From education to employment

March 2024 ONS Labour Market – Youth inactivity at highest on record. Sector Response

2.7 million people are now not working due to long-term sickness

Main points

Payrolled employees in the UK rose by 15,000 (0.0%) between December 2023 and January 2024, and rose by 386,000 (1.3%) between January 2023 and January 2024. While the number of payrolled employees continues to increase, the rate of annual growth is decreasing.

The early estimate of payrolled employees for February 2024 increased by 20,000 (0.1%) on the month and increased by 368,000 (1.2%) on the year to 30.4 million. The February 2024 estimate should be treated as a provisional estimate and is likely to be revised when more data are received next month.

Increased volatility of Labour Force Survey estimates, resulting from smaller achieved sample sizes, means that estimates of quarterly change should be treated with additional caution, and we recommend using them as part of our suite of labour market indicators, alongside workforce jobs, Claimant Count data, and Pay As You Earn Real Time Information estimates.

In November 2023 to January 2024, the UK employment level (for those aged 16 years and over) is up on the year but down on the quarter.

The UK employment rate (for those aged 16 to 64 years) was estimated at 75.0% in November 2023 to January 2024, below estimates of a year ago and down in the latest quarter.

The UK unemployment rate (for those aged 16 years and over) was estimated at 3.9% in November 2023 to January 2024. The unemployment rate is above estimates of a year ago (November 2022 to January 2023) but largely unchanged on the latest quarter.

The UK economic inactivity rate for those aged 16 to 64 years was 21.8%, above estimates of a year ago (November 2022 to January 2023),and increased in the latest quarter.

The UK Claimant Count for February 2024 increased by 16,800 on the month and by 85,800 on the year to 1.585 million.

In December 2023 to February 2024, the estimated number of vacancies in the UK fell by 43,000 on the quarter to 908,000. Vacancies fell on the quarter for the 20th consecutive period but are still above pre-coronavirus (COVID- 19) pandemic levels.

Annual growth in total earnings (including bonuses) in Great Britain was 5.6% in November 2023 to January 2024, and annual growth in employees’ average regular earnings (excluding bonuses) was 6.1%.

Annual growth in real terms (adjusted for inflation using the Consumer Prices Index including owner occupiers’ housing costs (CPIH)) for total pay rose on the year by 1.4% in November 2023 to January 2024, and for regular pay rose on the year by 1.8%.

There were 203,000 working days lost because of labour disputes across the UK in January 2024. The health and social work industry showed the most working days lost this month.

Read the complete labour report for March 2024 here.

Resolution Foundation Response – Youth inactivity at highest on record 

The UK labour market continued to normalise in early 2024 as vacancy levels almost returned to pre-pandemic levels, with unemployment ticking up among women but still low overall. The two less normal aspects of the labour market are headline nominal pay growth, which remains high despite a slower growth rate in the most recent data. And second, the health of the workforce – unlike other rich countries, UK employment is still below pre-pandemic levels, thanks to near record long-term sickness, the Resolution Foundation said today in response to the latest ONS labour market statistics (Tuesday).

While private sector earnings growth is slower in the most recent data, headline nominal earnings growth (which measures pay growth on an annual basis) remains strong at 6.1 per cent in the three months to January – only down slightly on the previous month.

In real-terms, headline pay growth looks more normal. In the three months to January, real-terms (CPIH-adjusted) pay growth was 1.8 per cent – very similar to the 1.7 per cent average real pay growth in 2019.

There are signs of normalisation elsewhere in the labour market. Vacancy levels have fallen for their 21st consecutive month to leave them at 908,000. This gives a vacancy rate of 2.7 per cent, only slightly above the average 2019 vacancy rate of 2.5 per cent. Vacancy rates will reach their 2019 average in four more months on current trends.

But while pay growth and job vacancies are returning to normal, employment levels are not. The UK remains the only G7 economy not to have returned to pre-pandemic employment rates. At 75.0 per cent (unchanged on last month), employment remains 502,000 below its peak at the start of 2020 (the people equivalent of current vs peak employment rates).

