Flexible work practices containing unemployment

Discrepancies in unemployment data are causing confusion but research suggests that innovative working practices adopted by SMEs are momentarily slowing the pace of unemployment.

The latest ONS Labour Force Survey suggests the number of people claiming Jobseekers Allowance (claimant count) rose 24,900 in July to 1.58 million, equal to 4.9% of the UK workforce.

However, using the International Labour Organisation’s standard unemployment rose 220,000 to 2.43 million in three months from April to June. The latter figure is a 14-year high and equates to 7.8% of the workforce.

David Page, economist at Investec Securities, calls it a substantial disparity. “Total unemployment is rising but claimant count appears lower as individuals are moved off Jobseekers’ benefits by the DWP to schemes such as the New Deal. They may or may not have found employment, but there is no definite way of knowing,” he said.

In response, the Department for Work and Pensions says an inquiry was announced on 11 August into “recent divergence” between the two data-sets. Figures apart, evidence suggests flexible work practices are slowing the rise in unemployment. Many companies are offering voluntary paid or unpaid leave for 16 to 32-week periods versus outright redundancies.

SMEs have more room for adoption of such labour management ideas attuned to their smaller workforces. According to the Federation of Small Businesses this ranges from shorter shifts, half-days and unique operating hours to deferred pay and wage cuts with a promise of future rises.

An FSB spokesperson adds that monetary duress, business dynamics and work environment all come into play. “Hypothetically, if an SME has a staff of three and two are allowed unpaid or partially reimbursed leave of 16 weeks, then cost savings aside there will be other repercussions for the wider business. While we would still prefer such an arrangement to an outright redundancy; it remains the least worst solution,” she added.

Experts believe such manoeuvres are only delaying an inevitable rise in unemployment. A Chartered Institute of Personnel and Development survey found that 10% more employers plan to cut, rather than hire staff in the three months from June. Many economists have forecast total unemployment to reach three million by the first quarter of 2010.

Some observers say job cuts and operational closures at major companies are widely quoted but collective SME closures were ignored.

For instance, over the first six months of 2009 analysis firm Local Data Company found 19,000 UK leisure and retail outlet closures. Of these 12,000 were independent owner-managed sites.

Managing director Barnaby Oswald said: “For smaller retailers, it is a traumatic, one-off personal affair away from public glare. Independent businesses are the ones really struggling. We do not forecast a marked improvement in conditions for the latter half of the year.”

Chancellor Alistair Darling insists the wider economy is being monitored. Facing a record £8bn July budget deficit, he says economic recovery depends on expansionary policies.

Meanwhile, graduates who enter the job market face the toughest employment conditions in years with corporate placements down 25-30%.

The FSB suggests the government could assist in raising awareness about opportunities available in small firms. Its July survey of nearly 3,000 SMEs
shows more than 20% of small firms would take on a graduate, yet nearly 45% are unaware that they can run internship schemes.

In addition, the FSB and TUC have called on the government to subsidise short-term and part-time work practises to help smaller businesses retain staff.

The CBI has also called for a subsidy to fund extra apprenticeships to reduce unemployment while CIPD recommends a six-month work placement subsidy of £1,250 for 16-17 year olds who have been unemployed for more than
six months.