From education to employment

September Labour Market 2023: Sector Response

people working at a desk

Sharp rise in young people outside education and work – close to 1.1 million, highest figure since first lockdown in 2020.

The UK employment rate was estimated at 75.5% in May to July 2023, 0.5 percentage points lower than February to April 2023. The quarterly decrease in employment was mainly driven by full-time self-employed workers.

The estimate of payrolled employees for August 2023 is largely unchanged on the month, down 1,000 on the revised July 2023 figure, to 30.1 million. The August 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 May to July 2023 increased by 0.5 percentage points on the quarter to 4.3%. The increase in unemployment was largely driven by people unemployed for up to 12 months.

The economic inactivity rate increased by 0.1 percentage points on the quarter, to 21.1% in May to July 2023. The increase in economic inactivity during the latest quarter was driven by people aged 16 to 24 years. Those inactive because of long-term sickness increased to another record high. Meanwhile, those inactive because they were looking after family or home decreased to a record low.

In June to August 2023, the estimated number of vacancies fell by 64,000 on the quarter to 989,000. Vacancies fell on the quarter for the 14th consecutive period.

Annual growth in regular pay (excluding bonuses) was 7.8% in May to July 2023, the same as the previous 3-month period and is the highest regular annual growth rate since comparable records began in 2001. Annual growth in employees’ average total pay (including bonuses) was 8.5%; this total annual growth rate is affected by the NHS and Civil Service one-off payments made in June and July 2023. In real terms (adjusted for inflation using Consumer Prices Index including owner occupier’s housing costs (CPIH)), annual growth for total pay rose on the year by 1.2% and for regular pay rose on the year by 0.6%.

There were 281,000 working days lost because of labour disputes in July 2023. The majority of the strikes were in the Education and Health and social work sectors.

Read more here.

Read last month’s Labour Market Statistics here.

New analysis by the TUC (using CPI) shows wages are still lower than they were in 2008 in many sectors:

  • Real pay growth across the year is flat across all employees (0.0%), but is still falling in the public sector (-1.1%)
  • Real pay remains 2.9% (£18 per week) lower than it was at the start of 2008
  • The only sector that has seen real pay growth since 2008 is finance and business (+2.8%, £55 per week). Across all other sectors, real pay is lower now than it was in 2008.

Biggest employment fall outside of a recession on record shows that rising interest rates are making their mark on the jobs market- Resolution Foundation

The biggest employment fall (down 207,000) outside of a recession on record offers the clearest sign yet that rising interest rates are cooling the labour market, but the recent pay spike will cause a headache for the Government by increasing the cost of the Triple Lock, the Resolution Foundation said today (Tuesday).

The latest labour market data showed a big fall in employment and further falls in job vacancies (now below a million for the first time in two years) alongside rising unemployment (up 159,000 on the quarter) and economic inactivity (up 62,000). These are all signs that the labour market is cooling, which in turn should weaken wage growth in the months ahead and ease pressure on inflation.

But these signs of the jobs market cooling are largely yet to show in the pay data. Average weekly earnings in the three months to July grew at their highest annual rate on record (7.8 per cent for regular pay and 8.5 for total pay, the latter driven by one-off NHS bonuses). There are however signs of private sector pay growth starting to slow, with total pay falling between June and July.

As this earnings growth is likely to be significantly higher than CPI in inflation in September (the Bank of England’s forecast is 6.9 per cent), the state pension is set for another bumper rise next April as a result of the triple lock (which uses the higher of these two figures, or 2.5 per cent). But while Ministers have been keen to stress their commitment to the triple lock, however expensive it will be, they are reportedly considering a below inflation uprating for working-age benefits next year.

The Foundation warns that this would worsen the living standards pain for millions of low-and-middle income households, who are already set to see their incomes fall again next year. It would also further skew our social security system towards older generations, who have a seen a 14 per cent real-terms rise in the state pension since 2010, while working-age benefits like unemployment support have fallen by 9 per cent over the same period.

IES Analysis

Bad news has come in three in today’s main labour market data – with employment falling sharply, a similarly large rise in unemployment, and an uptick in economic inactivity. The bad news does not end there either – with the number of young people neither in employment nor full-time education increasing by more than a quarter in the last year alone (to more than one million, or nearly one in six of all young people); signs that rising short-term unemployment is now feeding through into longer-term unemployment; another record set for the number of people out of work with long-term health conditions; and vacancies falling by more than 20% over the last year.

