Reforms needed to boost private jobs
A MAJOR question dominated the debate in Westminster yesterday: will the private sector create enough jobs to compensate for the looming bloodbath in the public sector? The Office for Budget Responsibility, the new independent official forecasting outfit, believes it will, as does the government; the opposition, the unions and the left-wing media, unsurprisingly, disagree.
The truth, as ever, is more complex: it is likely that growth in private sector employment will outstrip the reduction in state sector jobs. In fact, I would willingly bet on it. As I wrote in this space yesterday, small-state economies almost invariably create more jobs than countries heaving under the burden of a bloated government – and the coalition plans a substantial reduction in public spending as a share of GDP over the next five years, a real step in the right direction. It may be that the five-year increase in private jobs of 1.95m forecast by the OBR (and the overall rise of 1.34m in employment) will turn out to be a little over-optimistic; but I still think it will more than cover the predicted 610,000 reduction in state sector jobs and the substantial drop in state-financed but nominally private jobs that will also go as a result of the squeeze in spending.
But the government also needs to do more when it comes to incentivising employers to hire, and potential employees to work, than it is currently doing. It is a massive hassle for firms to employ people; there is more red tape than ever, taxes on labour are high and many firms are nervous about hiring new staff lest they be forced to let them go again if the economy tanks, incurring high costs in the process. Meanwhile, close to 6m adults are stuck on out of work benefits, an appallingly high figure which has barely changed over the past 15-20 years. Inexcusably, the structure of the welfare state is such that many of these unemployed folk would be worse off were they to get a job.
The real challenge is that it looks increasingly as if the wrong jobs will be cut. It is always thus: government departments, as part of a desperate PR offensive, always imply that it is front line services and staff that will be axed as a result of cutbacks. The burgeoning army of managers, administrators and others – those people in charge of the hirings and firings – will try to protect themselves. This is in stark contrast to the private sector, where efficiency gains of 10 per cent or more were routine during the recession – and where management had an incentive to protect frontline services delivered to their paying consumers.
There was some good news for the coalition yesterday. After shrinking by 14 per cent over the past two years, Ireland officially exited recession: gross domestic product grew 2.7 per cent in the first quarter. It is hardly a perfect situation: gross national product, which strips out profits repatriated by global firms, still fell, as did employment, but it is clear that Ireland has almost finished extracting itself from a truly disastrous downturn. Yet Ireland has also just pushed trough an extremely sharp fiscal tightening, against the advice of Keynesian economists. The fact that this hasn’t prevented Ireland’s gradual recovery, contrary to Keynesian warnings, confirms that the coalition is broadly right: reducing the deficit and bringing the national debt back under control is the only way forward – and the only way to create a new generation of truly sustainable jobs.
allister.heath@cityam.com