This has been driven by rising economic inactivity, in large part specifically inactivity due to inactivity through ill-health, which was elevated post-pandemic and has risen by a further 85,000 over the past 12 months. The total number inactive due to sickness has come down slightly in the most recent data, but still stands at a near-record 2.7 million. There has also been an increase in youth inactivity in the most recent data, which at 33.9 per cent among 18-24 year olds is now the highest on record.

Sector Response

Chancellor of the Exchequer Jeremy Hunt said:

“Our plan is working. Even with inflation falling, real wages have risen for the seventh month in a row. And take home pay is set for another boost thanks to our cuts to National Insurance which in total are putting over £900 a year back into the average earner’s pocket.”

Secretary of State for Work and Pensions, Mel Stride MP said:

Our plan for the economy is working. Employment is up on the year, the number of people on payrolls is at a record high, and inactivity is falling.

“But our work is not done. Our Back to Work Plan will help a million people to find, stay and succeed in employment. With the next generation of welfare reforms, we’re reducing the number of people on the highest tier of incapacity benefits by 371,000 – people who will now receive support back into work.          

“And with the tax cuts announced in last week’s Budget we will boost the labour force by the equivalent of 200,000 workers, while putting £900 back into the pockets of 27 million hardworking people.”

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

“The labour market shows signs of slowing with vacancies and employment down as weak economic growth takes its toll, though the data need to be treated with caution. The UK is the only G7 country where employment is lower than pre-pandemic. With the OBR forecasting further increases in economic inactivity, the Government needs to revisit its approach given that only one in ten out-of-work disabled and older people currently get employment support.

“Nominal earnings grew at an annualised 3.5% over the last quarter, broadly consistent with the Bank of England’s inflation target and adding to the case that interest rates have peaked. The good news is real earnings continue to grow as inflation falls. But the bigger picture is people are earning £12,000 per year on average less than if pre-financial crisis trends had continued. That’s a nightmare we have to end.”

Jack Kennedy, Senior Economist at the global hiring and matching platform, Indeed, commented:

“Today’s ONS figures paint a familiar picture of further gradual softening in the labour market and easing pay pressures, but it remains an incremental process.  

“Regular pay growth edged down to 6.1% year-on-year in the three months to January, from 6.2% in the previous period, but is still running well above levels where the Bank of England would be comfortable initiating interest rate cuts. 

“Elsewhere, the figures point to ongoing constraints on labour supply, with low unemployment and inactivity well above its pre-pandemic level. But the dubious veracity of the Labour Force Survey data makes it harder to accurately gauge underlying dynamics and the extent to which conditions for a sustained moderation of pay pressures are falling into place. Rate setters remain focused on a range of forward indicators of pay pressures as a guide. 

“Indeed Wage Tracker data on advertised pay for new hires shows a similar picture of gradual easing. But at 6.3% year-on-year in February, down from 6.5% in January, it remains high and is only down around one percentage point from last summer’s peak. 

“Posted wage growth remains particularly strong in lower-paid occupations like childcare, cleaning, retail and hospitality, running in the 7-9% range. Though the labour market has cooled, hiring challenges persist in these areas and continue to support pay increases. The latest round of supermarket wage hikes is the most recent example of this, in advance of a 9.8% rise in the National Living Wage coming into effect in April.” 

Michael Brown, Market Analyst at Pepperstone said:

This morning’s UK jobs data painted a marginally softer-than-expected picture of the labour market, with unemployment unexpectedly rising 0.1pp in the three months to January, and earnings growth cooling both including, and excluding, bonuses. However, data quality issues remain, particularly with the unemployment figures, likely limiting the extent of any significant impact of the figures on the monetary policy outlook; a factor supported by the MPC’s ongoing focus on services inflation as the primary determinant of when the first cut will be delivered. Furthermore, it’s important to contextualise the report, in as much as modest labour market softening is what policymakers will be seeking to ensure elevated inflation does not become embedded within the economy. The pound has found modest selling pressure, though the jobs figures are far from a game-changer, with focus now falling on the aforementioned inflation figures next week, due a day prior to the BoE’s next policy decision.

