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2012’s ‘jobs enigma’ offers few clues to likely 2013 employment trends – but a flexible labour market should see employment continue to grow

  • 28 Dec 2012
 

The ‘jobs enigma’ of 2012, which has seen fluctuating and overall muted economic growth figures accompanied by strong private sector jobs creation is explained by a mixture of factors, according to the Chartered Institute of Personnel and Development (CIPD)’s annual “Barometer” report on the labour market.  The report reviews the last year’s labour market and looks ahead to prospects for 2013 and beyond.

The unpredictability of 2012 makes predictions for 2013 all the more difficult. However, the report concludes that on balance continued growth in employment is likely – although excess workforce capacity built up in firms, as employers have actively sought to hang on to talent and skills they’ll need to compete in the future, could create another paradox with stronger economic growth accompanied by weaker employment growth.

Nonetheless, the report also holds out the prospect of the UK reaching the historic milestone of 30 million in employment before the next election, in advance of the latest forecast of the OBR.

Summarising the report, Mark Beatson, Chief Economist at the CIPD, said: “The ‘jobs enigma’, of strong growth in private sector employment in the absence of sustained economic growth, has been one of the most mystifying economic features of 2012. And if 2012 proved an enigma, the labour market appears equally difficult to pin down for 2013.

“Many explanations have been floated for this enigma.  In our view the best explanation is a combination of factors: moderation in labour costs as a result of persistent below-inflation growth in pay; “labour hoarding” which has seen employers holding on to skilled staff more than they have in previous downturns to avoid losing the talent needed for future success; and the growth in the overall supply of labour forcing job seekers to be more efficient and competitive in their search for work, improving the overall efficiency of the labour market. Although the flexibility of the UK labour market is also an important factor, the popular focus on underemployment as a major factor in explaining rising overall employment seems overplayed to us.  Official data shows that the growth in the number of people employed has been accompanied by an increase of 2.6% in the total number of hours worked, and the average number of hours worked by both full-time and part-time workers has also increased.  While there are undoubtedly significant numbers of people working fewer hours than they would like, and this is an issue that merits further investigation and consideration by policy makers and employers alike, the numbers have not increased significantly this year, making it a poor explanation on its own for the 2012 jobs enigma.

“On balance, there are likely to be further increases in employment. Rising employment alongside muted growth indicates that employers have significant reserves of skilled labour capacity on which to call to support growth. That cannot be sustained forever, so knocks to business confidence could force reductions in capacity that employers have seemed keen to avoid to date.  Equally, the spare capacity in the economy could mean a return to growth but accompanied by slower employment growth than we saw in 2012 as employers draw on the labour reserves they have built up.

“Whatever happens, it seems certain that the squeeze on employees’ living standards caused by average earnings going up by less than prices will continue into a fourth consecutive year.  We also think the OBR may be proved pessimistic in its prediction that it will take until well into 2015 before employment hits the landmark figure of 30 million. Employers are proving adept at maximising the potential of the UK’s flexible market, leading us to conclude that the government may be able to celebrate 30 million employed before the next election.”

Donwload the report, Overview of CIPD surveys: a barometer of HR trends and prospects 2013 

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