THE GOVERNMENT'S EMPLOYMENT STRATEGY
II. Economic situation and Government strategy
6. The Committee undertook this enquiry against a
backdrop of uncertainty and turbulence in the financial, currency
and equity markets. The United States (US) economy had already
shown signs of downturn before the events of September 11th
2001 threatened to trigger a worldwide recession. The telecommunications
and technology sectors in particular had entered a phase of intense
retrenchment and restructuring following the abrupt reversal of
an investment boom in the late 1990s. Immediately after September
11th, industries such as tourism and transport experienced
severe shocks from which recovery has been patchy.
7. Across the world, the major economies have all
experienced a slowdown in output. GDP in the major G7 economies
grew by just 1% during 2001 and for the first time since 1974,
growth slowed significantly and simultaneously in the US, Europe
and Japan, accompanied by sharp declines in world trade growth,
investment, industrial production and stock markets.
8. In the UK, low levels of GDP growth in the second
half of 2001 and the first quarter of 2002 suggested that unemployment
might start to rise and the Government's employment strategy might
be destabilised. Despite
this, the labour market indicators during 2002 have so far remained
positive. At the aggregate level, employment continues to grow
(as public sector job creation outstripped private sector job
losses in the year to December 2001) and the available evidence
about vacancies indicates that employers continue to hire at a
relatively undiminished pace.
9. Unemployment - measured using both the Jobseeker's
Allowance (JSA) claimant count and the Labour Force Survey - generally
continues to decline. However, the working age employment rate
for February to April 2002 rose by just 0.1 percentage point over
the quarter and economic inactivity has started to increase marginally.
This has been more evident amongst some population groups that
had until recently benefitted from improvements to their labour
force position - particularly lone parents, ethnic minorities
and older workers.
10. Employment growth has tailed-off since mid 2001
and some areas of the UK have experienced rises in unemployment.
11. The Committee heard from witnesses who described
significant local variations in the health of the labour market
and the impact of a two speed economy in which some sectors are
declining whilst others continue to grow strongly and are experiencing
shortages. The manufacturing sector experienced prolonged recession
during 2001 and finished the year with its output having contracted
by more than 2%.
|Employment change by region - employees, UK, seasonally adjusted|
(Standard Statistical regions)
|Men & women||Dec-00
|Yorkshire and Humberside||2,071,000
|Employment change by sector -
employees, UK, not seasonally adjusted (SIC 92)
|Men & women||Dec-00
|Agriculture and fishing||280,000
|Energy and water||177,000
|Distribution, hotels and restaurants||6,158,000
|Transport and communications||1,552,000
|Banking, finance and insurance, etc||5,018,000
|Public administration, education & health
||25,884,000 ||+ 75,000
12. Early indicators suggest that manufacturing growth is beginning
to recover with export prospects beginning to improve as the US
dollar weakens and sterling falls against the Euro. The overall
economy grew by 1.2% in the last quarter, with manufacturing output
rising in two consecutive months (1.1% in April and 0.7% in May),
signalling an end to the sector's long recession. A combination
of economic stability, higher public spending and low interest
rates is likely to ensure that the second half of 2002 sees a
gentle recovery. In stark contrast to manufacturing, service industries
grew by almost 4% in 2001 with the strongest growth in retailing,
hospitality and in the public sector.
13. Ms Bridget Rosewell of the British Retail Consortium, described
the most recent annual period in the retail sector as: "the
steadiest period of expansion since 1995 ... after a period of
quite weak growth in the year 2000, it picked up through 2001
and has been reasonably steady since".
Although she did foresee that retail sales would start to slow
during 2002, she identified retail and other types of consumer
service employment as more resilient to any downturn. She noted
that between 1995 and 1998, the main growth in jobs was in banking,
finance and business services. However, the period since 1998
has seen the biggest growth in services, public administration,
education and health. Although these sectors "require a lot
of specialist skills" she identified the retail and distribution
sectors along with "support services" occupations across
many industry sectors as offering good potential for generating
entry level jobs where candidates could acquire "good habits
of work and some skills" without having to acquire technical
14. The Chartered Institute of Personnel & Development (CIPD)
in its submission reported that forward-looking surveys of employer
recruitment intentions "look extremely encouraging".
It identified the sectors most likely to expand permanent employment
in 2002 as being those where "demand for labour is clear
and robust, notably retail and the public services". The
CIPD warned that, in a tight labour market, government initiatives
like the New Deal would have to be "closely attuned to employer
needs, decisions and practices".
15. The DWP in its written evidence argued that the labour market
remains "in a historically strong position to cope with global
economic developments" with employment 125,000 higher than
a year earlier and new Jobcentre-notified vacancies at "high
the officially published series of notified vacancies has been
suspended by the Office of National Statistics, the DWP told us
that their management information indicated that over 10,000 vacancies
are being notified each working day, totalling almost 2½
million each year.
The rate of new vacancy notification has changed significantly
on the position in early 2001 although the introduction of the
Employer Direct service means that Jobcentre Plus may be acquiring
a greater market share of available vacancies, so trend measurement
over time may not be too reliable. Despite the reasonably upbeat
signals contained in evidence submitted to the Committee, it remains
unclear exactly how the wider economic situation will develop
and how this will impact upon the labour market.
