Tale of two labour markets poses challenge to governments welfare reform plan

Figures released this morning by the Office for National Statistics convey a mix of good news and bad news on the state of the UK labour market. This may give ministers and Whitehall officials a headache as they rewrite the governmentís forthcoming Green Paper on welfare reform, says John Philpott, Chief Economist at the Chartered Institute of Personnel and Development (CIPD).

Dr Philpott said:

ìThe UK jobs market looks ever more mixed up and confused. Strong growth in employment, more people available for work, and modest growth in earnings seems ideal. But a rise in redundancies, fewer job vacancies and a very sharp monthly increase in claimant unemployment indicates that all is not well.

ìAs the CIPD points out in its latest Labour Market Outlook ñ also published this morning ñ the labour market conundrum is explained by a modest drop in the demand for labour combined with a large boost to labour supply from migrant workers. Although this is good for inflation prospects, as the Bank of Englandís Inflation Report today notes, it may be viewed less positively by those in charge of helping benefit claimants off welfare and into work.

ìEmployers generally rate migrant workers more highly than long-term benefit claimants. And with a dip in the demand for labour employers are choosier about who to take on. This means that Government must do even more to improve the employability of jobless people on welfare. Moreover, with claimant unemployment on a clear upward trend, while ministers want Incapacity Benefit to be the central focus of the welfare reform Green Paper they will have to ensure they donít overlook the plight of the growing numbers of people on Jobseekersí Allowance.î

Other headline findings from the CIPDís Quarterly Labour Market Outlook, published today, include:

Recruitment/pay trends
Just under 4 out of 5 employers (79%) responding to the survey intended to recruit staff in winter 2005/06 (November ñ January).

In 36% of cases recruitment will result in an increase in employment levels. This is the lowest figure for net recruitment intentions recorded by CIPD quarterly surveys since they began in spring 2004. The lowest figure previously recorded was 45% in Winter 2004/5. The latest figure compares to 52% in the Autumn 2004 survey.

More than 1 in 5 employers (22%) plan redundancies this winter.

Two thirds of employers expect pay levels to increase on average by between 2% and 4% as a result of their next pay review.

There is a 13% positive balance of employers expecting to employ more staff by autumn 2006, down from 18% in the summer CIPD quarterly survey.

Migrant workers
A quarter of employers intend to hire migrant workers this winter. Public sector employers (26%) and employers in London (35%) are those most likely to recruit migrants.

EU accession countries such as Poland have become a more popular source of migrant labour than the old European Union, commonwealth countries and the rest of the world. This represents a shift when compared with corresponding figures from last year. Last yearís figures showed that UK employers that recruit migrant labour were more keen to recruit from ëold Europeí (66%), the rest of the world (62%) than EU accession member states (52%).

13% of employers expect to target vacancies at migrants in the coming year. Only a minority of employers (8%) have been deterred from hiring migrants because of concern about issues of security.

Few employers hire migrant workers mainly to lower wage costs. However, this objective is almost five times more important for employers hiring less skilled (9%) than skilled (2%) migrants.

Almost 2 in 5 employers (39%) expect the Governmentís proposed new points system for managing migration to be a ëbureaucratic barrier to actively recruiting migrant workersí.