Staffing Shambles

According to the Managing Director of Manpower, the recruitment agency:

"We've noticed that a number of public sector organisations have begun recruiting again with renewed vigour... in their efforts to implement budget cuts there has been a degree of over-firing. We've seen the number of people leaving public sector employment slow as they reach the minimum they need to provide services, while some have gone too far and they need to begin re-hiring."

Yes, that's right: the public sector is now trying to replace staff it only just fired. And it's doubtless paying organisations like Manpower a big fat fee along the way, having already doled out who knows how much in redundancy payments.

The big picture is that public sector employment has fallen by about 600,000 from its peak under Labour. That's a headcount reduction of around 10%, and although the cut in full-time equivalents is less (around 400,000), that seems like a pretty impressive response to the fiscal squeeze. Maybe George is going to do it after all. But not if the reductions are now being reversed.

The public sector has a long and sorry history of cutting the wrong jobs, and then having to shell out even more to fill the gaps.

In some cases, that means bringing in temps who are much more costly than directly employed staff, even though they are often the very same people who've previously been employed by the public sector. For example, back in 2006 it emerged that the NHS was spending nearly a billion a year on agency nursing staff to cover for a shortage of permanent nurses (see this blog).

Even worse, we've seen innumerable cases over the years of staff being made expensively redundant only to be rehired back into the very same organisations. Take this story from last year:

"MORE than £3 million was paid out in redundancy packages to 171 council workers – only for them to return to work for the same authority in new jobs. Staffordshire County Council ran up the bill over the past three years, paying off staff who had lost their posts. But the same employees were later rehired to fill new roles at the local authority. 

The details have emerged after The Sentinel revealed neighbouring Stoke-on-Trent City Council had shelled out £330,603 in redundancy payouts to 25 workers, only to re-employ them. One person was taken back on the council's books just 27 days later."

A big problem here is that public sector management fights shy of deciding who specifically is going to lose his job. Making people compulsorily redundant is never pleasant (trust me, I know), and it's much easier to offer voluntary redundancy or early retirement packages. Unfortunately, what then happens is that it's often the people you don't want to lose who take the money and go. The people you would quite like to leave - maybe the ones doing the least productive jobs - tend to stay, sensing perhaps that they'll be lucky to find a comparable job elsewhere. And according to the man from Manpower, that's certainly happened here:

"In central government there has been a reliance on voluntary redundancies. This allows some people in key roles to leave, creating gaps that need to be filled at a later date. Some of the hiring over the next few months will be re-hiring to fill these gaps."

Well, isn't that great. In the private sector, managers cannot afford to wimp out of making tough decisions on who goes and who stays. But public sector managers leave the choice to their staff, with the costly consequence we now see.

What this reflects of course, is a much broader management failing right across the public sector: its chronic inability to connect up resources and delivery. Or as the Public Accounts Committee put it last year:

"Most departments cannot link costs to outputs to identify the consequences of changes in spending. This lack of basic management information is a serious impediment to making sustainable cost reductions that minimise the impact on frontline services. An understanding of how spending relates to key outputs is a necessary prerequisite of good decision-making and is essential if departments are to understand the impact of changes in spending."

Organisations that cut staff and spending without having a clue how that will affect the services they deliver are organisations that need to go out of business. But while the public sector still has a monopoly on our vital services that isn't an option. Break it up, bring choice and competition to bear, and force managers to think about efficient service delivery rather than blind cost cutting.

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www.gudanggrosiran.com Categories: public sector employment

Public Sector Job Cuts

Don't believe everything they tell you

The skirmishing is nearly over and Cam's government is confronting the reality of public sector job cuts. Yesterday Theresa May stepped up to the plate, facing down the boys in blue with their hysterical claims of imminent social breakdown, and leaving them in no doubt that the cuts are going to happen. Their job is to deal with it. To find ways of working more much more efficiently with fewer staff.

It's going to be a bloody couple of years right across the public sector, and we're going to hear many more scare stories of breakdown and giant snakes roaming the streets of our great cities.

So let's just remind ourselves of a few key facts about public sector employment. In particular, let's remind ourselves of how much it grew over the last 13 years (see latest ONS stats here):

As we can see, from 1997 to 2010, the public sector payroll grew by 0.9m, or 17%. Now, 0.2m of that comprised the staff of our newly nationalised banks, and arguably we should omit them (on the grounds that it is a "temporary" nationalisation). But even when we do that, the growth in public sector employment still comes to around 13%.

