Friday, March 9, 2012

Why hasn't big business kept its half of the bargain?

Remember this?
35 business leaders back Osborne's cuts (Robert Peston's blog, BBC website, 17 October 2010)
In mid-October 2010, 35 high-profile business leaders in the UK wrote an open letter to the Telegraph newspaper calling for the government not to delay the deficit reduction programme in order to “deliver a healthier and more stable economy”.
In spite of concerns at the time of rising unemployment, the business leaders stated that "the private sector should be more than capable of generating additional jobs to replace those lost in the public sector".
So influential was this view, that the economy was exiting recession and the private sector was poised to pick up the excess labour, that it found its way into the House of Commons Select Committee for Work and Pensions as they considered the Coalition government's decision to end the Future Jobs Fund:
Professor Gregg: “The Connexions service isn’t working well in terms of getting people from deprived backgrounds into work at the first stage. As the economy picks up, some of that will be solved.”i
At this date, the Employment Rate in the UK stood at 70.6%.
One year later, in October 2011, the Employment Rate was 70.3%, a fall of some 14,000ii in the number of employed. Moreover, as the total workforce increased from 40,045,000 to 40,181,000, for the employment rate to have remained stable, the total number of employed would have had to increase by around 150,000 over the period.
Where have all these private sector jobs gone? If the private sector is “more than capable” of making up for public sector job losses, why isn't the Employment Rate stable? And given that the government has diligently followed the business leaders advice of October 2010, and remained on its path of austerity, where is the improved “business and consumer confidence” promised?
Although the Commons Select Committee seemed to be working on an assumption that the private sector could create jobs, there were notes of caution even then:
Neil Carberry: “I also echo the point made about labour conservation. There has been a strong stream across the private sector- probably based on the experience of the ’90s recession when some executives felt that the axe was taken a bit far, a bit early and the firm was not then prepared for the recovery [...] That means that there is quite a lot of excess capacity in terms of human resources within members. That is one of the factors that is driving lower hiring. […] lower hiring does affect the issue.”iii
At this time, many businesses were implementing a shorter working week to avoid redundancies. In effect, they were “hoarding” surplus labour, waiting for an upturn in demand. If workers are on short hours or reduced overtime, employers will generally look to increase capacity with the current workforce before taking on additional employees.iv
The claim that the private sector would take up the slack has turned out to be based on ideology rather than fact. The government has kept its half of the bargain, but the private sector has been placed under no obligation to reciprocate. As noted in this edited exchange between the Government Minister, Chris Grayling, and Glenda Jackson MP of the Select Committeev regarding the Work Programmes, the private sector was never expected to make up the difference:
Glenda Jackson: “Could I just take you back to the Marks and Spencer experience? Is this something that other retailers are participating in? I am thinking of those, for example, who wrote that letter saying that the private sector would be able to create the jobs necessary. Are they all participating in this, and are they actually coming to you and saying, "We can guarantee to create this number of jobs for this number of young people."?”
Chris Grayling: “We’ve been very encouraged by the response so far to the work experience initiative we launched three months ago […] Certainly we have found bigger retailers and bigger employers very co-operative.”
Amazingly, large retailers, in the run up to Christmas, were happy to have large numbers of “work experience” people at minimal cost to themselves:
Glenda Jackson: “So you are not actually pushing those companies that are engaging in the work experience programme to give you some kind of numbers of the jobs that they can guarantee to create? In that work experience, is there any cost to the employer that the Government have to cover?”
Chris Grayling: “Beyond some core costs of just people’s time organising it, no. This is something that employers will be doing themselves and we are looking at employers on a large scale and a small scale.”
But would this equate to new jobs?
Glenda Jackson: “But you’re not asking the private sector to guarantee an increase in jobs?”
Chris Grayling: “The private sector will never guarantee to recruit a certain number of people, but the point is we have to ensure that those people who are [on] benefits are ready to take advantage of the opportunities that arise.”
So, private sector businesses, including many retailers, asked the government to reduce the deficit, leading to the axing of paid-work schemes to be replaced by “work experience” schemes, for which they had to contribute minimal resources and offer no guarantees of employment.
Why is nobody asking why the private sector employers who signed that letter have failed to deliver their half of the bargain?
i Uncorrected Transcript of Oral Evidence to House of Commons Work and Pensions Committee, 27 October 2010 ref: HC472-i Q94 . Professor Paul Gregg is Professor of Economics at the University of Bristol.
Note: This document references quotations from the above document. Neither witnesses nor Members have had the opportunity to correct the record. The transcript is not an approved formal record of these proceedings.

ii Source: ONS Labour Market Survey February 2012

iii See (i) Q95. Neil Carberry is Director of the CBI

iv An example of negotiated “short hours”. Production did return to normal, only to be reduced again in this case following the 2011 Japanese earthquake and tsunami.

v See (i) Q125-130 . See also Note for (i). Glenda Jackson MP is a member of the House of Commons Work and Pensions Select Committee. Rt Hon Chris Grayling MP is the Minister of State for Employment, Department for Work and Pensions.

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