2+2=5

The numbers just don’t seem to add up to me.

The Guardian today reveal that the Treasury expects that around 1.3 million jobs are to be lost as a consequence of the budget. Of these around 600,000 are direct public sector job losses with the rest culled from the private sector.

David Cameron insists, with chutzpah in Kathy Newman Alice Tarleton‘s words, that unemployment will befalling every year this parliament. This is a reiteration of what the Office for Budget Responsibility describe; a situation where jobs lost in the private sector are replaced, more than replaced, by those created in the private.

As Anthony Painter points out this means that net job creation must proceed at rates in excess as were enjoyed in the period 1999-2007. Let me reiterate, Cameron implies that our recovery from a catastrophic financial crisis – which usually tend to L shaped rather V shaped – will see a flurry of job creation not seen even during the longest boom the UK has seen.

There are ways out for Cameron, but none particularly convincing.

A contractionary fiscal position can be met offset with an expansionary monetary position; lower interest rates or quantitative easing, for example. But it looks as though we will be facing tighter, not looser, monetary policy in the near future.

Or we can trade our way to a boom, after all Stirling has plummeted, but every country is planning on doing that, and we can’t all run trade surpluses.

Businesses can be impressed by tough measures and they can boost their confidence, of course that hasn’t happened and confidence is down.

Alternatively, Cameron is just making over optimistic prediction. This is something which he lambasted Brown for while in opposition but seems to have embraced once ensconced in the seat of power. Both the private sector and the Trade Unions are dubious of Cameron’s predictions and they can add my voice to their incredulous calls.

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7 thoughts on “2+2=5

  1. I think you are comparing gross figures (lastest figures) against net figures (historial figures). So not a true comparison.

    Even in recessions the private sector can still manage to create millions of jobs. In fact in recessions there are more new companies created then during boom times.

    1. No, I know the difference.

      The net figures must see larger job creation than during the boom and the gross figures must also be larger too.

      Sorry its not entirely clear (and its a little early) what you think I’ve got wrong.

      Anyway: “Even in recessions the private sector can still manage to create millions of jobs. In fact in recessions there are more new companies created then during boom times.”

      Less jobs are created though, recessions don’t really see an increase in job destruction, its just that new jobs don’t appear as quickly.

      The new businesses have no immediate bearing on the jobs figures as are illlustrated by the job losses in recessions.

        1. If you look at the gradient on that graph it is widely optimistic.

          The rate of job creation would have to be comparable to that between 1992 and 1996.

          Our currency has devalued true, but monetary policy has hit the zero lower bound and is unlikely to get any looser. The productivity boom in the 1990s US is unlikely to repeat itself. We are weak among a weak world. The potential just isn’t there at the moment without drastic action.

          I’ll revise my position when the bank of England adopts Nominal GDP targeting and pledges to catch up to trend. Until we have a waaay more proactive monetary policy then I’m afraid Osborne’s plans are buggered.

  2. If you look at that graph you will note that if you were to take the first derivative for the period pre 2010, it is clearly lower than the first derivative of the projection period (2010+)–which is totally insane.

    BTW, according to some research done here in the Business School, the private sector only created under 1mn new jobs during Labour’s time in office! I will try to find the report…

    1. It’d be nice to get the data and do the maths. It’s been a while since my maths A level but its always nice to rebut things with maths.

      1m new jobs? That can’t be correct.

  3. I don’t think that you even need the data–just look at the steepness of the curve pre 2010 vs the steepness of the curve post-2010. Steepness of curve = first derivative = rate of change. Rate of change post 2010 is higher than pre, i.e. the rate of private sector job growth is going to be greater during post bubble austerity than it was during the bubble! I don’t believe that for a minute.

    WRT job growth during New Lab, the CRESC report considered public sector vs private sector vs quasi private sector work that while nominally private sector was actually funded by the government (the report calls these “para-state”). Once you remove these from the analysis, you get less than 1mn jobs created that were true private sector.

    Report is here: http://www.cresc.ac.uk/publications/documents/AlternativereportonbankingV2.pdf

    Summarised here: http://business.timesonline.co.uk/tol/business/economics/article7009695.ece

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