Labour Market Statistics, December 2022

As with last month, today’s headline estimates for employment, unemployment and economic inactivity are broadly flat – with some signs however that employment has edged up recently, with lower economic inactivity more than offsetting a slight rise in unemployment.

The small recent falls in economic inactivity are most pronounced among people aged 50-64, which is explained by higher employment among that age group (particularly men). Early retirement and economic inactivity due to long-term ill health are both down slightly, with economic inactivity for other reasons broadly unchanged.

However if that is the good news, that’s about as good as it gets – and elsewhere there are some signs (albeit very early ones) of a wider slowdown in the economy and labour market.  In particular vacancies are now falling back, down by about 9% on their peak in the early summer but still very high (at 1.19 million). Among predominantly private sector industries the fall is even greater, at around 12% – with public sector vacancies flat or rising.

As vacancy figures are a ‘stock’ measure, these falls could be explained by existing vacancies being closed rather than a slowdown in new vacancies. However this seems unlikely as today has also seen a noticeable rise in short-term unemployment (again from a very low base last quarter). And this in turn rise does not appear to be due to falling economic inactivity, as it is particularly concentrated among young people outside of full-time education. Taken together, these data suggest a slowdown in hiring, most likely due to a weakening in the economy and employer uncertainty.

There are also some worrying signs in the latest redundancy figures, which are up by about two thirds from their trough in the early summer. At about 90 thousand in the last quarter, redundancies remain very low indeed by historic standards – and there is no sign of increase in advance notices to the Insolvency Service (HR1 forms), but it is nonetheless concerning.

On pay, this month sees continued strong growth in nominal wages – up by around 6% year on year – but once again very high inflation is more than offsetting this, with real terms pay down by 3% overall.  We also continue to see divergent trends between the public and private sectors, with private sector pay growth around 7% and the public sector below 4%. This is undoubtedly contributing to the continued high vacancies that we are seeing in public services, and to wider recruitment and retention challenges. In this context it seems even more unsustainable for government to be trying to hold down public sector pay awards at around 2-3% rather than the 6-7% increases that we are seeing in the wider economy.

Looking ahead, while there are warning signs in today’s data, there are also still very high vacancy levels and around three million people out of work who want a job. Our inability to meet this demand continues to hold back growth and make living standards worse. The government’s announcement of a review into how we can help more of those who are economically inactive to get into work is welcome, and in our view as a minimum needs to broaden access to the Restart Scheme and bring forward funding for the Shared Prosperity Fund. Employers need to do more too – particularly on making work more flexible by default, improving and simplifying recruitment, and providing greater security and support for those returning to work.