evidence of upward pay pressure in some parts of the private sector, notably finance and consultancy services.