Paul Swinney examines the effects of government on austerity on the labour market
Today’s labour market statistics show that the Government’s austerity measures are having two impacts on the labour market beyond the impact on headline unemployment. The first is that public sector pay growth has slowed rapidly in recent months. And the second is that there has been a large fall in number of people not in the labour market due to long term sickness.
On point one, the growth in public sector pay has declined steadily since 2008, and grew by just 1.1 percent in the year to December 2011. Given the Chancellor’s commitment to cap public sector pay increases to one percent until 2015 pay growth in the public sector is likely to remain sluggish and below the rate of inflation throughout 2012.
Turning to point two, the Government’s reforms to welfare are feeding through to reductions in labour market inactivity. Overall the number of people classed as ‘inactive’ (either not in employment or searching for a job) fell by 72,000 people in the three months to December. Of this total, 70 percent had been inactive because of long term illness. There are now 2.1 million peopleout of the labour market due to long term sickness, the lowest number since the three months to May 1995.
The long term nature of the Government’s public sector spending cuts means that these figures are likely to only show the start of longer running trends. For more information, look at Cities Outlook 2011 for our analysis of how the spending cuts are likely to play out across our cities, Cities Outlook 2012 for more detail on unemployment across cities and this month’s Labour Market Update for more analysis on today’s labour market figures.
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