As we know, there are likely to be significant cuts to public spending to address the public finances. The June Budget says
“…once the Government’s commitments on protecting health and overseas aid are taken into account, other departments could see average real cuts to their budgets of around 25 per cent over the four years(to 2015/16).”
So we know that public sector cuts – possibly of 25% - will come in over the next financial year and last through the lifetime of this Parliament. What we don’t really know is where they’ll fall and what effect they will have. As Sir Alan Budd said in the Office of Budgetary Responsibility report, it’s difficult to assess the impact of cuts on employment when we don’t know where or when they will fall, whilst John Philpott at the CIPD thinks that 725,000 jobs will be lost in the public sector over the next 5 years. We will know more after the autumn Spending Review. There is broad agreement amongst analysts, however, that private sector employment demand is, at present, not sufficient to compensate for likely public sector job losses.
The June Budget further states that the increase in employment anticipated is not expected to offset rises in the working age population, with the consequence that unemployment is expected to rise through 2010, and also adjusted their estimates for unemployment upwards, before the employment impact of spending cuts are anticipated.
In other words, people are going to lose their jobs, there may not be enough spare jobs to absorb the impact, and unemployment could well be on the way up.
Whilst actual spending cuts are not due to start in earnest yet, that doesn’t mean they are not having an effect on employment now. We already know that there is a recruitment freeze in parts of the Civil Service, that local government employment is falling - and has been falling for some time. Universities are implementing cuts to budgets – and some are already looking at significant job reductions before formal plans are announced. We know of other public bodies putting job freezes or reductions in place. And public bodies like the QCDA and the Regional Development Agencies will be abolished. These are going on now, in anticipation of spending cuts.
It’s going to affect graduates. The public sector has a higher proportion of its workforce qualified to NVQ4+ than the private sector, and so cuts to public sector employment could have a disproportionate effect on graduates. In 2006, just under a third of public sector employees (32.4%) had degree or equivalent qualifications as opposed to 19.4% of private sector employees.
Since then, qualification levels in the UK working population have gone up overall, but if Philpott is right, and we lose 725,000 people from the public sector in the next 5 years, and a third of those lost are graduates, then about 240,000 graduates could lose their jobs in the UK up until 2015 – equivalent to an entire year’s university graduating cohort.
If, as some figures suggest, half of the public sector workforce is graduate, we could be looking at over 350,000 graduate job losses. Each year, about 145,000 graduates enter the UK workforce (a lot go onto further study in particular). 350,000 graduate job losses is more than the entire working output of the UK higher education sector for two years.
So, let’s try to estimate how many graduates went into the public sector from 2007/8 – at the start of 2009, when the recession had already begun. It’s not going to be a perfect estimate of graduates entering the public sector, but it will be a start. We will use the HESA Destination of Leavers of Higher Education Survey 2007/8, which means that anyone who has that dataset can check what we've done here and confirm it for themselves.
The reference year we’re looking at, 2007/8, saw the start of the recession and so was not a particularly good year for graduates. The unemployment rate was 7.9%, or about 17,365 UK-domiciled graduates known to be unemployed, at a response rate of 79.5%. That gives us approximately 21,900 UK-domiciled graduates from this cohort unemployed six months after graduation.
First, let’s define ‘the public sector’. It’s difficult to tell – there’s no specific marker for whether employment is ‘public sector’, so we’re going to do this through Standard Industrial Classification (SIC) codes. It won’t be perfect – but this is an estimation exercise to give us an idea of the potential effects, and it’s important to show our working.
We'll call the following SICs 'public sector':
(8400) Public administration and defence; compulsory social security
(8410) Administration of the State and the economic and social policy of the community
(8411) General public administration activities
(8412) Regulation of the activities of providing health care, education, cultural services and other social services, excluding social security
(8413) Regulation of and contribution to more efficient operation of businesses
(8420) Provision of services to the community as a whole
(8421) Foreign affairs
(8422) Defence activities
(8423) Justice and judicial activities
(8424) Public order and safety activities
(8425) Fire service activities
(8430) Compulsory social security activities
(8510) Pre-primary education
(8520) Primary education
(8530) Secondary education
(8531) General secondary education
(8532) Technical and vocational secondary education
(8540) Higher education
(8541) Post-secondary non-tertiary education
(8542) Tertiary education
(8550) Other education
(8551) Sports and recreation education
(8552) Cultural education
(8560) Educational support activities
(8600) Human health activities
(8610) Hospital activities
(8620) Medical and dental practice activities
(8621) General medical practice activities
(8622) Specialist medical practice activities
(8623) Dental practice activities
(8690) Other human health activities
(8800) Social work activities without accommodation
(8810) Social work activities without accommodation for the elderly and disabled
(8890) Other social work activities without accommodation
(8899) Other social work activities without accommodation n.e.c.
(9100) Libraries, archives, museums and other cultural activities
(9101) Library and archive activities
(9102) Museum activities
(9103) Operation of historical sites and buildings and similar visitor attractions
(9492) Activities of political organisations
In 2007/8, destination data suggests that about 60,000 first degree graduates known to be employed, were working in the public sector six months after graduation – about 28% of all graduates, and about 40% of all employed graduates. (In fact, the figure was 61, 470.) The response rate for this cohort was 79.5%, so that comes to about 77,000 graduates employed in the public sector six months after graduating. Let’s call it 75,000 to take into account possible overestimation. (although the SICs show us that there are areas of public employment we’re not looking at).
