Reasons to fear a jobless recovery

Will the UK labour market be able to generate enough new jobs to sustain the recovery? There are plenty of doubts surfacing at the moment and we might be finding ourselves on the cusp or yet another surge in structural unemployment. Here are some reasons why - despite our much vaunted flexible labour market - a jobless recovery is on the cards.

1/ Housing under pressure: There is the possibility of a continued contraction in traditionally labour-intensive industries such as construction. New house-building remains at very low levels and commercial building projects are taking time to come on stream after the global financial crisis.

2/ Confidence waning: Consumer confidence has taken a turn for the worse in recent months. Household budgets are under pressure from many different angles – higher taxes, rising prices, evidence of a second-round fall in property prices and continued low interest rates for people dependent on interest as income.

3/ Fiscal pain: Many jobs may be lost from in businesses affected by planned cut-backs in government spending. The Chartered Institute of Personnel and Development has published some pessimistic confidence surveys and warns that perhaps 600,000 jobs will go in the public sector by 2015.

4/Credit crunch 2.0: We are not yet through the credit crunch (and if you read the work of Nouriel Roubini you may be preparing yourself for something much worse). Economists such as Edmund Phelps in the United States argue that a reduction in risk appetite in banking has caused a contraction in the supply of capital to those businesses which are seeking to innovate and therefore to expand and create new jobs.

5/ Sterling gains ground: The rising value of sterling against other currencies may dampen export demand, production and jobs.

6/ Wait and see: Much of the heavy labour shedding during the recession is probably over, but this does not mean that businesses start to hire extra workers straightaway. They can offer existing employees longer hours if demand picks up and many firms will be looking closely to see how strong the recovery is before committing themselves to extending their workforce.

7/ Investment slow to recover: Business investment may lag any recovery in aggregate demand. Investment in new capital goods helps to create new jobs in industries manufacturing equipment and supplying the building trade.

BBC News: UK jobs market recovery ‘to stall’