LABOUR MARKET OUTLOOK - CIPD

AUTUMN 2010LABOURMARKETOUTLOOKPART OF THE CIPD OUTLOOK SERIES

LABOURMARKETOUTLOOKPART OF THE CIPD OUTLOOK SERIESSummary 2Recruitment, retention and redundancy outlook 3Recruitment intentionsUTdown slightly 4Redundancy intentions decrease slightly 4Migration and outsourcing outlook 6Pay outlook 8Research methodology 9Respondent profile 10CIPD Outlook series 12cipd.co.uk/labourmarketoutlook 1

AUTUMN 2010SummaryThe quarterly CIPD/KPMG Labour Market Outlook aims tooffer an early indication of future changes to the labourmarket around recruitment, redundancy, migration andpay intentions. The survey is based on responses from 460HR professionals, who are mainly drawn from the CIPD’smembership of more than 135,000 HR professionals. Thelatest report indicates that the employment recovery signalledin the most recent official unemployment statistics maycontinue into the fourth quarter of 2010. On the upside, thenumber of employers planning to make redundancies haseased. On the downside, recruitment intentions have edgeddown slightly since the summer report.The report’s net employment intentions 1 balance capturesthe sum of this activity. This quarter’s balance is positive forthe third consecutive quarter, rising to +11 from +2 in thesummer report. As in the spring and summer reports, labourdemand in the private sector appears to be offsetting thesharp fall in demand in the public sector. However, the gulfbetween the sectors has widened, with the private sector’sbalance rising to +39 while the public sector’s falls to –44.However, these figures may mask the true extent offorthcoming job losses in the fourth quarter. The proportionof the workforce that will be affected by redundancyprogrammes in the fourth quarter of 2010 has increasedby almost 50% since the summer report. Indeed, theproportion of the workforce in the public sector that will beaffected by redundancy programmes has actually doubledin the past three months. Redundancy programmes willaffect 14% of the workforce in the public sector in thefourth quarter of 2010.On balance, therefore, the CIPD, like the Office for BudgetResponsibility (OBR), expects employment to remain stablein the near term. However, the CIPD believes that themedium-term employment outlook is likely to be weakerthan the forecasts made by the OBR. At the EmergencyBudget, the OBR forecast a reduction of 490,000 inpublic sector employment by 2014–15, while expectingemployment levels to grow for each year of this Parliament.The CIPD, on the other hand, believes that further rises inunemployment remain a distinct possibility as the cuts inpublic spending announced in last month’s ComprehensiveSpending Review (CSR) and the rise in the standard rateof VAT to 20% due in January 2011. These factors explainwhy employers feel less optimistic about the jobs market ina year’s time, with the survey’s 12-month net employmentbalance falling to +1.This backdrop will also continue to weigh down on pay.The expected average pay settlement in the 12 months toSeptember 2011 remains at 1.5%. This average figure hasremained relatively unchanged over the past year, varyingbetween 1.5% and 1.6%. Further out, the CIPD believes thatthe medium-term pay outlook is likely to be weaker than theforecasts made by the OBR, which expects wages and salariesto increase to 2.1% this year and rise to 3.8% by 2013. Theevidence from our members suggests that it will be sometime yet before pay settlements rise consistently above 2%,although we are seeing upward pressure in some parts of theprivate sector, such as in finance and consultancy services.We welcome feedback on this quarterly report. Please sendyour comments to g.davies@cipd.co.ukO1 This represents the difference between the proportion of employers that intend to increase total staffing levels and those that intend to decrease total staffinglevels in the fourth quarter of 2010.2 cipd.co.uk/labourmarketoutlook

