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Charles Levy
Senior Economist
Charles  Levy

A sustainable recovery?

Authors: Charles Levy Charles Levy

15 September 2010

In June we calculated that the private sector would need to generate new jobs at a rate of approximately 1.3% per year if it was going to match the scale of job cuts expected in the public sector. Today’s numbers are encouraging since, for the first time, the private sector has managed to sustain this rate of growth over a full year.

We know from research for our Knowledge Economy Programme that any lasting and sustainable recovery must be driven by an expansion in knowledge intensive employment – these are the areas where we can compete and win position within global production networks. We know that the future prosperity of Britain will depend on a highly skilled and well educated workforce using and investing in knowledge based assets to innovate and to create value. We also know that the knowledge economy is heavily concentrated within a group of knowledge intensive service activities - business, high tech, and financial services and education and healthcare services in particular.

Unfortunately, today’s figures show the recovery in employment is being driven by a jump in construction employment and total employment in services is still falling. Positive construction numbers are often seen as a bellwether indicator for the rest of the economy – if households and businesses are investing in new homes and offices then they must be doing well. But the indicator can overstate the health of the economy – we saw recently how fragile and unsustainable an economy built on a property boom and construction activity can be.

There is a clear disconnect between the types of activities on which a lasting recovery could be built, and those that have dominated growth in the past few months. If this doesn’t change before we start to feel the effects of public spending cuts, then their impacts could be particularly dramatic.

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