Labour Market Statistics, February 2023

This briefing note sets out analysis of the Labour Market Statistics published yesterday. The analysis mainly draws on Labour Force Survey (LFS) data, which is the main household survey that collects official figures on employment, unemployment and economic inactivity and covers the period up to December 2022 (the most recent quarter being October to December 2022). The briefing also includes findings from the ONS Vacancy Survey, which collects employer data on open vacancies; and from the Monthly Wages and Salaries Survey, which collects pay data from businesses in order to estimate Average Weekly Earnings (AWE). The Vacancy Survey includes data up to January 2023, and the Wages and Salaries Survey to December 2022.

In addition, this month sees publication of quarterly data on employment for disabled people and ethnic minority groups, as well as data on labour market ‘flows’ from the Longitudinal LFS, all of which are also covered in the paper.

This month’s figures show a continued trend of gradual improvement, with employment edging up and ‘economic inactivity’ (those people not looking and/ or not available for work) edging down. However, falls in economic inactivity have been driven mainly by fewer students overall, with worklessness due to long-term ill health in particular remaining very high. Worryingly this month, the number of young people outside full-time education or employment has reached one million for the first time in nearly a year.

Data on employment rates for disabled people is also disappointing, with the employment ‘gap’ to non-disabled people remaining wider than it was before the pandemic and with disabled people still two-and-a-half times more likely to be out of work than their non-disabled peers. Employment gaps are also wider for older people and for young people outside of full-time education. And despite a slight improvement in employment for older people in the most recent quarter, they continue to account for three quarters of the growth in economic inactivity since the pandemic began.

There are also continued signs of slight weakening in the labour market, with vacancies continuing to fall – mainly due to fewer job openings in private sector services, redundancies rising, and short-term unemployment up. All figures remain better than they were before the pandemic, but all appear to be trending in the wrong direction.

Data on labour market flows shows that in part, the rise in unemployment is being driven by more people leaving economic inactivity. There has also been a rise in those leaving economic inactivity for work, which is welcome, although more analysis is needed to understand which people are leaving, given that recent analysis (by IES and others) has shown that higher economic inactivity is primarily being driven by more people staying out of work for longer (rather than by higher inflows to economic inactivity). It is possible, for example, that higher flows out are explained by more students entering work and by more people returning from short-term sickness (both of which are above pre-pandemic levels).

Finally, pay data continues to show strong growth in nominal pay (of around 6.5%) while real pay continues to fall due to very high inflation. This means that pay in real terms is now back to where it was on the eve of the pandemic.

Overall then, the gradual improvement in this month’s figures is welcome but the underlying data suggests that many of those most disadvantaged in the labour market are still losing out. There is also a long way to go to raise participation in work and support higher incomes, lower inequality and stronger growth. All the signs are that next month’s budget will focus on addressing these challenges, and it could not be more timely. We believe that there needs to be action in four areas:

• Improved access to employment support for those out of work, who want to work but aren’t currently looking – either by extending access to existing provision like Restart and the Work and Health Programme, and/ or by commissioning new, partnership-based support;
• Help with addressing the costs of working – particularly around childcare, travel to work and workplace adaptations;
• More support for employers – and higher expectations – around inclusive recruitment, flexibility at work, job design and support; and
• Trialling new approaches to supporting health and wellbeing at work – including better help for workers and employers to keep people well at work and support rapid returns to work when people leave.