Friday, 27 August 2010

Contrary to the OBR forecasts, CIPD predicts an uncertain outlook for pay and employment in the next few years

According to the CIPD/KPMG “Labour Market Outlook” Survey - Summer 2010 - employment will remain stable in the next months. Differently from what expected and forecasted by the Office for Budget Responsibility (OBR), the CIPD believes that in the next two years an increase of the unemployment rate is very likely to occur, in that the private sector recovery will be counterbalanced by the 600,000 job losses expected by the Government, over the next five years, in the public sector.
CIPD vision also sensibly differs from the OBR one as for what concerns the pay outlook.
Whilst the OBR is expected, in fact, that salaries and wages will grow by 2.8% in 2011 and by 3.5% in 2012, the evidence gathered by the CIPD, through its members, suggests that it will be some time yet before pay level rise above 2%, even more so because of the pay freeze announced by many employers of the public sector for the next two years.
Overall, the CIPD expects a rather bleak outlook for the next few years both for employment and pay.

According to the CIPD-KPMG research findings, although at a slower pace than in the previous quarter, private sector employment will continue to increase in the third quarter of this year. The net employment intentions balance (1) for this sector, in fact, has dropped from +29 to +19 over the last three months, remaining well above the level it had reached in winter 2009/2010 (+5).
On the one hand, the private sector and, more specifically, the manufacturing sector, employment growth is expected to increase (+48), on the other hand of it, employment possibilities within the public sector remain very weak. The final balance of the net employment intentions, in fact, although showing a sign of recovery in comparison to spring 2010 (-43), still remains considerably negative, at – 35. This is clearly due to the expected contraction of the public sector employment offer, namely administration and defence (-64) and local government
In terms of employment expectations, the private sector is definitely showing better perspectives than the public sector.
The scenery can be summarised as follows:
IT sector +42
Manufacturing and production +40
Consultancy services +38
Services +15

Public administration and defence -64
Education -51
Healthcare -42
The research also revealed some interesting differences at regional level, the best score, in terms of net balance, is expected in London (+15) and in the Midlands (+13), whilst the worst results are expected in Scotland (-35) and England (-10).
These findings are in line with what envisaged by the CIPD, that is a two-speed job markets are bit by bit emerging from the current political and economic situation.
A further interesting trend emerges comparing the net employment balance of SME (Small Medium Enterprises, employing 1 to 249 employees) and larger employers (employing 500+ staff).
The index continues to be rather high for the SME at +29, whilst for the larger organisations the index remains negative at -16.
This is possibly due to a couple of reasons: public organisations tend to be larger than private sector ones and a relevant number of private organisations are planning to offshore jobs.
As for the recruitment intentions, according to the data gathered, it seems that the proportion of companies planning to recruit during the 4th quarter of this year has stabilised, with 67% of organisations planning to boarding new staff during the next three months.
The stability of this trend also emerges analysing data in the light of the different sectors concerned. Considering the different sectors, the percentage of companies planning to recruit new staff in the next quarter are as follows:
71% private sector
63% voluntary sector
60% public sector
12% “green” sector
According to the employment intentions emerged from the overall research, 80% of the new recruits will be offered a full-time job, whilst 31% of the total job expected to be created will be offered in the form of term contracts. Whilst the first figure is in line with the current employment state of play, the term contracts percentage is higher than the current one.
Whilst recruitment intentions remain essentially stable, redundancies intentions are on the rise for the second quarter in a row. In fact, one over three employers, 32% to be precise, are planning to make redundancies during the next quarter, compared to the previous 29% ratio.
More than one third of public sector employers are planning to cut jobs in the next quarter, in line with the findings emerged from the previous quarterly survey. Is, instead, increasing the number of private organisations planning to make redundancies, the last intentions show a ratio of 30%, compared to 24% emerged during the spring survey. Much better seems to be the picture in the voluntary sector, where job cut intentions have fallen from 34% to 24%.

Sectors more likely to cut jobs are local governments (63%)and education (45%), whilst the less likely to make redundancies in the next three months should be the manufacturing and production sectors (23%).
Geographically, the highest redundancy percentages will concern the south-east of England (42%), Scotland (38%), England (35%) and London (28%).
Organisations have indicated, on average, their intention to make redundant 5.5% of their staff, compared to 3.6% emerged during the previous investigation.
Analysing data according to the different sectors it is possible to see how varied the redundancies intentions are from sector to sector. In the public sector 7.8% of organisations are planning to make redundancies in the next quarter, whilst in the private sector the percentage of organisations planning to cut jobs is 4.7%. In the voluntary sector the ratio will drop to 2.6%.
Although the cost of making redundancies vary from organisation to organisation, it clearly emerges that, possibly because of the longer tenure typically associated with the public sector, redundancies costs are higher in this sector, 23% of public sector employers, in fact, reported that their cost for redundant is more than £17,000, with just 10% of employers reporting a cost per redundant of less than £5,000.

If the employment outlook does not really look bright, expectations do not seem to be better as for what matters pay perspectives.
In the next 12 months, in fact, bonus excluded, the average basic pay settlement is expected to be steady at 1.5%. This average figure is practically stable since 12 months now. In fact, during the last four quarterly surveys it has been varying between 1.5% and 1.6%, consistently with official figures provided by the Office for National Statistics, according to the findings emerged by their Labour Force Survey.

Nearly all the employers taking part to the investigation (84%) are planning a pay review for the next year; in particular 33% are planning a pay increase, whilst 20% are planning a pay freeze.
Nonetheless, 30% of employers stated that the kind of review will depend on the organisational performance.
The future pay picture appears to be more favourable for private sectors staff, where the mean pay increase is expected to be at 1.9%, compared to the 0.7% of the public sector. An even better scenery is expected for the voluntary sector, where the mean award should increase of 3.1%.
Sectors which should benefit the most by the salary basic review will be the consultancy services (3.9%), finance, insurance and real estate (3.3%).
In the public sector 40% of surveyed organisations unveiled their intention to freeze salaries, whilst just 11% of private sector employers are planning to follow suit.

(1) Net employment intentions balance measures the difference between the proportion of employers that expect recruitment and redundancies to increase staff levels and those who expect to decrease staff levels in the third quarter of 2010.
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