UK Unemployment Rises to 3.7%
Recent figures from the Office for National Statistics (ONS) show that unemployment in the UK has risen to 3.7 percent in the three months to November. At the same time, pay in the country has increased but is still going backwards in relation to current levels of inflation.
Last Tuesday’s figures from the ONS revealed that UK unemployment have remained steady and low in comparison to historical data. However, figures highlighted that unemployment has increased over the past 12 months, with 1.24m people out of work and actively seeking recruitment. 461,000 young people aged 16-24 were unemployed in September-November 2022, up 89,000 from the previous quarter. The youth unemployment rate is still back below pre-pandemic levels but is up in proportion at 11.1%. And although the number of unemployment young people is below pre-pandemic levels, the number of young people in employment is still 100,000 lower than pre-pandemic levels, a decrease of over 3%.
Many economists still expect the UK to end up in recession at some point this year but demand for labour remains strong. The number of vacancies has fallen again but is still at historically high levels. Low unemployment rates and high vacancy levels mean the labour market is currently tight: either most of those who want to work are in work or highly skilled employees are hard to come by in all sectors. It seems apparent that the UK has a skills gap. Combined with the fact that 37% of workers are expected to look for new roles in 2023 means businesses will need to institute further measures to attract and retain talent. As a result, pay is growing fast in the private sector - not fast enough to prevent livings standards from falling but fast enough to concern the Bank of England. Workers in the private sector are responding to high inflation by pushing for higher wages and, in a tight labour market, the signs are that they are getting them. The concern for the bank is that pay rises are likely to be funded by companies raising their prices and so the inflationary cycle will continue. Now obviously we know that big business should take the loss from their profit margins but that is highly unlikely and as such increasing interest rates has become a common occurrence.
The picture in the public sector is starkly different. There are 330,000 vacancies across the public administration, education, health and defence industries. Pay is falling in real terms by 6.1% a year in the public sector. That is brutal. Public services are under strain and recruitment and retention look like big issues. And with strikes taking place across the country, industrial action is becoming a far more common sight. More than half a million working days were lost to strike action in August and September 2022 and it’s not hard to understand why. Pay growth in Britain failed to keep pace with rising prices for a 10th consecutive month in January.
In many ways the ONS’ unemployment statistics shows that the UK is in a strong position with unemployment at historically low levels, but the workforce is substantially smaller than it was pre-Covid and that’s not a good thing. The number of "economically inactive" (not in work and not actively looking for work) in September-November 2022, was 8.94 million people in the UK. The proportion of the population aged 16-64 who are economically inactive was 21.5% an increase from the previous year. There are a number of reasons for inactivity in the labour market, most notably the effects of long term illness and those in full time education. However, the age group that has seen the largest increase in inactivity is those aged 50-64, and in a March 2022 article the ONS looked at the reasons why people in this age group have left employment since the start of the pandemic. They found that almost two thirds of adults aged 50-70 who had left or lost their jobs since the start of the pandemic had left work sooner than expected, and that almost half left their jobs to retire. It is hard to identify the exact cause for the demographics inactivity, but rising social complications should be considered as a legitimate cause e.g. illness, childcare support. Coupled with the reported shortfall of 330,000 workers in UK due to Brexit. It is easy to understand how the UK labour market is in such a squeeze.
In April 2022 median gross weekly earnings for full-time employees in the UK were £640, up from £611 in April 2021. Adjusted for inflation, median earnings for full-time employees decreased by 3.7%. Timelier but less detailed data show average weekly earnings for all employees in Great Britain increased by 6.4% excluding bonuses in the three months to November 2022 compared with the previous year. However again, inflation as measured by the CPI averaged 10.6% over the same period. After adjusting for inflation, average pay excluding bonuses was 3.8% lower than the previous year and average pay including bonuses was 3.8% lower.