ippr warns of possible double dip in employment as cuts begin to bite

Economists were surprised by the strength of job creation in the summer months of 2010 but the very latest figures showed a renewed fall and an increase in unemployment to just above 2.5 million. There are also more than 1 million people in part-time jobs who say they want to work full-time.

Cuts in public sector employment will pick up pace in the first few months of 2011 as local authorities deal with the prospect of reduced resources from April. Unless job creation in the private sector is strong, unemployment will reach new highs even if the economy continues to expand.

A buoyant labour market will also be needed if the government's Work Programme is to be launched successfully.

Tony Dolphin, ippr Senior Economist, said:

'History suggests the UK economy needs to grow at an annual rate of more than 2 per cent if unemployment is to fall. There is a real risk that growth will not be fast enough during 2011 and that unemployment will reach new highs for this economic downturn.

'Substantial cuts in public sector employment put enormous pressure on the private sector to create sufficient new jobs to prevent overall employment falling in 2011. While the prospect of a double dip into negative growth has receded, a double dip in employment is a real prospect.

'The government's flagship Work Programme to get people back into employment will face considerable difficulties if it is launched at a time when job creation in the private sector is insufficient to offset job contraction in the public sector.

Notes to editors

1. The number of people in employment fell by 33,000 over the last quarter (comparing the three months to October with the previous three months). Public sector employment fell by 33,000; private sector employment was unchanged.
2. Unemployment in the three months ending in October 2010 was 2.502 million. The highest rate recorded so far in the downturn was 2.506 million in the three months ending in March 2010.
3. Economists refer to the relationship between real GDP growth and the change in unemployment as Okun's Law. It shows how much growth has, on average, been associated with falling employment in the past.
4. The government intends to have the new Work Programme in place nationally from the summer of 2011. It will replace existing programmes for unemployed people and aims to reduce benefit costs and the cost of getting people into work.

Contact

Tim Finch, Director of Communications: 020 7470 6110 / 07595 920 899 / t.finch@ippr.org