LABOUR MARKET OUTLOOKRecruitment, retention andredundancy outlookOverall employment levels appear to have improved this quarter,according to the Labour Market Outlook (LMO). For the thirdconsecutive quarter, this quarter’s net employment balance,which measures the difference between the proportion ofemployers that expect recruitment and redundancies to increasestaff levels and those that expect to decrease staff levels in thefourth quarter of 2010, is in positive territory, and has risen to+11 from +2. The net employment intentions balance providesa fairly accurate forecast for the trends reported in the officialLabour Force Survey data produced by the Office for NationalStatistics (ONS) (Figure 1).This decline in public sector net employment intentions isparticularly noticeable in public administration (–74). Asseen in the spring and summer reports, the increases inemployment levels this quarter will be particularly strongin manufacturing and production (+51) and private sectorservices (+26), particularly the IT industry (+71), consultancyservices (+44) and finance, insurance and real estate (+44).The industries most likely to experience falls in employmentlevels are expected to be central government (–95), localgovernment (–65), transport and communications (includingmedia) (–39) and education (–34).UTFigure 1: Overall effect of recruitment and redundancies504540353025201510502-9-19-10-3Autumn 08 Winter 08–09 Spring 09 Summer 09 Autumn 09 Winter 09–10 Spring 10 Summer10 Autumn10-5Maintain staff levelsIncrease staff levelsDecrease staff levelsNet 115215105–0–5–10–15–20–25The rise in relative optimism is being driven by growth in theprivate sector growth, where the net employment balancehas increased to +39 from +19 in the summer quarter. Incontrast, the public sector has become even more pessimisticabout employment levels, with the net employmentbalance falling to –44, from –35 in the summer quarter. Theprojections given in the last report correspond to the latestofficial statistics, which show that the number of people inpublic sector employment was 6.05 million in June 2010,down 22,000 from March 2010. Meanwhile, the number ofpeople in private sector employment was 23.11 million, up308,000 from March 2010.There are also stark differences at the regional level. Thehighest net employment balance is in the Midlands (+29),followed by the south of England (+11). Employmentprospects are worst in the north of England (–14).Continuing the trend seen in recent quarters’ surveys, SMEsare far more optimistic about employment prospects in theirorganisations than larger organisations. The net employmentbalance figure for SMEs (1–249 employees) is +48 comparedwith +39 in the previous report. The net employment balancefor larger employers (500+ employees) is –5, up from –16 in thesummer report.cipd.co.uk/labourmarketoutlook 3

AUTUMN 2010The survey also reveals that the net employmentbalance for the next 12 months is +1, compared with+1 for the final quarter of 2010. This may suggestthat employers feel more uncertain about the next 12months following the cuts in public spending announcedin the Comprehensive Spending Review (CSR) and therise in the standard rate of VAT to 20% due in January2011. It may also suggest that the pick-up in near-termemployment is temporary or seasonal.Recruitment intentions downslightlyFollowing an increase in recruitment intentions in the springand summer reports, this quarter’s findings show that theproportion of organisations planning to recruit in the nextthree months has fallen slightly (by 3 percentage points).Just under two-thirds (64%) expect to recruit in the comingthree months.Redundancy intentionsdecrease slightlyWhile recruitment intentions have edged down, theproportion of employers planning to make redundancies hasalso fallen back. Fewer than three in ten employers (29%)expect to cut jobs during the next three months, down from32% in the summer report.The survey findings reveal that the proportion of public sectororganisations set to make redundancies has increased sincethe last summer report. Four in ten public sector employers(41%) are planning to make redundancies during the fourthquarter of 2010, compared with 36% in the summer quarter.That stands in contrast to the private sector, where theproportion making redundancies over the next three monthshas fallen from 30% in the summer report to 22%. Theproportion of voluntary sector organisations planning to makeredundancies has increased to 36% from 24%.The gap in recruitment intentions within the sectors has alsowidened since the summer report. Almost three-quarters (74%)of private sector companies are planning to recruit in the nextthree months, while less than half (45%) plan to do so in thepublic sector and just half in the voluntary (51%) sector.Figure 2: Redundancy intentions by business sector (%)(Bases - Autumn 10: Overall 460, Public 85, Private 326, Voluntary/not-for-profit 49)504030In the private sector, the construction sector (45%) andtransport and communications (60%) are most likely to layoff staff. Manufacturing companies are least likely to makeredundancies (10%). Redundancy intentions are highestamong healthcare and education employers (both 43%) inthe public sector.PrivatePublicVoluntary/not-for-profitO20100Winter 08–09Spring 09Summer 09Autumn 09Winter 09–10Spring 10Summer 10Autumn 104 cipd.co.uk/labourmarketoutlook

LABOUR MARKET OUTLOOKTable 1: Proportion of organisations planning to make redundancies in the next three months (%), by business sectorAutumn 10 Summer 10 % differenceBase: (Autumn 2010) in brackets % % %Manufacturing and production (119) 17 23 –6Private sector services (199) 28 32 –4Healthcare (31) 43 28 +15Voluntary and not-for-profit sectors (36) 35 30 +5Education (18) 43 45 –2Public administration and defence (57) 28 36 –8Source: Ipsos MORIThose organisations that are planning to make redundanciesexpect to make 8% of their workforce redundant onaverage, up from 5.5% in theUTsummer and 3.6% in thespring. Once again, this average figure varies considerablyby sector, with organisations in the public sector expectingredundancies to account for 14% of their workforce, upfrom 7.8% in the summer report. This stands in contrastwith the private sector, where only 3% of the workforce willbe made redundant among those firms that are planningredundancies in the fourth quarter in the private sector. Thisis down from 4.7% in the summer report.UK organisations spend on average £12,000 per employeewhen making redundancies. However, the cost rises to£19,600 in the public sector, compared with £9,350 in theprivate sector and £5,500 in the voluntary sector.cipd.co.uk/labourmarketoutlook 5

