From education to employment

July Labour Market 2023- Sector Response

stats and graphs

“If we want to get inflation down in the long run, we need urgent action to address labour shortages and skills needs”

The UK employment rate was estimated at 76.0% in March to May 2023, 0.2 percentage points higher than December 2022 to February 2023. The quarterly increase in employment was mainly attributed to part-time employees.

The estimate of payrolled employees for June 2023 shows a monthly decrease, down 9,000 on the revised May 2023 figure, to 30.0 million. The June 2023 estimate should be treated as a provisional estimate and is likely to be revised when more data are received next month.

The unemployment rate for March to May 2023 increased by 0.2 percentage points on the quarter to 4.0%. The increase in unemployment was driven by people unemployed for up to 12 months.

The economic inactivity rate decreased by 0.4 percentage points on the quarter, to 20.8% in March to May 2023. The decrease in economic inactivity during the latest quarter was largely driven by those inactive for other reasons, those looking after family or home, and those who are retired.

The increases in the employment and unemployment rates and the decrease in the inactivity rate during the latest quarter were attributed to men. 

In April to June 2023, the estimated number of vacancies fell by 85,000 on the quarter to 1,034,000. Vacancies fell on the quarter for the 12th consecutive period.

Growth in employees’ average total pay (including bonuses) was 6.9% and growth in regular pay (excluding bonuses) was 7.3% in March to May 2023. For regular pay, this equals the highest growth rate, which was also seen last month and during the coronavirus (COVID-19) pandemic period for April to June 2021. 

In real terms (adjusted for inflation), growth in total and regular pay fell on the year in March to May 2023, by 1.2% for total pay and 0.8% for regular pay.

There were 128,000 working days lost because of labour disputes in May 2023, the lowest number of days lost since July 2022.

Click here to read the complete labour report for July 2023.

Read last month’s Labour market and sector response by clicking here.

IES analysis

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.

Resolution Foundation

Jobs market normalises as men return to work but impact on still abnormally high pay growth will take time

The jobs market continued to return back to its pre-pandemic health, with men driving another recent rise in employment. But with private sector wage growth rising by 7.7 per cent it will take time pay growth to normalise, the Resolution Foundation said today (Thursday) in response to the latest ONS labour market statistics. 

The main movement in the jobs market came from falling economic inactivity – which has now fallen by 350,000 since 2022.

Men have driven the recent rise in employment, up 83,000 on the quarter, though their employment rate is still down 0.8 percentage points on pre-pandemic levels (compared to 0.3 for women). Over the past three months, falling inactivity has fed equally into higher employment and higher unemployment, so there are more people in jobs but also a looser labour market.

There were further signs of labour market signs of labour market loosening with vacancies down for the 12th consecutive month to 1.03 million.

However, this loosening has not yet resulted in a weakening of nominal wage growth. Private sector nominal pay grew by 7.7 per cent in the three months to May, its highest on record outside the pandemic, though real pay is still down 0.8 per cent (across the whole economy) over the past 12 months. Public sector wages grew by 5.8 per cent over the same period.

Shorter-term measures of private sector pay point to accelerating growth, suggesting that the labour-market loosening we have seen has not yet had its desired effect.

Sector response

Minister for Employment, Guy Opperman MP said:

“It’s encouraging to see inactivity falling, vacancies dropping, and employment on the up. To get prices down and help make mortgages manageable, we must halve inflation and grow our economy. To do that we are helping those who can, into work, and we recently increased the amount someone on Universal Credit can claim back for childcare to make working that bit easier.

“Our new Midlife MOT website is also helping everyone to future-proof their futures, whether that’s looking at options for work, reviewing their skills or understanding their pensions.” 

Chancellor the Exchequer Jeremy Hunt said:

“Our jobs market is strong with unemployment low by historical standards. But we still have around 1 million job vacancies, pushing up inflation even further. Our labour market reforms – including expanding free childcare next year – will help to build the high wage, high growth, low inflation economy we all want to see.”

Stephen Evans, chief executive at Learning and Work Institute, said:

“The cost of living crisis continues to hit those on lower incomes hardest. Average regular wages grew by 7.3%, but those in higher paid sectors saw the biggest increases. Wages grew by 9% for those working in finance and business services, compared to 5% for people working in retail and hospitality.

“There was a further welcome rise in employment and fall in economic inactivity. But there are still 245,000 people fewer in work than if the employment rate had stayed at pre-pandemic levels. Only one in ten out-of-work disabled and older people gets help to find work each year. We need a strategy to increase employment, grow our economy and raise incomes for those with the lowest incomes.”

Ben Harrison, Director of the Work Foundation at Lancaster University, a leading think tank for improving working lives in the UK said:

“The UK labour market is continuing a post-pandemic recovery, but it risks being derailed by high rates of inflation and sickness.

“Growth in regular pay has hit 7.3% but sticky inflation means regular real pay still fell by 0.8% on the year. While high nominal pay growth should be good news, workers are facing the 18th consecutive pay drop on record. With the cost of a typical two-year fixed mortgage now close to the mini-Budget peak, and Government refusing to commit to meet public sector pay recommendations this year, millions of workers across the UK continue to face significant cost of living challenges.

“While vacancies have fallen for the 12th consecutive month to just over a million and inactivity continues to drop, long-sickness is over 2.5 million as the UK continues to face worker shortages. Despite the Governor of the Bank of England recommending restraint on wage increases, this month’s statistics suggest that employers must offer competitive terms and conditions to retain and recruit staff.