16. More importantly, employers will have started to adjust their
employment policies to offset the impact of downturn. Profit margins
are under pressure, so firms will seek to cut costs through productivity
gains and other short term measures. This means that fresh employment
growth might lag behind an expansion in activity. As the CIPD
says, "most employers in the private sector will increase
hours worked by existing staff and/or hire more temporary workers
during the early stages of recovery - the reverse of what happened
in response to the slowdown."
17. As firms face greater competitive pressures, their expectation
of employee capabilities will rise. Whilst employers will continue
to offer entry level jobs, the employability requirements of these
openings will become more demanding and many unemployed people
may fail to reach this new basic employability threshold.
18. The consequences for the Government's strategy are clear.
Firstly, demand for jobs may grow at a slower pace than overall
growth in the economy; secondly, new entrants and re-entrants
will have to be equipped to higher standards of basic employability.
The Government's employability programmes have to adapt and change
to reflect these changing labour market circumstances.
The Government's employment strategy
19. The Government's Green paper Towards full employment in
a modern society
and Budget Statements (Nov 2001 and April 2002) committed the
Government to the aim of achieving "high and stable levels
of employment" and a more even distribution of employment
throughout the UK. The main points of the Green Paper's strategy
- which brings together many different aspects of Government policy
and several Departments' responsibilities - are:
|Ensuring macro-economic stability ||Treasury
|Promoting competition, enterprise and innovation
|Tackling discrimination ||DWP and DTI
|Making work financially worthwhile ||Treasury and DWP
|Broaden welfare-to-work programmes to focus more on those who are economically inactive and long-term unemployed adults, as well as improving the delivery and responsiveness of the New Deal. Make the New Deal a permanent deal, and continually seek to improve it.
|Investment in learning to ensure that people have the skills and to update and add to these skills in response to a changing economy - help break the "low pay, no pay" cycle and help people stay and progress in work.
|Put employers at the centre of the strategy and ensure that improvements in skills training are based on the needs of employers.
|Promote diversity and create opportunities for all.
|Assist the hardest to help||DWP
|Improve the service for all people of working age, who are either claiming benefit or seeking work and apply the principle of employment first for all working age benefit claimants.
20. In the course of this inquiry, evidence was sought from other
which highlighted that many other Government Departments have
significant contributions to the Strategy. These help businesses
and communities to maximise employment by:
|Improving transport links ||Department of Transport
|Improving physical infrastructure ||Office of the Deputy Prime Minister (ODPM)
|Area-based regeneration initiatives||ODPM
|Sustaining an enabling regulatory environment
|Contributing to the health improvement of working people
||Department of Health|
|Ensuring safe working conditions ||DTI
|Aiding mobility by increasing housing supply
|Supporting employees through childcare and children's services
|Offering selective regional assistance and business support services
21. The labour market is subject to fluctuation and change: some
sectors are growing rapidly and employer requirements continue
to change. Low economic growth however seems to have had little
impact on New Deal performance. The evidence also shows that public
agencies have experienced difficulty in responding quickly to
22. Witnesses warned against the Government's attention being
diverted from its employment strategy either by other pressing
areas of public policy or by the impact of any downturn in the
economy. Working Links in its submission stressed that "neither
economic slowdown nor the declining national levels of unemployment
should persuade policymakers that now is the time to cut back
on employment related spending".
23. In its evidence, the DWP has committed itself to pursuing
active labour market interventions regardless of the stage in
the economic cycle. It recognises that its efforts towards the
harder-to-help categories of non-employed must be increased if
the labour market turns downwards: 
"If the economy is weakened, it is not the newly unemployed
who would be most affected, but those farthest away from the jobs
market ¼ Jobcentre
Plus and other measures targeted at particularly disadvantaged
individuals and areas are the right ones to pursue whatever stage
of the economic cycle."
24. The Committee strongly welcomes this commitment
and is encouraged both by the resilience of the labour market
and by the determination of the Government. Although economic
growth has recently been slow, evidence shows that programme performance
has not been significantly affected, that vacancy levels remain
high and that many entry-level jobs remain available to clients
of Jobcentre Plus.
25. We support the Government's determination
to continue its pursuit of active labour market policies, which
will be continued even if the labour market cools, but consider
that contingency plans should nevertheless be made in case of
an unexpected severe economic recession. In particular, we suggest
that plans for early implementation of additional Transitional
Employment projects would be advisable, specifically in areas
affected by lower growth.
5 UK GDP increased by 0.1% in the January to March
period having risen by 1.1% over the year as a whole. Growth in
the last three months of 2001 was also 0.1%, ONS, First Release,
GDP estimate, 26 April 2002. Back
Q. 1. Back
QQ. 4 and 7. Back
See Appendix 3, Ev 177. Back
DWP, Ev 151, para 31. Back
DWP, Ev 151, para 29. Back
Towards full employment in a modern society, Cm 5084, March
The Department for Education and Skills (Ev 108-109 and 135-143);
the Department of Trade and Industry (Ev 143-146), and the Department
for Transport, Local Government and the Regions (Ev 106-109, and
Department for Transport Ev 127-124) See also oral evidence, Questions
See also paras 28 to 30. Back
Ev 42, para 7. Back
Ev 147, para 6. Back
See DWP evidence, Ev 147 onwards. Back