So where has this growth been?

Well, over half of it (excluding the banks) has been in the NHS. Since 1997, the NHS has increased its staff numbers by an astonishing 35% - from 1.2m up to 1.6m.

A further 300,000 have joined the education payroll. Education staff have increased from 1.1m up to 1.4m, a rise of 27%.

The police - the guys screaming at Theresa? Their payroll increased by a cool 28%, from 230,000 up to nearly 300,000.

In fact, the only identified areas where there was a decline over the period were construction - which was largely accounted for by outsourcing (including staff transfers) - and, yes you guessed it, HM Forces. So the bit of the public services which by common consent has shouldered the biggest burden over the last 13 years is one of the few bits that has been cut.

The key point here is that most areas of the public sector got substantial employment increases under Labour. Fat has almost certainly increased. And for several key areas, including the police, even a 25% cut would still leave payrolls about the same as they were in 1997. And IIRC, there weren't too many giant snakes roaming around back then.

So where should the cuts fall?

The following chart shows current staff numbers across the main public sector "industries":

Just take a moment to study that chart.

Now ask yourself where would a rational cutter start?

Yes, that's right - with the areas which employ the most people. And right up at the top is that fourth biggest employer in the world - the NHS. The bit that had the biggest staff increase under Labour, and where great wobbling layers of fat now block every corridor.

Which brings us back to an issue we've blogged many times - whatever may have been said in the past, the NHS really can't be exempted from the cuts. It accounts for over a quarter of the public payroll, and however it's dressed up, it's going to have to make a contribution.

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www.gudanggrosiran.com Categories: cuts, public sector employment

Jobs Bonanza

If only they'd thought of getting on their bikes

Listening to the Grun/BBC line, you'd conclude that the Office for Budget Responsibility's forecast of private sector jobs growth had absolutely no chance of coming about.

As you will know, the OBR is forecasting that private sector jobs will grow by 2m by 2015-16, more than compensating for their projected 700,000 fewer public sector jobs. Well, actually, you may not know that because a lot of the reports have been chronically apples and pears garbled. So just to be clear, here are the actual OBR numbers clipped direct from their report:

As we can see, the OBR expects total jobs to grow from 28.89m this year (end-year) to 30.23m in 2015-16 - an overall increase of 1.34m. Since General Government jobs are forecast to fall by 710,000, that implies a growth in private sector jobs of 2.05m.

(Well, strictly speaking, it doesn't necessarily imply that, because the OBR is forecasting General Government jobs, and General Government excludes some bits of the public sector. Exclusions comprise around half a million people working for public corporations - including our nationalised banks - and also a range of contractors like GPs who work for the public sector but for historic reasons are excluded from the formal count - see this blog.  But for present purposes, let's ignore these complexities and focus on the big picture.)

The question on everyone's lips is WTF are these 2m private sector jobs going to come from?

And the answer on Tyler's lips is the same as always - he hasn't a clue.

But as we've blogged many times, given the necessary incentives and freedom, our economy has an excellent record of creating private sector jobs (eg see this blog). And there is absolutely no reason to think it can't do so again over the next 5 years.

So let's put the OBR forecasts into their historic perspective. The following chart shows the growth in public and private sector employment since 1992, the year of Black Wednesday and the pit of the early 90s recession (actually we had to start there because the ONS stats don't go back any further). We've spliced on the OBR's forecasts for employment growth*:

Eyeballing the chart, we can immediately see that the OBR's forecast doesn't look at all unreasonable. Yes, private sector jobs growth does return to its upward trajectory, but it's no more than we saw during the nineties and noughties - right up to crash.

And those of us who recall the early-90s recession remember very clearly how the Grun's doomsters told us we'd entered the world of permanent mass unemployment, and how the evil Thatch had destroyed all the real jobs, and how we'd all have to atone for the excesses of the greed-fueled 80s.

It didn't work out like that. In the subsequent 15 years the private sector created a net 4m new jobs. And yes, a few of them were privatised public sector jobs, and yes, some reflected the final blow-out of Brown's bubble. But most were real-life jobs for real-life people, many in industries that didn't even exist 20 years ago (like internet marketing, currently providing employment to one of the junior Tylers).

