We need 4m of these
Judging by the rhetoric, it really does seem Cam gets it. Public spending needs drastic surgery and Cam sounds like he's ready to wield the knife. Thank goodness.
The question being asked now is where will all the post-cuts jobs come from?
To recap (see this blog), Labour increased public sector employment by around 1 million. Which means that the official public sector payroll is now just over 6m (including 200,000 in our nationalised banks). To that, you need to add those who are effectively employed by the public sector but for arcane historical reasons are not counted on the official payroll (eg GPs and university lecturers). You also need to add in a bunch of subcontractors (including those notorious consultants) who are doing jobs that were traditionally done by public sector staff themselves. We reckon that takes the overall total to at least 7 million, or about one-quarter of all those currently in employment.
The cuts mean that number has to fall. How much? Cuts of 20% in overall Departmental Expenditure Limits have been widely touted, which on a base of 7 million could translate into 1.5 million jobs.
1.5 million new jobs would be bad enough, but of course, the much discussed jobs shortage could be even worse than that.
As we all know by now, in addition to the 7 million employed by the government, there are a further 6 million people of working age living on benefits. They too are a burden taxpayers can no longer afford, and Cam has instructed IDS to get them back to work.
How many of them will be looking for jobs?
Well, 1.5m of them are on Job Seekers Allowance (JSA), so in principle all of them need jobs. In reality of course, there will always be a certain level of short-term frictional unemployment, so let's call it 1m new jobs needed.
A further 2.6m are on Incapacity Benefit and Employment Support Allowance (ESA). Everybody understands many of these people are fit for work and simply disguised unemployed, and while we don't know precisely how many, the general estimate is 1m. So that's another 1m jobs needed.
Then there are 0.7m lone parents supported by benefits. Again, the expectation is that most of them ought to be put back to work - call it 0.5m.
So totting it all up, to employ all these people coming off the public payroll and welfare, we will somehow have to discover around 4m new jobs. All of them in the private sector.
Can it be done?
Well, the good news is that last time we faced a similar problem back in the 70s, the economy did subsequently manage to generate millions of new jobs. In fact, over the subsequent thirty years, nearly 6 million net additional jobs were created. And that was despite an eye-watering 4 million slump in manufacturing jobs.
Where did the new jobs come from?
Admittedly, 2m came in health, education, and public administration, largely taxpayer funded. But even more important, jobs in finance increased by a whopping 4 million. And they weren't funded by taxpayers.
Here's the complete picture (click on image to enlarge, and see this blog for more details):
Now, I know what you're thinking - we can't depend on high risk finance for our future jobs. And you know, you may be right (although personally, Tyler reckons finance will surprise us - it has always been an industry in which we excel, and the global opportunities remain vast).
So finance aside, where will the jobs come?
Answer: we have absolutely no idea.
And neither does anyone else.
The truth is that back in the 70s few would have forecast the pattern of jobs growth over the next 30 years, and it's no different today. Seers such as Will Hutton's Work Foundation may reckon they can chart the path ahead, but here on BOM we're much less confident (and see here for a good demolition job on the Work Foundation's past record - HTP Ben W).
But what we are much more confident about is that given a chance, the market will deliver. And the six key steps Cam must take to give it that chance are as follows:
- Cut taxes - especially business and payroll taxes
- Slash red tape - including restrictions on working practices
- Abolish the minimum wage - alongside a programme of welfare cuts, we need to junk the minimum wage - low productivity workers in high unemployment towns like Dewsbury simply cannot find jobs at those rates (see this blog)
- Break up public sector monoplies - especially in the world's boom industries of healthcare and education - private sector providers would soon build expertise and sell it around the world
- Decentralise - including giving our old bombed out industrial cities charter status (eg see this blog) - remembering that the bulk of these new jobs will be required in precisely those areas
- Cap immigration - yes, we know we all benefit from some high skill migrants, but as we've blogged many times, net net Labour's open door policy hasn't made us richer, whereas from Slough to Lincolnshire, it has taken low-skill jobs from low-skill unemployed locals.