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No real labour market recovery yet

13 July 2011

No real labour market recovery yet

The labour market figures released by the Office for National Statistics today still leave us with some major concerns about the extent and nature of the ‘recovery’ in the labour market.

While some figures suggest slight improvements...

• The headline unemployment figure from the Labour Force Survey recorded a small fall of 26,000 over the quarter to May, leaving total unemployment still at 2.45 million.
• Total employment grew by 50,000 in the quarter to May,

Others are much less positive...

• The more recent monthly claimant count figure for unemployment, recording the number of people claiming Jobseekers’ Allowance, increased by nearly 25,000 in June, and has now broken through the 1.5 million mark again (the earlier figure for May has also been revised upwards).
• The total number of job vacancies fell again by 26,000 in the 3 months to June. The current total of 456,000 unfilled vacancies in the economy is now back close to its recessionary low point in 2009. The number of redundancies was also up in the last quarter. These figures suggest that underlying labour demand may be falling again and could feed through into unemployment in the coming months.
• Despite the increase in the overall numbers employed, the total number of weekly hours worked in the economy fell back by 18.6m in the quarter to June. Total hours worked are now almost back to the levels recorded in late 2009 and early 2010.

Nigel Meager, Director of the Institute for Employment Studies comments:

‘Recent employment and economic data have left many commentators somewhat perplexed. In particular, the apparently strong employment performance has been difficult to square with the weak figures for GDP growth.

‘Some have suggested that the GDP figures are wrong, and will need to be revised upwards. Others have pointed out that the headline employment data may be concealing underlying weaknesses in labour demand, as suggested by some of the other indicators. In particular, claimant unemployment has been rising again, and the total number of hours worked in the economy has actually been falling, even while total employment has grown, partly because of a shift from full-time to part-time work.

‘Special factors may have influenced both of these developments, with the claimant count increase partly due to benefit rule changes for single parents, and the working hours reductions possibly influenced by an extra bank holiday. But overall, these figures certainly do not suggest a labour market in robust health, particularly given that the level of vacancies is down again, and the number of redundancies up on the previous quarter.

‘It’s worth remembering that employment didn’t fall nearly as much as expected in the recession, partly because businesses retained staff through short-time working, wage cuts and other mechanisms. The other side of this coin, however, is that many employers now have the staffing capacity to respond when the economy returns to growth, without hiring new people. Given that growth itself is fairly weak, it’s unsurprising that the overall labour market remains in an anaemic state, as confirmed by these figures.

‘The coming months could be increasingly difficult for the UK labour market, as public sector job cuts begin to bite. The government’s just-launched Work Programme could find itself running hard to stand still, as its long-term unemployed and disabled clients find themselves at the back of the queue for a dwindling pool of vacancies. The challenge will be particularly acute in regions (the North East, South Wales, the West of Scotland, for example) which are both heavily dependent on public sector employment, and have large concentrations of benefit claimants.’

Ends

About IES

The Institute for Employment Studies is the UK’s leading independent, not-for-profit centre for research and evidence-based consultancy on employment, the labour market, and HR policy and practice.