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Can the private sector really absorb all those laid-off public sector workers?

December 15, 2010

Today, it was reported that unemployment rose in the 3 months to October to 2.5m.  It was the first time the unemployment figure had risen in the previous six months.  According to the Office for National Statistics, this surprising result was driven by public sector job losses, which pushed the unemployment rate up to 7.9%.

In the next four years, as many as 330,000 public sector jobs are projected to be lost due to the government’s budget deficit fighting measures.  A bit down on the 500,000 figure revealed in October, but still a lot, nonetheless.  And it’s the government’s contention that, as the economy grows, job growth will lead to the re-employment of a large number of these unemployed workers.

Well, I don’t subscribe to this simplistic view.  Even if we assume that our growing economy will generate enough private sector jobs, it is unlikely that for each unemployed public sector worker, a suitable private sector job will be created, which he or she will have the requisite skills and expertise for.  This is not to disparage the public sector worker, but I don’t see many of them finding work as financial market analysts or investment bankers in the City.  Do you?

Moreover, with the rebound of the UK economy, it’s likely that new workers from other parts of the EU will enter the labour market.  This will further reduce some private sector work opportunities although the evidence suggests that migrant workers and non-immigrant workers are imperfect substitutes for one another and economic migration does not lead to large-scale unemployment or wage depression.

Therefore, I fear that the future might be a bit bleak for laid-off public sector workers.  Finding immediate employment might not be a simple matter, as experienced by miners who sought work after their industry contracted in the 1980s and 1990s.

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