The most important thing - indeed, the vital thing - Cam and George must do is to create the conditions for the private sector to create all these jobs. To recap, that means:

1. Cut taxes - especially business and payroll taxes
2. Slash red tape - including restrictions on working practices
3. Cut welfare, abolish the minimum wage - alongside a programme of welfare cuts, we need to junk the minimum wage - low productivity workers in high unemployment towns like Dewsbury simply cannot find jobs at those rates (see this blog)
4. Break up public sector monopolies - especially in the world's boom industries of healthcare and education - private sector providers would soon build expertise and sell it around the world
5. Decentralise - including giving our old bombed out industrial cities charter status (eg see this blog) - remembering that the bulk of these new jobs will be required in precisely those areas
6. Cap immigration - yes, we know we all benefit from some high skill migrants, and we must continue admitting them. But as we've blogged many times, net net Labour's open door policy hasn't made us richer, whereas from Slough to Lincolnshire, it has taken low-skill jobs from low-skill unemployed locals. If we want the new jobs to cut UK unemployment, we need a much tighter immigration cap (including all those foreign "students" who never return home).

Assuming that's what Cam is planning, and assuming he can push it through, and assuming he can resist the temptation to "create" non-jobs in the so-called "green economy", 2m real new jobs should be well on the cards.

And in 5 years time, the BBC will be running stories congratulating the government for presiding over a fantastic unheralded jobs bonanza.

Not.

*Footnote As explained above, the OBR's employment forecasts relate to General Government rather than the whole public sector. For the purposes of the chart, we have assumed the changes will be the same. Note that for the whole period shown we've also reassigned our nationalised banks back to the private sector, where we hope and expect they will soon return.

PS Here's a question for you - how many jobs did the UK economy lose during the Great Depression - the Depression the Grun/BBC/Blanchflower keep warning us we're tipping back into? Was it 1m, 2m, or 5m? Give up? Well, between 1929 and 1935 (ie pre-rearmament) the economy gained - yes, gained - a net 0.6m jobs. Not enough, given the high level of unemployment in the old industrial heartlands, but it was still jobs growth - despite the Great Depression. And those who were prepared to get on their bikes for the new boom towns like Slough and Coventry benefited from it (Data taken from The British Economy 1900-1970, shamefully liberated by Tyler when he left public sector employment many moons ago).

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www.gudanggrosiran.com Categories: cuts, job creation, public sector employment

Public Sector Jobs As Welfare

Enough pyramids already

How many of our 6m public sector jobs are just another form of welfare?

The reason I ask is that listening to today's BBC coverage of the continuing debate over National Insurance Contributions (NICs), the question didn't get a mention.

The BBC naturally began the day by giving prominence to Labour claims that the Tory plan will cost jobs because of the associated spending cuts. But as the day progressed , it gradually dawned on them that all parties are planning to cut spending, so all parties will cut jobs. And that's A Very Bad Thing.

And on one level of course, it is a bad thing. Nobody likes to see people losing their jobs.

But the trouble is public sector jobs cost money. And right now, we don't have any money. So unless we cut spending on public sector pay, we'll have to find the money by some other means - like increasing NICs, which will cost up to half a million private sector jobs.

However, even setting aside that point, how many of these jobs are producing valuable output - stuff the rest of us actually want?

Suppose for a moment we weren't under the money cosh. Suppose we had fiscal flexibility to employ all our current public employees and maybe some more on top. Would that make sense?

Consider this famous quote from John Maynard Keynes:

"If the Treasury were to fill old bottles with bank-notes, bury them at suitable depths in disused coal-mines which are then filled up to the surface with town rubbish, and leave it to private enterprise on well-tried principles of laissez-faire to dig the notes up again (the right to do so being obtained, of course, by tendering for leases of the note-bearing territory), there need be no more unemployment and, with the help of repercussions, the real income of the community, and its capital wealth, would probably become a good deal greater than it actually is."

Which is more or less the current Labour argument - keep all our public employees in jobs because, although many of them are doing the public sector equivalent of burying bank notes and digging them up again, at least they're in employment, which must be a good thing.

Keynes went on to extol the benefits of ancient Egyptian culture:

"Ancient Egypt was doubly fortunate, and doubtless owed to this its fabled wealth, in that it possessed two activities, namely, pyramid-building as well as the search for the precious metals, the fruits of which, since they could not serve the needs of man by being consumed, did not stale with abundance. The Middle Ages built cathedrals and sang dirges. Two pyramids, two masses for the dead, are twice as good as one; but not so two railways from London to York."

