Supplementary written evidence submitted
by the Chartered Institute of Personnel and Development (CIPD)
Methodologies underpinning CIPD employment forecasts
and related public statements as discussed at the Treasury Select
Committee, oral evidence session, 2 November 2010.
CHARTERED INSTITUTE
OF PERSONNEL
AND DEVELOPMENT
(CIPD)
The Chartered Institute of Personnel and Development
(CIPD) is Europe's leading representative body for the HR profession.
We have over 135,000 individual members who operate in all sectors
of the UK economy. Unlike many business organisations our membership
is representative of the whole economy including the public sector
(40%), private sector (40%) and the third sector (20%). Our members
are at the frontline of recruitment, redundancy, pay and training.
The CIPD is a respected commentator on the labour
market and wider workplace and employment issues. We discuss our
analysis on a regular (normally quarterly) basis with officials
at the Bank of England, HM Treasury, the DWP and other government
departments or public bodies. We would hope in due course to do
so with the Office for Budget Responsibility (OBR).
Our employment forecasts and labour market trends
analyses are derived in four main ways:
1. quantitative research, particularly our Labour
Market Outlook;
2. qualitative research with our membership base;
3. modelling based on forecasts from reputable
sources; and
4. ad hoc research, conducted by CIPD and reviewing
other literature.
QUANTITATIVE RESEARCH—THE
CIPD LABOUR MARKET
OUTLOOK
Our quarterly Labour Market Outlook (LMO)
survey of CIPD members is conducted by Ipsos/Mori and is based
on sample sizes of between 500 to 1,000 senior HR professionals.
Respondents are drawn from organisations representative of all
main sectors of employment and the report is weighted by Ipsos/Mori.
The LMO survey asks respondents a variety of questions relating
to recruitment, redundancy and staff pay intentions in the three
months following the survey date.
The headline LMO finding is the net employment
measure, giving the balance between organisations expecting to
employ more staff and fewer staff in the three months following
the survey. The methodology is similar to most other employment
intentions surveys such as the Manpower quarterly survey. However,
the LMO also asks questions about a broader range of issues, relating
in particular to recruitment of migrant workers or people previously
in receipt of welfare benefits and skills.
The net intentions figure has proved a useful
forward indicator of UK employment trends and corresponds closely
to subsequent employment outturns as shown in the Labour Force
Survey data published by the ONS. This is demonstrated by figure
1 on page 3 of the most recent LMO. The next set of LMO findings
is due to be published on 15 November—a copy of the survey
report will be provided to the committee when available.
As well as conducting research into the labour
market, the CIPD has a number of tracker surveys which address
employment and workplace issues. Of particular note are the annual
reward management, absence management and learning and development
surveys. We also produce ad hoc research reports into areas relevant
to changes in the HR profession or policy landscape. In the past
these have included research into apprenticeships, employee wellbeing,
high performance working and public sector reform. The intelligence
in these reports provides us with further insights into the frontline
pressures and challenges our members face. We draw on these reports
when commenting on the labour market and the workplace.
QUALITATIVE RESEARCH
In addition to our quantitative research, we
have regular discussions with our membership base through a variety
of mediums which provide us with supplementary qualitative information.
These include regular forums, meetings, focus groups and online
communication with CIPD members and our 48 regional branches.
The CIPD refers to much of the intelligence gathered in this way
as "soundings". These provide invaluable up to the minute
information on what managers are experiencing on the ground, particularly
emerging recruitment and retention pressures, pay trends and redundancy
and restructuring plans. Our members, by the nature of their role,
at are the frontline of these decisions.
We often combine this information with survey
data from the LMO and sometimes conduct follow-up interviews or
focus group sessions to obtain deeper insights into responses
to the survey. It is on this basis that we obtained our published
estimate that public sector managers expect an average of 12%
staffing reductions in the course of the next five years as a
result of reductions in public spending first earmarked in the
Chancellor's emergency budget in June 2010. This translates into
a headcount reduction of more than 700,000 for the public sector
as a whole.
As acknowledged in answer to questioning at
the oral evidence session this is a first round effect and it
is difficult to be completely certain that this will prove to
be the final outturn. However, due to the impossibility of modelling
behaviours and second round effects, the same could be said of
many estimates for public sector employment including those provided
by the OBR. We therefore stand by our decision to publish the
commentary. Indeed before the General Election we were the first
independent body to highlight that public sector managers were
anticipating a reduction in public sector employment of the order
of 500,000 whatever the outcome at the polls.
The intelligence garnered from our soundings
is not "anecdotal" but useful market and organisation
related information obtained in similar fashion to, for example,
that provided in the Bank of England Agents monthly reports. We
would normally expect to consult up to 10,000 members via one
or other of these contact channels during the course of a year,
with around 4,000 contacted in the public sector.
