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Wednesday, 3 October 2007

Election time – unnecessary and bad for the jobs market.

Although we don’t know yet whether Gordon Brown will call an election to take place next month, it is becoming increasingly likely given the Labour Parties extensive leads in the polls. Gordon Brown doesn’t need to call an election until 2010 but it seems that he believes by calling it now he will be able to increase his majority and gain a mandate to rule.

Given the outlook for the economy this is probably the best time for Gordon to call an election. Although early signs of the economic slow down is starting to show in the crisis at Northern Rock, slowing house price growth and the loss of jobs in the City of London this has not yet had a significant impact upon the wider economy. As such, Gordon Brown, whose legacy is intrinsically entwined with the economy, is likely to face heavy criticism should the economic environment turn sour.

So what is the likely impact of an election on the labour market?

In the short term the election is unlikely to be good for the jobs market. Political uncertainty is never good for business investment and planning and as a result businesses will tend to slow their expenditure and put back decisions until after the election. Although this has a bigger effect in countries where the political divide is greater, such as France, it will have an impact, especially given the current economic environment of financial uncertainty.

In the longer term the outcome of the election will help to decide the impact on employment market. One risk is that the election will result in a hung parliament. If this is the case then the result could be political paralysis. The Liberal Democrats will eventually provide the support so a government can be formed, however, the decision making process will be significantly slower. Therefore if problems such as the current credit crunch start to have a much wider and deeper impact on the economy, the government of the day would be less able to act decisively to stem the decline. Again this situation adds to risk and uncertainty, making business less willing to invest in the United Kingdom, keeping their money in the bank or sending it elsewhere.

If either the Conservative Party or the Labour Party is elected with a majority then the outlook for the jobs market will be much better. (In my opinion this is a good case for the first past the post system, but that’s beside the point). Having a party that can act decisively reduces economic risk.

Both of the parties have relatively similar policies when it comes to the jobs market. Neither is proposing a massive hike in taxes, as the Liberal Democrats are, which would harm the economy as the highly skilled and the high net worth, which support and create jobs leave the country or become tax exiles.

The Conservative Party in the long term is likely to reduce the number of people that work in the public sector. Therefore as a result if you currently or looking to work in this sector, then your employment prospects might be diminished. Nevertheless this is not entirely a bad thing. If the reduction in public sector employment leads to lower taxation then this should stimulate economic growth as people have more money in their pockets to spend on other sectors in the economy.

Public sector employment also acts as a barrier to private sector employment. The public sector usurps markets and skilled employees from the private sector, and as a result hinders the growth of this sector. Without the hindrance of profit requirements and short-term cash flow needs the public sector can continue to operate despite its lower productivity compared to the private sector. Therefore, a slowing of public sector employment growth should help the private sector to flourish as it replaces the public sector. This private sector employment is likely to be of higher productivity with greater returns, which in turn will help to boost employment in the wider economy.

The outcome of the election is not a done deal, but nor is the outcome for the jobs market. There currently exists plenty of risk in the economy and the uncertainty of an election in both the short and the long-terms may act to unsettle to economy further. This election is a purely political act, as in many ways is not in the national interest, and could further weaken employment prospects.

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Saturday, 25 August 2007

Here comes the sun

Just a quick note to anyone who is thinking applying for a job this weekend - don't! We've had a crap summer and we all need to appreciate this excellent sun that has final decided to show its face. So go sit in the sun, have some drinks and then enjoy, it's unlikely to last.

You never know, life might not seem so bad when you get back to work on Tuesday and you might just decide to stay!

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Sunday, 19 August 2007

Article 1 - Tough times 2008

On the surface all is looking very rosy for the UK labour market if you’re looking for a job. Despite a huge inflow of migrant workers since the enlargement of the European Union the number of people claiming unemployment benefit has consistently remained below the one million mark in the last two years and has fallen by over 100,000 in 2007.

Nevertheless cracks are starting to show in the economy. Interest rates have risen five times since July 2006 and are likely to rise one more time by the end of the year. Higher interest rates are likely to hit both consumers and businesses alike as debt repayments become even more of a stretch. It should be noted that increases in interest rates take about a year to feed through to the economy so get ready for last years rate rises to start to hit!

Other weaknesses are showing. The slowdown in the US economy has been going on for most of the year without major consequences for the UK. The recovery in the major EU countries has helped to buffer the reduction in US demand for UK exports. However, the EU recovery is starting to look short-lived. The Italian economy posted very weak growth figures in the second quarter of year, whilst higher European Central Bank (ECB) interest rates are starting to hinder Germany and France.

Nevertheless on the surface it would seem that the slowdown is not having much of an impact on people’s day-to-day lives. Last week’s financial market chaos would have been a big headache for those working in the City of London or those with large share portfolios, but that’s a minority of the country.

The financial chaos should however start alarm bells ringing. It is not yet clear how the current mess in the international financial markets will play out, but if this turmoil continues then the cracks in the economy could well become holes for jobs to fall through. The financial crisis has exacerbated problem – few had been predicted that the United States could potentially move into recession until the events of last week.

It seems unlikely that the UK will suffer as much as the US. There are no credible analyst suggesting that the UK will enter a period of recession, but as the economy is squeezed by higher interest rates and as chaotic financial markets hit business confidence there will be those that will lose their jobs.

The first possible group to see job losses will be those working in the financial and business services sector in the City of London. Initial estimates had suggested that job losses in the City are likely to number a few thousand, but this number is likely to be revised upwards. The impact of this will be relatively limited to the London area.

The next sign to watch out for is a slowdown in consumer and business spending. With the financial markets looking wobbly and with higher debt repayments businesses will reduce their spending on goods and services, and also on headcounts.

Uncertainty in the financial markets leads to uncertainty in the business environment. Plans to invest will be hit as uncertainty increases the risk that they may not be able to afford the repayments in the future.

A slowdown in consumer spending is likely to follow. Higher interest rates will increase the cost of consumer debt repayments, primarily mortgages. However, this is likely to have a limited impact according to the Bank of England.

Consumer spending will also be constrained by the reduction in business spending. As businesses reduce spending employment growth will slow as will wage growth. With less money in their pockets the consumer will stay at home, rather than spending on the high street.

With business spending less on goods and services, those that supply those goods and services will have a reduction in turnover. With consumers spending less on goods and services these suppliers will also see reduced turnover. Lower turnover cause firms to fold or reduce costs; inevitably job cuts will be part of this process.

So when will this all come to a head? Most analysts suggest that 2008 will be the crunch point when the various factors come together to produce an economic slowdown. Expect to feel the pinch wherever you work, there are unlikely to be many sectors that don’t see an impact.

With this warning in hand I would suggest knuckling down and making sure your boss realises that you’re indispensable, even when business is bad! 2008 is going to be a tough year try to limit the suffering.

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