What he's saying in essence is that there's a mass of people who for whatever reason cannot produce anything that other people want to buy. So the best thing to do is employ them on public projects. Projects that don't compete with the stuff other people are producing , by reason of the fact that these projects don't produce anything of any actual value to anyone (other than the producers themselves and the high priests/commissars).

This is public employment as welfare. And when we look at the high dependence on public sector jobs in the depressed regions of Britain today, we can see it's more than an empty slogan.

The one slight snagette is that welfare employees still need paying (even the Egyptian slaves still needed feeding). Which means that someone else has to part with the fruits of his own labour in order to provide the wherewithal. And all he'll get in exchange is the sight of another new pyramid, or if he's lucky, a government promise to repay the loan in some distant future, probably in debased coinage.

Getting low skill, low productivity, welfare dependents into work is going to be one of the very toughest challenges facing Cam's government. Given the catastrophic fiscal legacy, leaving them on the public payrolls will not be an option.

PS Interesting article here about the ancient Egyptian economy. It was essentially a command economy, with high levels of taxation and slavery. Life expectancy was 24. Keynes was a towering genius who shed huge light on the way economies work. But he was also a member of the Bloomsbury group of champagne socialists, who had little faith either in the market's ability to invest rationally, or to provide jobs for all. He believed in the existence of noble commissars, such as his good self, who could plan and organise things much more scientifically. Not a lot of people know that. Or at least, they choose not to remember it.

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www.gudanggrosiran.com Categories: electoral reform, productivity, public sector employment

Unemployment - What's Really Going On?

 

...although they have got better at fudging the numbers

Does anyone understand what's really going on with the unemployment numbers? Today's shock ONS stats showing that the number of unemployed claiming benefits has gone down seems frankly incredible. And yet the ONS are not liars, so what's happening?

The first thing to remember is that not everyone who is unemployed claims benefits, or even registers with a JobCentre. Tyler personally knows one unemployed City type who has been jobless for a year but has not registered for anything - it wouldn't help him, so why should he bother? And from what we can see, many of the newly unemployed middle class feel exactly the same way. The claimant count numbers are highly misleading.

So rather than looking at the headline claimant count, let's concentrate on the ONS stats for the total jobless, whether claiming benefits or not. And let's put them in the context of the growth of the overall population of working age.

Now, the ONS distinguishes between those it says are unemployed (whether claiming benefits or not) and those who are of working age but are economically inactive. But what does that mean exactly? Here's how the ONS explains it:

"Economically inactive: People who are neither in employment nor unemployed. This includes those who want a job but have not been seeking work in the last four weeks, those who want a job and are seeking work but not available to start work, and those who do not want a job."

In contrast, the unemployed are defined as those who are:

"without a job, want a job, have actively sought work in the last four weeks and are available to start work in the next two weeks or;

out of work, have found a job and are waiting to start it in the next two weeks."

So what does that mean for Tyler's City acquaintance exactly? He most certainly considers himself economically active, but he's sitting on a reasonable pile of cash, and he's not scrabbling round applying for any old job that happens to come up in a given four week period.

So in ONS terms, is he unemployed or economically inactive? Or does he flip between the two, depending on whether during the last four weeks he's had a chat with some contact about a possible job working for a Maltese hedge fund?

The ONS probably won't have a view on that, if only because they've never asked him. And if they did, he'd probably tell them to... er... push off.

Which highlights another important point about the ONS figures - they're based on an entirely voluntary survey, and unsurprisingly, the response rate has been falling through the recession. It's now standing at just over 50%, which means an awful lot of potential non-respondent bias, especially from people like Tyler's acquaintance.

With that in mind, how do the figures actually stack up?

The latest ONS stats are published as a moving three month average, and the latest relate to the 3 month period November 2009 to January 2010. Comparing them to the corresponding figures from 12 months ago gives us the following picture:

So as we can see, over the last year, employment has fallen by nearly 500,000. And it would have fallen by much more if the public sector had not gone on a hiring binge. Between autumn 2008 and autumn 2009, 70,000 joined the public sector payroll, while private sector employment shrank by 600,000.

On the technical ONS definition set out above, unemployment has risen by just under 400,000. But at the same time, the working age population has grown by 200,000. Consequently, the ranks of the so-called economically inactive have swollen by 370,000. And while that may have nothing to do with the collapse of employment opportunities, a much more likely explanation is that most of these newly inactive are in the same boat as Tyler's ex-City acquaintance - ie unemployed in the normal meaning of the word.

Which means that real unemployment has risen by 750,000 - virtually double what the headline number says.