Just under three quarters – 74% - were women (60% of the graduate population are). 38% were mature graduates (24% of the graduate population are). 86% were employed outside London – 80% of graduates in general are.
The public sector employs a disproportionate number of graduates who are women, who are mature students, and who are based outside London.
Now, we need to look at what constitutes ‘front line’ services, and so are protected from cuts.
We have assumed that these front line jobs are:
Primary school teachers
Secondary school teachers
Fire service officers
There is an argument that there might be others on there, but we’ll stick with these for the time being.
This gives us a figure of 31,110 ‘non-front line’ public sector jobs, taken by UK-domiciled graduates, at a 79.5% response rate, or just over 39,000 if we scale up to a full sample. That’s almost exactly 20% of the jobs entered by graduates in 2007/8. This may be a little higher than in previous years – in 2006/7, for example, the equivalent proportion was around 19.5% - but not necessarily a very great deal higher.
In practise, I don’t think they’d all go, but this is our range – probably somewhere between 0 and 39,000 jobs previously, but no longer, available to new graduates. If a fifth of the graduate jobs supply were to go and not be replaced, then that would more than double graduate unemployment for the cohort affected at a stroke. That would put graduate unemployment over 20% and pushing towards 25%.
The highest unemployment rate, for graduates six months after graduating, ever recorded in the UK, was for the cohort of 1981/2. 13.5% of them were unemployed at the start of 1983. As we have seen, we’re expecting over 10% unemployment next year anyway, and it would not take much of a shock to the graduate jobs market to make the next few years some of the toughest ever experienced by UK graduates. In fact, the loss of around 13,000 of these jobs – a third of the total – would probably be more than enough to make give the following year a record graduate unemployment rate.
An alternate hypothesis is to look at those budgets apparently protected; the NHS and international development – and to imagine these will be kept safe and anything else is at risk, except for school teachers (the Chancellor has indicated that he will look to spare the Department of Education budget if he can). This means we no longer have a list of protected professions, but that all the jobs within the health sector, as a crude simplification, are safe. There are not a lot of graduates going into roles in overseas aid, so we will leave them out, and hope that this omission from the ‘safe list’ makes up for the inclusion of private sector health jobs. It almost certainly does not and hence we have labelled too many jobs as ‘safe’ under these criteria, but we will have to stay with approximations for now. This gives us a similar figure of 29,585 jobs at a response rate of 79.5%, or, scaled up, just over 37,000 jobs.
Either way, this suggests that by the middle of the decade, over 30,000 jobs that graduates go into every year could no longer be available.
Some might argue that this will fall on graduates who didn’t study subjects they consider economically useful. But if you look at the breakdown of the effects by subject, it’s surprisingly even-handed. Social sciences get hit badly and doctors, nurses and engineers not as badly. But anatomists, biologists, microbiologists, English and history graduates are all disproportionately represented in these ‘at risk’ jobs, whilst subjects that often get criticism, like drama, media studies and design, are much less affected.
There is also a regional dimension. The Guardian produced a map of the proportion of local workforces employed in the public sector to give an idea of the dependence of the regions on public sector employment.
Let’s take a look at the breakdown of our ‘at risk’ roles by region.
This graph shows the proportion of local employment of new graduates accounted for by ‘non-front line’ public sector jobs.
So, whilst these roles account for only 17%, or about one in six, of the jobs graduate entered in London, they’re a quarter of those that graduates in the North East and Wales went into. The loss of a significant proportion of the local graduate labour market could have dire effects on these regional economies, and it’s noteworthy that some of those that could be worst effected are those with the weaker local economies. This suggests that job cuts could drive educated young people away from regions that need to retain them and into the capital, in search of work. On the other hand, the Emergency Budget announced the creation of a Regional Growth fund from 2011/12 to 2012/13 to fund capital projects in the regions – this may have an effect over part of the period of budget cuts.
So, how accurate are these figures? Of course, they’re wrong. All economic predication are wrong.
We don’t know exactly where the cuts are going to fall, we don’t know how deep they are going to be, when, exactly, they are going to take place. We’re not even clear on what is ‘public sector’ or ‘frontline’ in the first place. I have probably underestimated the number of graduate actually entering the public sector by not considering some industries. I have probably not got the front-line/non front-line split right – I don’t expect a complete freeze in recruitment of physiotherapists, audiologists, opticians or the Armed Forces, for example, but then nor do I expect no cuts at all in recruitment of nurses or primary school teachers. Hopefully, in the broadest sense, the errors balance out.
However, what we can do is make a rough estimate of the potential impact and what will happen under different scenarios. I don’t expect all 39,000 jobs estimated to be lost. But they don’t need to be to have a significant impact.
My calculations show that even if I am very wrong indeed, the impact of the proposed cuts could be sufficient to have a profound effect on the labour market for new graduates, and particularly on the labour market for graduates outside London. It is quite possible that the next four years could be the toughest for new graduates ever as a result.
These are going to be extremely challenging times for students, and the careers services who support them. We are all going to have a great deal to do to help students and graduates, and we need to be planning and preparing for it now.