Labour Market Statistics, July 2023
Today’s figures capture the ‘Goldilocks’ problem facing the government and Bank of England: how to stop the labour market from being too hot or being too cold; and instead get it ‘just right’ to avoid a prolonged downturn?
On the one hand, there are plenty of positives today. Economic inactivity has fallen again and if anything is falling even more sharply, which means the labour force is growing; vacancies are edging down but remain high, meaning there’s more slack in the economy; and the employment recovery is pretty broad based (with analysis in this month’s briefing showing in particular that more people are getting more of the flexibility at work that they want).
However on the other hand, lower economic inactivity is feeding through into higher unemployment more than employment; there are signs that short-term unemployment is starting to lead to longer-term unemployment; worklessness due to long-term ill health remains close to record levels; wage growth is running at well above the rate of inflation in many ‘white collar’ industries; and the public sector is falling behind and struggling to fill its jobs. All of this points to potentially significant mismatches between supply and demand, and that these mismatches are about skills as well as labour shortages.
The worry, then, is that we could be in the foothills of a period of higher unemployment, higher interest rates but still high prices – i.e. ‘stagflation’ – which would be disastrous for the economy but also for inequalities between areas and groups. However even in a best case, given the issues that appear to be building on the ‘supply’ side, we would be facing a more general slowdown and the hope that this eventually hits demand in those parts of the economy where the porridge is still too hot.
What appears to be largely missing though, and is desperately needed, is a coherent strategy for the supply side – to help address mismatches and support a softer landing in the labour market. 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.