July Labour Market Statistics: Comment from the Institute for Employment Studies
19 Jul 2022
Commenting on the figures, IES Director Tony Wilson said:
"These figures are a timely reminder of the challenges the next prime minister will face. All the talk of tax cuts and 're-doing Brexit' won't help firms with the biggest problem they're facing, which is finding the workers to fill their jobs. This is feeding through into annual private sector pay growth of more than 5%, and pay growth in double digits across a range of private sector services. This is double the rate of pay growth we saw over the two decades before the pandemic. The trouble is, firms can’t cover these rises through higher productivity or lower profits and so are passing them on to customers, with business surveys now showing labour costs as a key driver of rising prices. In the private sector at least, there are signs that a 'wage-price spiral' may already be starting. In the public sector however the picture couldn't be more different – with pay rising by less than 2%. It is markets, not militancy, pushing pay higher.
“Even despite these rises, soaring inflation is pushing ‘real’ pay negative – falling by 2.2% in real terms in the private sector and by a huge 5.6% in real terms in the public sector. This is now the seventh month in a row that pay has fallen in real terms, and means that real pay is below where it was in 2008.
“Today’s figures also reiterate that these recruitment problems are being driven by labour shortages. For three decades, we've met higher demand with higher supply, but since the pandemic this link has been broken. Although employment has risen this month, there are still nearly a million fewer people in the labour force than on the pre-pandemic trend, with this being driven particularly by fewer older people in work and more people out of work due to long-term ill health. This is not only adding to inflation but it’s holding back growth. The new prime minister, whoever they are, will need to address this as a priority. The good news though is that we have underspent by at least £2 billion on preparing for an unemployment crisis that never came. We need to reinvest those savings in a new plan to raise participation and support economic growth, with more support in particular for older people and those with health conditions who want to work.”
Read the detailed IES Labour Market Statistics briefing note here.