By Lucy Phillips
28 January 2010
The economy has become so dependent on public sector growth that cuts in government spending will have ‘grim’ outcomes for employment and wealth, academics have warned.
A study by the Centre for Research on Socio-Cultural Change at Manchester University found that 57% of the 2.2 million jobs created in the UK between 1998 and 2007 were in the public sector and ‘para-state’ (activities dependent on state support). This masked a huge decline in private sector employment.
The state sectors accounted for particularly high job creation among women (81%) and those living in ex-industrial regions (up to 73%), such as the Northeast and the West Midlands, where employment became largely reliant on nursery education and hospital expansion.
Professor Karel Williams, one of the report’s authors and director of the research centre, told Public Finance that the state was ‘filling in for the incompetency of the private sector to employ’. He urged politicians to consider the employment implications of dealing with the country’s deficit, not only how public spending cuts would effect service provision.
‘Ill-considered public expenditure cuts will reduce state and para-state employment, particularly for women, which puts a second wage earner into most homes,’ he said, adding that the future of regions previously dependent on manufacturing looked ‘pretty grim’.
The Cresc report also concluded that the banking sector had created few jobs since the late 1990s, despite the ‘boom years’ and the sector’s boost to gross domestic product. Williams said the expansion of the sector had turned out to be ‘a fairly mixed blessing’. It needed to be made ‘safer and more socially responsible’ but was ‘not a source of jobs for the future’.
The Treasury select committee is currently conducting an inquiry into whether banks are ‘too big to fail’. Bank of England governor Mervyn King this week told the MPs that the purpose of the banking industry was ‘not to maximise employment or activity in the sector’, but to provide services to the economy.
The report echoes findings from the Centre for Cities think-tank earlier this month, which warned that cities that had experienced public sector growth over recent years would face a ‘second-wave recession’ when the government begins to address the fiscal deficit.
Just over 60% of the 1.5 million jobs created in UK cities between 1998 and 2008 were in public administration, education and health.
Swansea, Hastings and Newcastle were among those identified at risk.
See Centre for Cities' findings
