In its annual employment Barometer Report for 2010, the Chartered Institute of Personnel and Development (CIPD) forecasts that the coming year will be better for jobs than 2009, but unemployment will continue to rise until at least the summer and there will be below inflation pay increases for most people in work.

Although 2009 saw fewer than expected job losses, the CIPD warns of a sting in the tail of the recession with a winter rise in redundancies as employers assess prospects for the economy in the coming year and decide that they will need to raise productivity and reduce labour costs. The CIPD’s baseline forecast is that the number of people in work will fall by 250,000 between the third quarter of 2009 and the second quarter of 2010, with unemployment rising to a peak at 2.8 million next summer. This, however, represents a marked improvement on the CIPD’s mid-2009 forecast that unemployment would peak at 3.2 million.

Pay squeeze needed to contain rise in unemployment
Dr John Philpott, Chief Economic Adviser to the CIPD, said the 2010 baseline forecast assumes the economy recovers in line with current market expectations and that the rate of growth in average earnings picks up to no more than 2%:

“Given the likelihood of a rise in price inflation to at least 3% in 2010 on the RPI measure, our forecast implies a squeeze on real pay next year. This could be difficult to deliver following a recession during which many private sector employees have experienced pay freezes or pay cuts. A slower than expected recovery or stronger earnings growth would threaten to raise peak unemployment to at least 3 million.”

Impact of tighter fiscal policy
The CIPD baseline forecast also assumes that tax and public spending announcements in the December 2009 Pre-Budget Report have no negative impact on the labour market in 2010. Dr Philpott continues:

“The impact on jobs of planned cuts in public spending and tax increases – especially the 1% hike in employers’ National Insurance Contributions (NICs) from April 2011 – is expected to be felt after the peak in unemployment. However, if employers were to anticipate the rise in NICs when making staffing decisions and/or there was a more immediate cut in public spending – which could be the case if the Conservatives gain power at the General Election due in the first half of 2010 – unemployment might peak at a higher rate than we currently forecast.”

Tough time ahead for the UK workplace
In forecasting what the CIPD report describes as a ‘jobs-light/pay tight recovery’, Dr Philpott concludes that tough times await UK workplaces in the next few years:

“The benign employment relations of the long Noughties boom may have just about survived the worst ravages of the Noughties recession but they face a severe test in the coming decade. Private sector employers will seek to contain wage costs and public sector employers will have to cope with the consequences of fast shrinking budgets and mass job downsizing.”

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