For all of that bad news, though, today’s pay data is more positive. Nominal pay growth is again around 8% year-on-year, which combined with falling inflation means that regular pay in real terms has grown by just over 1%. This is starting to unwind some of the damage caused by high inflation over the last year or so, but it is only a start – with pay packets on average only around £5 a week higher than they were before the pandemic which in turn had only just reached the level they were at on the eve of the 2008 recession.

Today’s briefing includes extra analysis on youth participation given the concerning growth in the number outside of employment and learning. We have also included some discussion and analysis of overall labour market tightness and efficiency, which shows that there is now significantly more slack in the labour market than there was a year ago but also some signs that the labour market may be a bit less efficient than it was. Vacancies remain very high (with close to one million unfilled jobs) and employment is still well below where it was before the pandemic began, so there is more that we can do to help support economic growth, higher employment and better living standards.

Nonetheless, today’s figures overall are weaker than we had expected, which likely increasingly reflects a cooling in the economy as much or more than inefficiencies in the labour market. If that is the case, then we should also expect nominal pay growth to slow in the coming months (as this tends to lag other indicators). This may well give more cause for the Bank of England to consider holding fire on further interest rate rises, at least until some of this picture becomes clearer and the effects of the large rises since last August start to feed through.

At the same time, as we have said in previous briefings, the labour market data continues to show that we cannot fix our problems solely through monetary and fiscal policy on the demand side – we need to do far more on the supply side too. With the Autumn Statement (budget) now just two months away, we need to be doing everything that we can to help people who want jobs to find and take up the jobs that want people. This should include improving access to employment support – for example by enabling more people to access appropriate help through Jobcentre Plus and extending the Restart Scheme; addressing skills shortages, for example through reform of the Apprenticeship Levy and greater flexibility to meet local needs; and a much more coherent offer for employers – so that they can access (and know where to go for) help with inclusive recruitment, training, flexible job design and workplace support.

Sector Response

Chancellor of the Exchequer, Jeremy Hunt said:   

“It’s heartening to see the number of employees on payroll is still close to record highs and that our unemployment rate remains below many of our international peers.   

“Wage growth remains high, partly reflecting one-off payments to public sector workers, but for real wages to grow sustainably we must stick to our plan to halve inflation.”

Minister for Employment, Guy Opperman MP said:

“This Government’s record on employment is clear; there are one million fewer workless households than in 2010 and the number of people on company payrolls is a near record high. But we are not complacent about the challenges we face, which is why we remain focused on removing barriers to help people find and succeed in work.

“Our £3.5 billion package to deliver more tailored job support combined with our expanded childcare offer will help unlock individuals’ potential and grow the economy.”

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

“The labour market continues to soften with significant falls in the employment rate and rises in unemployment, plus vacancies below one million for the first time since pandemic restrictions eased. The UK is the only G7 country to have lower employment than pre-pandemic; and the number of people out of work due to long-term sickness is at record highs. We need to widen employment support and invest in social infrastructure like childcare, skills and health.

“Earnings grew faster than inflation for the second month in a row, though they remain £11,000 lower in real terms than if pre-financial crisis trends had continued. The cost of living crisis is far from over.”

Hannah Slaughter, Senior Economist at the Resolution Foundation, said:

“Britain saw the biggest employment fall outside of a recession this summer. This is the clearest sign yet that the Bank of England’s rate rising cycle is starting to cool the jobs market.

“But while higher unemployment should lead to lower wage growth in the coming months, it certainly hasn’t had that effect yet, with earnings growing at a record pace.

“The short-term pay boost could end up benefiting pensioners more than workers as it is set to deliver a big permanent boost to the state pension next April. In this context it would be wholly unfair to hold down working-age benefits, especially as poorer households are already set to see their incomes fall next year.”

Neil Carberry, REC Chief Executive, said:

“Pay rising to meet falling inflation is a function of firms giving higher pay awards to staff in the spring, ongoing staff shortages in some sectors such as hospitality and logistics, and a big rise in the minimum wage. It was always likely that pay would meet falling inflation during this year, but we should be cautious of any analysis that suggests pay is driving rising prices at this stage – businesses have been carefully managing looking after workers and maintaining cost stability.

