The UK economy after the recession-Part 5

6 02 2009

5. Growth of the public sector

 

Between 1999 and 2007 manufacturing jobs in the UK fell from 4.5m to 3.3m. In the same period jobs in the financial and business services sector grew from 5.3m to 6.5 m, and jobs in the public sector grew from 8.4m to 9.9 m.[1]

The Financial Times claims that around two thirds of jobs created since 1998 have been in the public sector. Most strikingly, within that figure, of the 1.07 m jobs created in the public sector,963,000 were taken by women in health, education, social care and social administration.[2]

There are at least 10 areas of the UK, all outside London, where 40% or more of those working are in the public sector.[3]

Flexibility

Evidence suggests the UK is now more resilient to economic shocks..due to flexible product,labour and capital markets[4]

The UK government has claimed that the prosperity of the past ten years has been built upon three factors; flexible products, flexible labour market and flexible markets.[5] While a detailed examination of this claim is outside the scope of this article we should note the following.

Flexible products

The government claims that intervention in anti-competitiveness, as in the energy utilities, has helped free up UK economic activity and made it more competitive and innovative. In addition it claims to be reducing regulations which inhibit enterprise.

Yet research and development intensity is lower than the OECD average. Business research and development intensity has declined from 1.5% of GDP in the 1980s to 1.1% in 2006, way below the OECD average. The OECD attributes this to,[6]

‘the structural characteristics of the British economy, with 75% of GDP produced in the services sector, and few large R and D intensive activities in key sectors such as motor vehicles, information technology and electronics.’

 

 Flexible labour market

The government claims that flexible labour markets have contributed to prosperity. The main way that this may be true is in the contribution of immigrants to the economy. They require less social spending, are more entrepreneurial and more flexible in what they will do. However, one of the first effects of the recession has been to reverse immigration and this has been endorsed by Phil  Woolas. The positive effects of immigration may now be reversed, with a decline in working age people.

The labour market is not so flexible as claimed,because of regulations making it difficult for employers to sack people and leaving them open to claims of racial and sexual discrimination which can be very damaging.

Subdued wage demands may be largely attributed to the disappearance of an organised working class rather than being the product of government action. 

 


[1] The Blue Book 2008p103

 

[2] Financial times 24 November 2008 p3

[3] Sunday Times 30 November 2008

[4] The UK economy, analysis of long-term performance and strategic challenges march 2008 HM Treasury p37 passim p3

[5] The UK economy, analysis of long-term performance and strategic challenges march 2008 HM Treasury p37 passim

[6] OECD Science technology and Industry Outlook 2008

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