AUTUMN 2010Migration and outsourcingoutlookDemand for migrant workers remains relatively high. Aboutone in six (17%) intend to recruit migrant workers in thefourth quarter of 2010, which is equal to the previous peakrecorded in the summer report. More than one in five (22%)of private sector firms plan to hire migrant labour (22%)compared with 9% of public sector organisations and just6% of voluntary/not-for-profit organisations. Nonetheless,intentions are highest in the healthcare (36%) and education(27%) sectors, which are both dominated by the publicsector. Regional figures show that employers in the Midlands(20%) and those with a presence across the UK (27%) aremost likely to recruit migrant workers. Employers in the northof England are least likely to hire migrant workers (5%).Looking at the next quarter, four in five (80%) new migrantworkers are likely to be full-time while seven in ten (72%)will be permanent workers. Over half (56%) are also likely tobe recruited from within the European Economic Area (EEA).Figure 3: Proportion of organisations planning to recruit migrant workers during the next three months (%)252015105As found in previous surveys, more than one in four(26%) employers say they recruit migrant workers to fill ITvacancies. Other roles that these workers are commonlyrecruited for include accounting/finance (22%) andengineering (20%). In line with the summer report, threequarters(76%) of migrants that employers recruited in thepast three months were already based in the UK. Just undera quarter (24%) of migrant workers were recruited directlyfrom overseas.OPrivatePublicVoluntaryOverall0Summer 09Autumn 09Winter 09-10Spring10Summer10Autumn106 cipd.co.uk/labourmarketoutlook

LABOUR MARKET OUTLOOKFifteen per cent of employers surveyed say that a potentialcap of 40,000 non-EU workers would have a negativeimpact on their organisation. Only 4% state that it wouldbe positive. Three-quarters (74%) say it would not make animpact either way. Employers working in the private sectorare more likely than those in the public sector to say thatit would make a positive impact (6% compared with 1%),but they are also more likely to say that it would be negative(18% compared with 12% in the public sector). Of thoserecruiting migrant workers in the next three months,almost half (48%) feel that such a cap would have anegative impact on their organisation.More than one in ten (16%) private sector firms plan tooffshore UK jobs to other parts of the world over the next 12months, up from 9% of firms in the summer report. Of thoseplanning to offshore UK jobs, over three-quarters (78%)intend to offshore to India, two in five to eastern Europe(43%, compared with 29% in the previous quarter), and athird to Asia (excluding China and India). The most commonfunctions offshored by employers include finance (32%), HR(28%) and IT (22%). Almost all employers (97%) cite cost asthe most common reason for offshoring jobs. More than onein ten (12%) highlight access to skills and knowledge.UTcipd.co.uk/labourmarketoutlook 7

AUTUMN 2010Pay outlookContinuing the trend from previous surveys over the pastyear, pay settlements are expected to remain subdued inthe 12 months to September 2011. The expected meanbasic pay settlement (excluding bonuses) over this period isexpected to be 1.5%. This figure has been fairly constantsince autumn 2009.Almost four in five (79%) LMO employers are planning a payreview in the next year. Of these, almost three in ten (28%)are expecting to increase pay, while a quarter (25%) planto introduce a pay freeze. Four in ten (40%), up from threein ten last quarter (30%), say the outcome of their next payreview will depend on organisational performance.Figure 5: Average pay reward (%), by sectorIn line with recruitment and redundancy trends, the payoutlook in the private sector is more promising than in thepublic sector. The mean basic pay settlement for privatesector firms has risen in the previous three months, risingto 2.3% from 1.9%. The mean basic pay settlement in thepublic sector has fallen to just 0.25%, down from 0.7% inthe summer report.Base: those who are planning a pay review in the next 12 months (n = 376, autumn 2010)4.543.532.521.510.5A quarter of organisations are planning pay freezes intheir next pay review. Almost two-thirds of public sectororganisations (62%) are planning pay freezes. This compareswith just one in ten (10%) private sector firms and morethan a quarter (28%) of voluntary sector organisations.OPrivatePublicVoluntaryOverall0Spring 09Summer 08Autumn 08Winter 08-09Spring 09Summer 09Autumn 09Winter 09–10Spring 10Summer 10Autumn 108 cipd.co.uk/labourmarketoutlook

