Labour Market Statistics, December 2023
This briefing note sets out analysis of the Labour Market Statistics published this morning. They show that the labour market is continuing to cool off, as the impacts from higher interest rates and rising costs of living continue to feed through. However there is little sign so far of any significant deterioration in the labour market, with headline estimates of employment, unemployment and economic inactivity (the measure of those not looking and/ or not available for work) again exactly the same as those published last month. Nonetheless, there are clear signs of things slowing down, in particular:
- Vacancies falling again, for the seventeenth time in a row. These are now down by over a quarter on their peak, with recent falls largest in many private sector services, manufacturing and construction – all industries that are likely to be more exposed to a slowdown in demand.
- Pay growth down sharply in the most recent month – from an annual increase of 7.7% in the year to September to an increase of 6.3% in the year to October. So while pay is still growing pretty strongly, the rate of growth is slowing at the same time that rate of inflation is also falling. This in turn means that pay in ‘real terms’ appears to be levelling off and is barely higher than it was in 2009.
- Employment falling for young people, down by nearly 1% over the last year – which is often an early indicator of weaker demand as young people are most affected by slowdowns in hiring.
- Falls in employment in hospitality (down by over 1% in the last quarter) and to a lesser extent construction, which again are industries that tend to be affected first when demand slows.
Alongside this, but not published in today’s statistics, there are also signs that redundancies may start to increase in the coming months – with ‘HR1’ statistics published last week showing that nearly 40 thousand people were notified as being at risk of redundancy in November, the highest monthly figure since late 2020.
Depending on whether you are feeling optimistic or pessimistic, these could all be indicators of a ‘soft landing’ following the significant rises in interest rates and living costs over the last few years, or signs of a continued stagnation after the ‘lost decade’ before the pandemic and the disruption of the last few years. Either way though, next year is likely to be more challenging than this, as interest rates continue to bite and we start to see more impact from weaker demand and slower hiring.
It should also be noted that we still have more people out of work than before the pandemic, pay barely above where it was in 2009, and significant disadvantages in the labour market for disabled people, those with long-term health conditions, the lowest qualified, many people from ethnic minority groups, and others. So as well as trying to improve living standards overall, we also need to narrow the gaps in opportunity than many groups face.
This reiterates too why we need to do more than just dampen demand through higher interest rates and lower public spending. We also need a clear plan to support the supply side of the labour market – to help more people prepare for and get into work and to retrain, and to help employers to improve their practices and get the skills that they need. There were a number of positive measures announced at the recent Autumn Statement, but also some unnecessary and divisive language on benefit sanctions and ‘coasters’. In our view, we need to move beyond this rhetoric and focus on delivering the commitments made in the Autumn Statement as quickly as possible, and then continue to make the case for more far-reaching reforms in the future.