IES VIEWPOINT: a different downturn?
Nigel Meager, IES Director 
As I write, the UK is entering recession and, while current indicators seem dire, we really do not know how the downturn will play out in the wider labour market. We do know, however, that the labour market looks different, in important ways, from how it looked during the last two recessions and that our experience of those two recessions is no guide for today. We enter the current downturn with lower unemployment than at the beginning of either of the last two recessions. Further, it is at least arguable that many employers are more leanly-staffed than in those days; it remains, however, unclear how far they will have learned that skilled labour, easily shed in a downturn, may be much harder to replace in the inevitable upturn.
Some newer features of the labour market may dampen the unemployment impact this time round. Much recent jobs growth came through two key sources: migrants; and older workers working beyond retirement age. As the economy slackens, what happens will depend on the UK’s economic circumstances relative to migrants’ countries of origin, but there are already signs of eastern European workers returning and fewer entering the UK. Equally, older workers who might otherwise have stayed economically active may decide not to; this might, however, be offset by a contrary pressure to continue working, as the financial crisis hits pension values.
On the other side of the equation, we should remember that many who lost jobs in previous recessions claimed Incapacity Benefit (IB), counting in the statistics as ‘economically inactive’ rather than unemployed. The current government has, through a mixture of ‘carrots’ and ‘sticks’, begun to reduce the flow into IB. It is likely, therefore, that more of those losing their jobs (or failing to find jobs) in the current recesssion will show up in the regular unemployment statistics.
Another key difference is that, although the employment downturn may turn out to be less deep, it will be more widely spread than in the 1980s, when job losses were dominated by sectors such as manufacturing and mining, and concentrated in traditional industrial areas. This time, manufacturing accounts for less than ten per cent of employment (in the 1980s it was over a quarter), and it is private services, including finance and retailing, and construction (between them accounting for nearly two thirds of jobs), where the employment fall will be most keenly felt. These sectors are less geographically concentrated, and the impact will therefore be spread through all regions.
Turning to policy, the downturn will put major pressure on welfare-to-work schemes for disadvantaged jobseekers. The policy focus will need to shift from groups at the margin of the labour market to the growing numbers of short-term unemployed. We need to ask whether Jobcentre Plus can cope with these numbers, the recent decision to increase staffing not withstanding; current capacity is largely premised on moving delivery of welfare schemes to private and voluntary organisations, in line with the 2007 Freud Review (it would be hard today to imagine commissioning an investment banker to advise the government on tackling unemployment). My real concern, however, is whether the organisations which enthusiastically pitched for this work before the downturn will be so keen now; it will be harder for them to make money under the performance-related targets set by the government when there are so many fewer jobs.
Training expenditure is traditionally one of the first things to go in an economic downturn. While the government has few levers to pull to counter this, it will be interesting to see whether the new employer-led UK Commission for Employment and Skills can persuade employers to maintain skills investment in the current recession.
Finally, we must recognise that a possible victim of the recession will be policy initiatives targeted at equality in the workplace, or at making workplaces more flexible for employees. Calls to protect business from the burden of employment regulation will, inevitably, be taken more seriously in times of economic difficulty. While this is understandable, it would be unfortunate if the real recent progress towards workplace diversity is allowed to slip back. I have always been sceptical of arguments for diversity initiatives based on the ‘business case’ rather than more fundamental social justice considerations. This is not because there is no business case, but because its perceived strength varies over time, and is less plausible to employers in a slack labour market. If fairness and equality in the workplace are a matter of social justice and civil rights, they remain so irrespective of short-term economic circumstances, and should not be compromised because times are hard.
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