BlogRecession redundancies cost UK employers £28.6 billion

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In its Work Audit report, published today, the CIPD looks at the impact of the jobs recession that began in 2008 on employers, workers and the economy as a whole.

The report, based on official statistics and CIPD survey evidence, found almost 2.7 million people have been made redundant in the past four years, equivalent to one in ten employees at the start of the recession.

The manufacturing and construction sectors together account for a third of total redundancies since 2008 (more than double the combined share of these sectors in total employment). By comparison public administration, education and health account for 11% of redundancies, while the finance, insurance and real estate sector accounts for 6%.

Adjusting for the share of redundancies across sectors and differences in the average cost of redundancy between sectors, the total cost of redundancy to UK employers since the start of the jobs recession is an estimated £28.6 billion.

The cumulative loss of output to the economy as a result of the jobs recession amounts to between £87 billion and £135 billion (6% to 10% of GDP), depending on different assumptions about the potential productivity of unemployed people and the extent of underemployment amongst people in work.

Two-thirds of people made redundant are paid less in the next job they find. On average the pay penalty is 28%.

High and rising unemployment has put downward pressure on pay increases since 2008. The proportion of employees receiving a pay increase has dropped from two-thirds in 2008 to less than half (45%) in 2011. In cash terms the average worker is £3000 a year worse off than if pay had increased at the pre-recession rate.

Higher inflation has also resulted in a real pay squeeze. Private sector workers are on average earning 7% less in real terms than in 2008 and public sector workers 4% less.

John Philpott, chief economic adviser at the CIPD, said: “It has been four years since the labour market began to be hit by the aftershock of the global financial crisis. The impact on the extra one million people unemployed is plain to see but the financial pain of the jobs recession has been felt by employers and people in work as well as the jobless.

“The cumulative cost of high unemployment and extensive underemployment has been massive and without a more robust economic recovery will continue to rise. This further underlines the need for the Chancellor to set out a convincing strategy for growth and jobs in next week’s Budget.”

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