“Today’s numbers do suggest that the path to lower inflation may be more of a slope than a cliff, but there is evidence of the gentle cooling in the jobs market the Bank of England has been seeking. With employment and hours dropping a little alongside inflation, wage pressure in the private sector is not likely to be as high from here on in as the labour market loosens. While we are coming off the hiring peaks of 2022, however, we are still seeing shortages in some key sectors such as hotels, restaurants, logistics, manufacturing, engineering, and healthcare. This is a longer-term issue and left unaddressed will drive inflation up. Companies can address shortages in how they choose to hire, working with recruitment professionals to reach new pools of candidates or engage staff in new ways. It is telling that temporary labour remains in demand through this period of economic uncertainty, for instance.

“For government, a growth plan that helps firms make the most of our labour force and invest in new technology is overdue. Across skills, infrastructure, welfare support, immigration, and business support – the case for a comprehensive reform to get growth going has never been stronger.”

Ben Harrison, Director of the Work Foundation at Lancaster University, said:

“Pay growth this month is the highest on record and that may be good news for some workers, but it remains concentrated in typically high paying sectors such as business and finance. Many low paid workers in sectors like retail and transport are continuing to see their wages fall short of inflation.

“Meanwhile today’s data also confirms that vacancies dropped below a million for the first time in two years but remains historically high, and long-term sickness has hit a new record high of 2.6 million. This will further increase the pressure on Government to act on worker shortages.

“But the reality is that many people with long-term illnesses who are looking to work face limited choices due to their conditions. Pushing these workers prematurely into any job without adequate support is only going to make the UK’s long-term sickness challenge worse.

“Any further punitive measures – such as real-terms cuts to benefits or failing to raise social security levels in line with inflation – will risk pushing millions of workers and jobseekers into poverty and must be avoided. Instead, there needs to be more focus on tailored support for jobseekers with different needs, and a renewed drive to work with employers to increase the quality of jobs on offer.”

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

“While today’s figures see a welcome return to real pay growth, the jobs data is very weak indeed. Employment has seen its largest quarterly fall since 2020, with both unemployment and economic inactivity rising. This points to two big challenges for government: too many people are outside the labour force entirely, but those that are looking for work are finding it harder to get it. So we need action on both fronts, to help people to start looking for work but also to get much better at helping people find it. Particularly worrying today has been a sharp rise in the number of young people neither in education nor employment, which is now close to 1.1 million or around one in six of all young people. This is the highest figure since the first lockdown in 2020 and is hard to explain or to justify given there are still nearly a million vacancies in the economy.

“This weakening in the labour market also weakens the case for further interest rate rises, although the growing mismatches between people and jobs will likely continue to put upward pressure on pay. So if we want to get inflation down in the long run, we need action at the budget to address this and to help more of those who want to work to get the support that they need to take it up. This should 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.”

David Morel, CEO of Tiger Recruitment, said:

“Today’s ONS labour market statistics show “the highest regular annual growth rate in pay since comparable records began in 2001”, with wages outstripping inflation for the first time in more than 18 months. While this news is undoubtedly positive for employees, it highlights a pressing issue for employers. Many businesses have been paying higher wages than they can realistically afford to retain talent – and avoid the hiring quagmire they experienced post-pandemic – for when the market picks up. The question now is whether the economy will recover quickly enough to enable them to sustain this strategy.”

TUC General Secretary Paul Nowak said: 

“Today’s pay and jobs figures show the UK economy is in the danger zone.

“Unemployment is up by nearly a quarter of a million over the last year.

“And while average pay has finally inched above inflation, real wages still falling across the public sector, retail, hospitality and construction.

“If pay packets had been growing at pre-crisis levels, workers would be on average £14,700 better off.

“It’s little surprise that families are worried sick about paying their bills and keeping their jobs.

“The government is in denial. The Tories’ lack of a credible economic plan is costing the country dear.”

Chief Economist at the Joseph Rowntree Foundation said:

“Rising real earnings on average in July is good news. But the effects are not being felt equally and many workers in low paid sectors like retail and hospitality saw their pay fall further behind inflation.

“Thanks to the security of the triple lock, today’s data all but confirms the state pension will rise by 8.5% as well. But this throws the situation with benefits into stark relief, where the government have refused to confirm they will even follow their own rules and increase payments in line with September’s inflation rate in the usual way. 

“The basic rate of universal credit is just £85 per week – £35 per week less than what is needed to cover a basket of life’s essentials such as food, basic toiletries and household bills. This is causing severe hardship which the voting public are already concerned is too high and too extreme.

“We need a legal commitment that the basic rate of Universal Credit at least matches the cost of essentials, with benefit rates not treated like a political football while more and more people are unable to put food on the table”.

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