Labour Market Statistics, August 2023
Today’s figures are a mix of good and bad news, the bad being somewhat of a surprise based on recent data. Whilst the quarterly data indicate minimal movement, the latest monthly data shows that economic inactivity has started to rise, reversing the recent growth in the size of the labour force that we have seen. Meanwhile, employment has started to fall whilst unemployment continues to rise. These findings are borne out by quarterly averages, although movements in the monthly figures are even more stark, suggesting that these trends may be set to continue. This month also saw yet another record set for the number of people out of work due to long-term health conditions, now at 2.58 million people which is an increase of 460 thousand since the start of the pandemic, and an increase of 51 thousand in the last quarter alone.
One bit of good news is that strong pay growth means that regular pay has increased in real terms for the first time since the start of the cost of living crisis, up 7.9% on the year in nominal terms and up 0.6% on the year when adjusting for inflation. Total pay growth was also particularly strong in the public sector, where pay settlements including bonuses for NHS staff earlier this summer saw total pay grow by 16.5% on the year. There is clearly however a long way to go in undoing the real falls in wages seen over the last two years and in the years after the financial crisis.
However, a range of indicators suggest that the cooling in labour market that has been seen until recently has restarted, and that in the face of continued rate rises labour demand does not appear to be holding up. Short-term unemployment is rising, increasingly so because of flows from employment to unemployment. Redundancies (both in terms of the actual number and the number of those employees at risk) are also on the rise. Meanwhile, vacancies continue to fall despite an increase in job-to-job moves, which was previously a key driver of higher vacancy levels during their peak.
Vacancies also remain well above pre-pandemic levels in many white collar industries (as well as the public sector) where wage growth also continues to run at well above the rate of inflation. This indicates potentially significant mismatches between supply and demand, which are about skills as well as labour shortages.
The cooling of demand that today’s figures suggest should lend support towards a pause in interest rate rises. Whilst inflation still needs to be brought down, the time it takes for rate rises to feed through to the wider economy combined with the signs of a slowdown in the labour market that we are already seeing suggests that the Bank should be cautious about going too far. A period of higher unemployment, higher interest rates but still high prices – i.e., ‘stagflation’ – would be disastrous for the economy as well as inequalities between areas and groups, which remain significant especially for disabled people, certain ethnic minority groups, older people and younger people and when compared to before the pandemic.
Reducing demand is one way to bring wage growth and inflation under control, but a coherent strategy for the supply side – to help address mismatches, and maintain and maximise employment, supporting a softer landing in the labour market – is certainly preferable. This needs to be addressed at the Autumn Budget, and based on a significant expansion in access to employment support, so that more of those who want to work can get help finding the right job; skills reform to help address mismatches, particularly through reform of the Apprenticeship levy; and more support for employers – including access to help with inclusive recruitment, induction training, flexible job design and workplace support.