What do job loss projections mean?

Updated on 30 June 2010

Today's forecasts of what's going to happen to employment over the next five years according to the Office for Budget Responsibility (OBR) shed more light on how the new coalition government's deficit-slicing plans will hit those working in the public sector, writes Neil MacDonald.

The Office for Budget Responsibility (OBR) poses some difficult questions for both the government and the opposition. The OBR says more public sector workers will lose their jobs under David Cameron's government, and it says much of the expected increase in overall employment would have occurred under Labour as well.

But it also says that the scale of public sector job losses under Labour would have been only a shade better than under the coalition.

The OBR thinks that the number of people employed by the government will drop by 610,000 over the next five years - that's 11 per cent of the entire public sector workforce. The total number of government jobs falls from 5.53 million to 4.92 million.

This official number is strikingly close to the Treasury documents leaked to the Guardian this morning which talk of 500-600,000 posts lost amongst government workers. PURPLE

Labour has sharply criticised the government over the scale of these cuts, but it is important to remember that it too was planning to slim down the public sector, and the OBR's forecasts today suggest that there's not much to chose between Labour's policies and Lib-Con ones.

The OBR forecast for Labour's plans estimated that 460,000 public sector jobs would go by 2014-15. Over the same time period, Lib-Con plans see a 490,000 cut. So George Osborne's programme does lead to more public sector workers losing their jobs but only by 30,000 over the entire time period. Indeed, the OBR reckons that Labour plans would have seen a faster rate of job loss in the first two years of this parliament.

One of the reasons why the OBR thinks Lib-Con cuts will have less impact in the next two years is because the current government is planning to be tougher on public sector pay.

For two years, the OBR reckons that earnings amongst government employees will rise by just 0.8 per cent a year. The trade-off is that very low wage increases save money for government departments, easing pressure on them to cut more jobs.

The other side of the coin is what's happening to employment in the private sector. We don't have exact forecasts from the OBR but we can work out what they think will happen from the overall totals.

The OBR forecasts that the total number of people in work should rise by 1.34 million by 2015-16. As the OBR reckons the public sector will be 610,000 smaller, that suggests that the private sector should grow by 1.95 million. This is the sort of forecast that the government is keen to emphasise, as it suggests a major rebalancing of the economy away from the state and towards the private sector.

However, it is not clear that the government can take much credit for this. Again, it is useful to look at what the OBR thinks would have happened under Labour's plans. It reckoned employment under Labour would have risen by 1,090,000 by 2014-15. That's actually 10,000 higher than it reckons will be managed under the Lib-Con strategy.

Also, these forecasts do look optimistic. It would require private sector employment to rise by an average of 390,000 a year for five years. By comparison, private sector employment only rose by 210,000 a year under the first 10 years of Labour government.

What the OBR forecast does not set out is how many jobs in the private sector will be lost because of the cuts in the public sector. The Guardian leak suggests 600-700,000 private sector jobs going because of government cuts. If that were true, it would require mammoth increases in other parts of the private sector to compensate.

Clearly, the placing of precise numbers on these different projections could be significant politically, but economically this is not a massive surprise. We all knew that the coalition was planning to cut spending faster than Labour so a bigger reduction in headcount seems natural. We also already knew that the OBR thought the economy would grow slower this year and next, so it is not surprising employment doesn't do so well under Lib-Con plans.