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ippr warns of possible double dip in employment as cuts begin to bite

ippr warns of possible double dip in employment as cuts begin to bite

The Institute for Public Policy Research (ippr) argues that employment figures out today (Wednesday 19 January 2011) will represent a real test of the governments economic strategy.

Reducing the deficit by making substantial cuts in public spending and increasing taxes has been justified by the Coalition as necessary to provide the stability the private sector needs to expand and create new jobs. But while the risk of a double-dip in GDP now looks very small, the risk of an employment double-dip remains very real.

Economists were surprised by the strength of job creation in the summer months of 2010 but the very latest figures showed a renewed fall and an increase in unemployment to just above 2.5 million. There are also more than 1 million people in part-time jobs who say they want to work full-time.

Cuts in public sector employment will pick up pace in the first few months of 2011 as local authorities deal with the prospect of reduced resources from April. Unless job creation in the private sector is strong, unemployment will reach new highs even if the economy continues to expand.

A buoyant labour market will also be needed if the governments Work Programme is to be launched successfully.
Tony Dolphin, ippr Chief Economist, said:
History suggests the UK economy needs to grow at an annual rate of more than 2% if unemployment is to fall. There is a real risk that growth will not be fast enough during 2011 and that unemployment will reach new highs for this economic downturn.

Substantial cuts in public sector employment put enormous pressure on the private sector to create sufficient new jobs to prevent overall employment falling in 2011. While the prospect of a double dip into negative growth has receded, a double dip in employment is a real prospect.

The governments flagship Work Programme to get people back into employment will face considerable difficulties if it is launched at a time when job creation in the private sector is insufficient to offset job contraction in the public sector."

4. The government intends to have the new Work Programme in place nationally from the summer of 2011. It will replace existing programmes for unemployed people and aims to reduce benefit costs and the cost of getting people into work.


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