Of course, another factor holding down declared unemployment is that the government runs a multitude of scams schemes to get people off the unemployment register and into some kind of disguised unemployment training programme. But while that reduces the number of official unemployed, in terms of the stats we're unclear how many of them show up as "employed" and how many as economically inactive - we'll try to find out.

Conclusion? The next time some government minister or apologist spouts all that stuff about how brilliantly they've managed to stop unemployment rising in this recession, you need to remember two key points:

1. Unemployment has been artificially held down by a 70,000 recruitment binge in the public sector - a binge that will have to be reversed after the election.
2. Real unemployment - including the 370,000 growth in the number of so-called economically inactive - has increased by 750,000 in the last year.

Footnote 1: When you scratch beneath the surface of the ONS stats you find a bit of a mess. In particular, their numbers for employment and unemployment - but not economic inactivity - include those over state pension age. Still, that doesn't affect our conclusions here - if anything, it means we are understating the real rise in unemployment because we are excluding the increased number of unemployed pensioners who would take a job if one was available but haven't actively searched for one in the last 4 weeks.

Footnote 2: Apologies - the initial version of this quoted an incorrect figure for the growth of public sector employment. We had forgotten to adjust it for the redesignation of Lloyds and RBS as public sector employers. It's now corrected, and it doesn't affect our figure for the real growth of unemployment (HTP a number of correspondents).

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www.gudanggrosiran.com Categories: public sector employment, Unemployment

How Many People Work For The Government?

How many people work for the government? According to the Major, the answer is none.

Personally, I think that's a tad harsh. But prompted by a comment on a recent BOM post, we've taken another look at how many are employed by the government.

We start with the official count published by the Office for National Statistics. It says that as of Q2 2009, public sector employment totalled 6.039 million, up from the 5.182 million Labour inherited in 1997 - an increase of 17%* (and see here for some interesting longer-term material).

However, big though it is, that total excludes a number of groups who are not counted as being employed in the public sector, but who depend on the public sector for the vast bulk of their earnings:

• Higher and further education - for arcane historical reasons, H&FE colleges are defined as being in the private sector, even though most of their funding comes from the taxpayer. When last sighted, they were employing some 530,000 staff.
• GPs - they are counted as part of the NHS by the Department of Health, but most are excluded from the ONS count because they're technically private contractors. There are currently some 40,000 of them in the UK.
• Network Rail - as we've blogged before, Network Rail is nationalised in all but name, but under an extraordinarily convoluted definitional fudge it's counted as part of the private sector. It currently employs 33,000.

Adding these groups back in takes the public sector employment total up to 6.7 million.

And then of course, there are all the people whose jobs have been privatised over the years, but who still work pretty well exclusively for the public sector - ie hospital cleaners, dustmen, IT staff, etc etc. How many? We have no idea, but our guess is at least another quarter million, taking our public sector employment total up to around 7 million.

So, of the 28.9 million people currently in employment (see here), around one-quarter of them are employed by the government (aka the taxpayer).

And of course, there's another huge group of people who while not employed by the government, are still dependent on taxpayers for their incomes.

To start with, there are now 5.8 million people of working age who are entirely dependent on welfare (see here), including 1.4m on Job Seeker's Allowance, 2.6m on incapacity benefits, and 0.7m on lone parent benefits. Actually those figures relate to May, and with increased unemployment, the overall total is now probably 6 million.

Adding them in as well, gives us an overall total of 13 million people dependent on taxpayers for their incomes.

And remember, these are people of working age. If we add in the 12.5 million older people now drawing state pensions, we get to a grand total of 25.5 million - 25.5 million people who are dependent on the taxpayer for most or all of their incomes.

Which is somewhat alarming.

Because on our calculation, we've only got 22 million people who are generating income from sources other than the taxpayer (ie 28.9m in employment less the 7m employed by the public sector). So each one of them has to earn the income to support him/herself plus 1.2 other adults... kind of idea.

Does that sound like it's sustainable?

Or is it time to dust off those dog-eared copies of Bacon and Eltis? (Britain’s economic problem: too few producers by Bacon and Eltis (1976) is not online, but for quick flavour, see here - section 3.1).


*Footnote - although the ONS public sector employment numbers exclude college lecturers and GPs etc, they do now include the 235,000 staff employed by our nationalised banks - ie RBS, Lloyds, Northern Rock, and Bradford & Bingley.

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www.gudanggrosiran.com Categories: public sector employment, welfare