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JobStats - January 2003 - Happy New Year?: 25 Jan 2003

25 Jan 2003


The more observant among you will have noticed that there was no December newsletter. This was due to a month-long working binge which left no time for writing words.

Market trends

This month has seen further job losses in the City with Barclays Capital announcing a modest cut in staff. I don't expect that the job losses are over but they will slow down; the fat is gone any cuts now will be into the meat.

We saw the usual Christmas slump in advertising and now we are seeing the 'January bounce' but it hasn't been a strong recovery and I think we'll have another bad year. Adverts now are at around half the level they were at the same time last year. The manufacturing sector is in recession and if finance is not in a recession then it certainly isn't growing. The sector of the economy that is growing fastest is the public sector and that doesn't pay well. There's really no good news on the horizon. The forthcoming war with Iraq may be over quickly but if it drags on we can expect to see oil prices going up and that is never good for the economy.

The evidence that annual rates are falling at all levels is even stronger now. But there is definite growth in the hourly rates especially at the bottom end of the market. This reflects the continuing growth in the demand for contractors and the decline in the demand for permanent staff.

What's happened to the contractor premium?

Contractors have always been paid more than permanent employees. This premium is partly a compensation for the extra risk the contractor takes on and partly a reward for any extra skills that the contractor has. In the past I've assumed that this premium was equivalent to a factor of around two to one. That is - you could expect to get twice as much as a contractor as you could in an equivalent permanent role. I've used this as a personal rule of thumb for years and that was the premium I got on the two occasions that I went from a permanent job into a contract.

This is an area where there have been some spectacular changes over the past few years. Before giving the figures I'll just explain how I work out the premium. I assume that there are 2000 billable hours in a contractor's year. That's on the basis of four weeks holiday, 2 weeks of bank holidays, a five day week and an 8.5 hour day. Then I take the median hourly rate and multiply by 2000 to get an annual rate. Finally I compare the contractor annual rate with permanent annual rates.

In 1999 the contractor premium was about 1.9 times the permanent rate. At the peak of the boom (autumn 2000) the premium was about 2.1 times the permanent rate. Sis months ago after the worst couple of years any of us had ever seen there was no premium at all. That's right, the annualised rate offered for the average contract position was the same as the annual rate offered for the average permanent position. Things have improved a bit since then and the premium stands at about 1.5.

This shift broadly reflects the changes in demand for contractors - as the proportion of contract ads increases or declines so does the premium. The shift is magnified by the higher volatility of the contract rate which tends to grow more quickly with increased demand and shrink more quickly as demand reduces. Permanent salaries change much more slowly. I guess that bonusses are used to fine-tune permanent packages and I don't capture changes in bonus through the adverts.

That's all folks

There's not much more to say this month. Hopefully before the next newsletter there will be a revamped version of the web site with some minor cosmetic improvements, some new analysis pages and generally improved content. If you want to be informed automatically when the new site comes out you can subscribe to the "What's New" page and you'll get an email on the release weekend.


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