LABOUR MARKET OUTLOOKResearch methodologyThe online survey went out to a range of CIPD members, and460 usable returns were received. Respondents answereda series of questions on employment issues, from 3–30September 2010.Data since spring 2009 are weighted on the size oforganisation, sector of the organisation, and industry,according to the LMO membership profile. Comparisonswith quarters prior to spring 2009 should therefore bemade with caution.The responses were collated and compiled by Ipsos MORI.To provide more detail, the results were then reanalysed bythe size of the company, sector, region and type of business.The Labour Market Outlook survey was prepared at IpsosMORI by Oliver Wright and Diane Thebaudeau.UTcipd.co.uk/labourmarketoutlook 9

AUTUMN 2010Respondent profile(weighted by sector, industry and organisation size)Respondents by business sector % % % %Winter 09/10 Spring 10 Summer 10 Autumn 10Private 62 62 62 62Public 31 31 31 31Voluntary/not-for-profit 7 7 7 7Respondents by business type % % % %Winter 09/10 Spring 10 Summer 10 Autumn 10MANUFACTURING AND PRODUCTION 14 14 14 14OAgriculture, forestry and fishing * * * *Manufacturing 9 9 9 9Construction 2 2 3 2Mining and extraction * * * *Energy and water supply 1 1 1 1EDUCATION 5 5 5 5Primary and secondary schools 1 1 1 1Further and higher education 5 4 4 4HEALTHCARE 8 8 8 8NHS 6 5 5 5Other private healthcare 1 2 2 2VOLUNTARY AND NOT-FOR-PROFITSECTORS5 6 6 6PRIVATE SECTOR SERVICES 52 52 52 52Hotels, catering and leisure 2 2 2 2IT industry 3 3 3 3Transport and communications (includingmedia)4 4 4 4Consultancy services 14 15 15 15Finance, insurance and real estate 10 9 9 9Wholesale and retail trade 6 7 7 7Other business services 12 12 12 12PUBLIC ADMINISTRATION AND DEFENCE 16 16 16 16Public administration – central government 4 5 5 5Public administration – local government,including fire services11 8 8 8Armed forces * 1 1 1Quango 1 2 2 210 cipd.co.uk/labourmarketoutlook

LABOUR MARKET OUTLOOKRegion/nation to which response relates % % % %Winter 09/10 Spring 10 Summer 10 Autumn 10North 14 12 13 12North-west of England 5 5 6 5North-east of England 4 2 2 1Yorkshire and Humberside 4 4 5 5Midlands 13 13 12 11West Midlands 4 4 5 5East Midlands 4 4 4 3UTEastern England 5 5 3 3South 35 30 33 34London 16 13 11 11South-west of England 7 6 7 6South-east of England 11 11 16 17Scotland 8 7 6 6Wales 4 3 2 2Northern Ireland 0 2 0 4Channel Islands * 1 * *All of UK 24 32 33 31Not stated 2 n/a n/a n/aRespondents by employer size % % % %Number of employeesWinter 09/10 Spring 10 Summer 10 Autumn 101–9 15 13 13 1310–49 7 6 6 650–99 6 5 5 5100–249 14 13 13 13250–499 7 5 5 5500–999 10 9 9 91,000–4,999 21 19 19 195,000–9,999 11 10 10 1010,000–19,999 8 7 7 720,000 or more 0 13 13 13cipd.co.uk/labourmarketoutlook 11

Spring 2011CIPD OUTLOOK SERIESThe Labour Market Outlook is part of the CIPD Outlook series, which also includes the EmployeeOutlook and the HR Outlook. Drawing on a range of perspectives (and with the opportunity tocompare data across our regular surveys), this triad of research enables the CIPD to offer uniqueinsight and commentary on workplace issues in the UK.OTHERS IN THE SERIESSPRING 2011EMPLOYEEOUTLOOKPART OF THE CIPD OUTLOOK SERIESSPRING 2011HROUTLOOKPART OF THE CIPD OUTLOOK SERIESEMPLOYEE OUTLOOKThe Employee Outlook provides a quarterly updateon the attitudes of employees in the UK andthe HR challenges facing employers. It regularlycovers attitudes towards management, work–lifebalance, workload and pressure, communicationand bullying and harassment.cipd.co.uk/employeeoutlookHR OUTLOOKThe HR Outlook provides valuable insight and expertcommentary on the HR profession. It explores thesize and shape of HR functions, comments onthe capabilities of HR professionals and outlinesemerging trends and future prioritiesOcipd.co.uk/hroutlook12 cipd.co.uk/labourmarketoutlook

LABOUR MARKET OUTLOOKUT

Chartered Institute of Personnel and Development151 The Broadway London SW19 1JQTel: 020 8612 6200 Fax: 020 8612 6201Email: cipd@cipd.co.uk Website: cipd.co.ukIncorporated by Royal Charter Registered charity no.1079797OIssued: November 2010 Reference: 5392 © Chartered Institute of Personnel and Development 2010