“To achieve its commitment to halve inflation, Government must accelerate efforts to reduce worker shortages by supporting the nearly one in four long-term sick who want to work into sustained employment. This should include strengthening job security, introducing a right to flexible working from day one, and improvements to support like Statutory Sick Pay, which is currently among the least generous offers in Europe.”

Tony Wilson, Director at the Institute for Employment Studies said:

“Today’s figures have perhaps the first signs that higher interest rates may be starting to put the brakes on the economy, with unemployment ticking up to 4%. However pay growth is exceptionally strong again, which reflects that many firms are still creating jobs that can’t be filled. This is unlikely to be a short-term problem though, with a combination of an ageing population and lower migration meaning we’re facing at least a decade of weak employment growth. So if we want to get inflation down in the long run, we need urgent action to address labour shortages and skills needs, not just ever more rises in interest rates. This needs to include extending access to employment programmes like Restart for the two million people who are outside the labour force and want to work, as well as reforming the Apprenticeships levy to allow more flexible, shorter-term help to support reskilling.”

Matthew Percival, Director of People and Skills, said:  

“The cause of record wage growth is contested, with some believing that it is caused by shortages and others that it is employers trying to help employees with the cost of living. But what will matter to the Bank of England when setting interest rates is that these increases are being funded by higher prices, not productivity. Breaking this cycle requires action by government, not just higher interest rates. Steps like urgently completing the review of the Shortage Occupations List in the immigration system will ease the most acute shortages. An ambitious tax roadmap is also key to unlocking business investment in people, innovation and capital. Meanwhile, businesses must continue to focus on increasing flexible working to get more people into work.” 

Jack Kennedy, UK Economist at the global hiring platform, Indeed, commented:

“The tight labour market continues to generate strong regular pay growth at 7.3% year-on-year in the three months to May, unchanged from the previous month’s joint-record pace. That said, a deceleration in the single-month figure for May, from 7.7% to 7.1%, suggests April may have been the peak for wage growth after that month’s 9.7% increase in the National Living Wage. 

“While the labour market is gradually loosening, it’s still one of the tightest of the last 20 years with just 1.3 unemployed people per vacancy. That’s sustaining wage growth at a rate that’s incompatible with the Bank of England’s 2% inflation target. The key question for the Monetary Policy Committee (MPC) is whether the labour market is cooling fast enough to bring down wage growth without needing to bring about a recession through further monetary policy tightening. 

“But the unemployment rate did notably tick up 0.2 percentage points to 4.0% in the latest period, suggesting that Bank decisions may be starting to trickle into the labour market. Redundancies also rose in the latest period, though remain low by historical standards. 

“While pay pressures remain strong as workers continue to push for higher wages to compensate for high inflation, we are seeing weaker competition for hires among employers. For example, the share of job postings on Indeed offering signing bonuses has dropped to less than 0.8% from a peak of 1.1% last November. 

“Lower recruiting intensity could remove some of the heat from wage growth as headline inflation falls back over the coming months. That could ease some of the pressure on Threadneedle Street, but the MPC will need to see evidence of moderating wage growth sooner rather than later to dissuade them from further, and perhaps substantial, rate hikes.”#

Charlie McCurdy, Economist at the Resolution Foundation, said:  

“The latest labour market stats are likely to start further head-scratching for policy makers. 

“Further falls in economic inactivity as the jobs market returns to its pre-pandemic state is unambiguously good news, with men in particular returning to work. 

“But while there are signs that the jobs market is cooling, notably the continued fall in vacancies, it is yet to show up in the pay data – with private sector wages growing by an astonishing 7.7 per cent in May. It will take time for wages to normalise.”

Neil Carberry, Chief Executive of REC, said:

“The labour market has softened since last summer, but overall demand remains high. This shows underlying need to hire among businesses despite their concerns about inflation, interest rates and weak economic growth. The ongoing demand for temps shows this in action. Our temporary jobs market enables companies to grow even in this period of economic uncertainty and offers job seekers the chance to get a foot in the door, earn a bit more, learn new skills and control of their work/life balance.

“The rise in employment and unemployment shows economic inactivity is going down, which is vital to boosting incomes and overcoming labour shortages that constrain the economy’s growth. The fall in inactivity appears driven by non-working household members seeking to boost household income in the face of inflation – the challenge of high numbers of people off work sick remains, even if numbers have now stabilised.

“Pay pressure remains significant as firms move to retain and attract staff by mitigating the effect of inflation as far as they can afford to. While wages are growing lower than inflation, they are actually rising at their fastest rate in many years. But sustainable wage rises require economic and productivity growth, and affordable access to capital for businesses. These should be priorities. Government needs to focus on how we get investment going to drive growth. Part of that is policies that deal with labour shortages in the medium-term, across childcare, transport, skills and immigration. Companies can do more too – reaching out into different pools of candidate and amending their offer with the advice of recruiters to ensure they can recruit and retain a diverse pool of talent.”

David Morel, CEO of Tiger Recruitment said:

“Figures released today by the Office for National Statistics show a healthy and robust UK jobs market, but that it is a misleading picture. Job vacancies dropped for the 12th consecutive month, which is the longest sustained fall in vacancies since 2008 to 2009. At the same time, the unemployment rate rose to pre-pandemic levels.

“A notable change is the increase in the number of unemployed individuals per vacancy, which rose from 1.1 to 1.3. While still low by historical standards, this increase reflects a slight easing of the employment market, which Tiger Recruitment has experienced first-hand. Employers are scrutinising non-essential hiring, sometimes shrinking the number of job opportunities available. Likewise, employees are more cautious about moving jobs, with many choosing job security over opportunity in a market that has swung back in favour of the employer. We see this stability of the jobs market continuing through the summer months with some brightening expected in Q4.”

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