The Recruitment and Employment Confederation (REC) Chief Executive Neil Carberry said:

“Today’s numbers are marginally weaker than expectations as the jobs market waits on growth to return. Recruiters report that firms are still ready to move but are taking longer to make decisions about investment and hiring in the face of economic uncertainty. This explains the relatively slow rate of decline, a picture which contrasts with business surveys that show high levels of optimism for later in the year. The Bank of England beginning to cut the base rate would deliver a shot of confidence to businesses and support a likely bounce back in growth this summer.

“Pay growth is weakening at a steady rate, which is likely to fall further when the April 2023 pay awards fall out of the calculation. There is little risk of pay driving inflation to stay higher at this point.”

Neil Carberry added:

“To get inactivity down government needs to look at childcare, transport and address NHS waiting lists. Cutting employee National Insurance was the right call when addressing personal taxation but it is not a silver bullet to encourage enough people to work. The Budget didn’t add up to the industrial and workforce strategy we really need despite the Chancellor’s obvious interest in workforce matters. The centre of government should invite more expert outsiders to help it prioritise overcoming labour shortages and avoid this costing the economy up to £39 billion every year – just short of two whole Elizabeth Lines.”

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

“Today’s labour market statistics present a series of challenges for policy-makers despite strong wage growth.

“Workers will welcome the 16th consecutive month of above 6% regular pay growth, which represents 1.8% real wage growth on the year.  However, most are unlikely to be feeling richer as the Office for Budget Responsibility still forecasts real wages won’t get back to 2008 wage levels until 2026.

“This near two-decade period of stagnating wages is likely to hit the 6.8 million people in severely insecure work hardest. They already face a financial penalty of £3,276 per year compared to those in secure work, yet the Government’s National Insurance cuts will do little to support those on the lowest incomes.  

“Instead of Rishi Sunak threatening to squeeze benefits further to fund more tax cuts for those on middle and high incomes, we must improve the quality and security of jobs on offer if we are to see living standards and wages rise in the years ahead.”

TUC General Secretary Paul Nowak said: 

“Working people are still paying the price for the Conservative government’s failures.

“Pay packets are still far smaller than they would have been without the longest living standards squeeze in history, and vacancies continue to fall. Millions of people are unable to work due to long-term sickness, while NHS waiting lists are longer than ever.

“We need a fresh start with a proper plan for jobs, growth and public services to get living standards rising again. This must include more investment in our NHS so that people can get treated faster and return to work.”

Louise Murphy, Senior Economist at the Resolution Foundation, said:

“After a four year rollercoaster, the Iabour market is starting to return to normal, with both unemployment and job vacancies back around pre-pandemic levels.

“But one lasting change is that our workforce is sicker. We have gone from chasing record levels of employment to tackling record levels of long-term sickness. Getting more people from inactivity into employment is Britain’s biggest labour market challenge of the 2020s.”

Dr Joe Marshall, Chief Executive of the National Centre for Universities and Business (NCUB) said:

“New figures released today reveal a worryingly high economic inactivity rate, largely driven by increases in inactivity for those aged between 16-24 years. This underscores the pressing need for a comprehensive long-term workforce strategy from the Government. The new data showed that more than a fifth of adults in the UK were not to be actively looking for work between November 2023 and January 2024. When coupled with the fact that skills gaps are persistently high, and we have approximately 1 million vacancies, it’s starkly evident that our workforce needs significant preparation for the future. Without assistance, our nation’s young people will continue to face unemployment, and employers will lose out on the innovative, talented workforce they crucially need to recover.

“We are calling on the Government to introduce a cohesive plan that involves all stakeholders: the education and training sector, as well as businesses. Without such a strategy, we risk exacerbating the challenges of skill gaps and unemployment, hindering our nation’s economic growth and resilience.”

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