MODELLING
The CIPD's expertise lies primarily in the labour
market rather than in economic indicators as a whole. We therefore
do not operate a comprehensive econometric forecasting model but
use a simple mathematical model inputting estimates of change
in the components of domestic demand and net exports (derived
from the consensus estimates of major UK economic forecasters),
forward looking expected earnings growth data from the LMO survey,
and estimates of RPI inflation, to provide forecast estimates
of GDP growth and employment.
Our central estimates are published twice yearly—normally
in June and December—and provide an employment outlook and
unemployment forecast. These estimates are driven by estimated
changes in aggregate demand and real wage growth but do not account
for structural labour supply changes or unexpected short-run supply
side developments (which by definition are difficult to predict).
The model is therefore subject to error where unexpected supply
side developments or behavioural changes occur. This is most recently
demonstrated by the unusually large wage adjustments which took
place during the recession and resulted in lower overall employment
levels.
It is also difficult to account in advance for
policy induced changes that fall after our estimates are made
which affect subsequent outcomes (here an example might be the
introduction of a jobs programme for the long-term unemployed).
Nonetheless, our estimates have proved generally reliable as a
guide to subsequent employment outcomes and we consider them no
less reliable than other widely published economic forecasts.
Our latest 2010 estimates were published in
July (later than usual in order to assess the possible effects
of the emergency budget) and are shown in Table 1 below. These
accept the OBR forecast for 2010 but show CIPD model estimates
for subsequent years. These estimates underpin the outlook presented
at the oral evidence session and compare this with the relevant
central OBR estimates. Our expectation is that growth in GDP will
remain sluggish for a period, with employment lower and unemployment
higher than forecast by the OBR.
Table 1
OBR AND CIPD ECONOMIC GROWTH AND EMPLOYMENT
FORECASTS COMPARED
| 2010 | 2011
| 2012 | 2013 |
2014 | 2015 |
| GDP growth
(% change)
|
| OBR | 1.2 | 2.3
| 2.8 | 2.9 | 2.7
| 2.7 |
| CIPD | 1.2 | 2.1
| 2.3 | 2.5 | 2.6
| 2.7 |
| Total employment
(% change)
|
| OBR | -0.7 | 0.3
| 1.0 | 1.1 | 1.1
| 1.1 |
| CIPD | -0.7 | -0.7
| -0.3 | 0.7 | 0.7
| 1.1 |
| Unemployment
(ILO % rate)
|
| OBR | 8.1 | 8.0
| 7.6 | 7.0 | 6.5
| 6.1 |
| CIPD | 8.1 | 9.0
| 9.5 | 8.5 | 8.1
| 8.0 |
Source: OBR Budget forecast, table C2, June 2010 as featured in
CIPD Work Audit: does Britain face a prolonged jobs deficit?
July 2010
However, an initial and substantial fall in employment (in
the public sector and private sector organisations worst affected
by the fiscal consolidation) is subsequently offset by growth
in private sector employment. This is a less optimistic scenario
than painted by the OBR in June but doesn't involve a return to
recession or a sustained loss of employment. It is arguable that
given the scale of fiscal consolidation in the next four years,
such an outturn could itself be considered a substantial achievement.
There are many respected economists and commentators that posit
something worse.
AD HOC
RESEARCH
In addition to the regular and ongoing analysis discussed
above, the CIPD also conducts one off investigations of the likely
impact of policy changes that have a bearing on the labour market
and labour market outcomes. Possible examples would include the
effect of a rise in employers' National Insurance Contributions
or a cap on migrant workers from outside the EU. Our methodology
in such instances is to conduct a literature review of the policy
area in question and calculate policy effects using estimates
of relations between economic variables derived from available
evidence or research studies.
The CIPD used this approach adopted in establishing estimates
of the impact of the forthcoming rise in VAT on consumption of
goods and services, taking account of both first and second order
effects, and translating this into an impact on employment. In
this instance our primary source was relevant estimates produced
by NIESR when the last government was proposing to lower VAT to
stimulate demand. We then used these estimates within our simple
mathematical model to provide employment estimates of the proposed
rise to 20% in the standard rate of VAT. We have no guarantee
that our published estimate of a negative impact on employment
of 250,000, as contained in the press release given to the committee
prior to the oral evidence session, will prove to be pinpoint
accurate. However, we consider it a legitimate and reasonable
measure of the likely magnitude of effect and one that deserves
to be considered alongside other estimates in debate and discussion
on the consequences of the fiscal consolidation.
4 November 2010
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