This month’s labour market update shows no change in the headline labour market indicators. The employment rate remains at 75.7% while the unemployment and inactivity rates are steady at 4.2% and 20.9% respectively. However, as with the previous two months, these are experimental statistics and must be treated with caution. Crucially, we lack data on the levels of economic inactivity due to long-term sickness which reached a record high of 2.6 million in September’s labour market update.

Declining job opportunities

These stable headline indicators conceal some concerning underlying trends in the labour market. Vacancies have fallen for the 17^th consecutive period and are at its lowest level since April-June 2021. Vacancies fell by 45,000 between September and November and now stand at 949,000. While this figure is still above pre-pandemic levels, vacancies have fallen across all sectors apart from mining and quarrying which reflects widespread employer uncertainty about the UK’s growth prospects heading into the next year. Four sectors now have fewer vacancies than before the pandemic, including the wholesale and retail sector where insecure work tends to be concentrated.

As the labour market cools and job opportunities fall, insecure workers are likely to bear the brunt of the economic slowdown. While the Government’s focus on getting people back to work and increasing the size of workforce is welcome, the continued fall in vacancies suggest that these measures need to be complemented with boosting economic growth to increase the number of high-quality jobs available.

Wage growth remains strong but is expected to decline soon

The past months have seen strong wage growth related to a need to meet the growing cost of living. This now appears to be levelling off, and the Office for Budget Responsibility (OBR) expects this to decline in the first quarter of 2024 due to a less favourable bargaining position of jobseekers and a continuing decline in inflation.

This month, we are seeing real wage gains of 1.4% in real pay (excluding bonuses). These will represent real, but modest, gains for many workers, particularly as the strongest wage growth remains concentrated in finance and business services (8.3%), and other sectors see lower rates of growth. As a positive, the annual average regular earnings growth for the public sector was 6.9%, which is the highest since records began in 2001. This strong wage growth risks hiding the fact that the majority of workers are poorer than in 2008, and the Office for Budget Responsibility have warned real wages will not return to those levels until 2028.

Figure 1: Continued pay growth and falling inflation are resulting in real, though modest, wage gains

Source: Office for National Statistics (12 December 2023). Real Average Weekly Earnings using CPI (seasonally adjusted), UK: October 2023.

What this means for 2024

Over the coming year, the Office for Budget Responsibility expects the labour market to loosen further, with fewer job opportunities available resulting in a rise in unemployment. This is a demand side issue, rather than a supply side issue. Although it may be tempting for Government to ramp up pressure on jobseekers ahead of next year’s General Election, focussing overly much on sanctioning those out of work is likely to be ineffective as well as harmful. Rather, Government must stimulate businesses to improve productivity and promote the creation of good quality, well-paid jobs.

Although the latest available data on long-term sickness is from September, we can expect health related reasons for economic inactivity to be more sticky than other reasons. Over the past year, we have seen the composition of inactivity change, with early retirees and students returning to the labour market, but people being out of work and not looking for work due to long-term sickness going up. Therefore, it is vital for evidence-based policy making that the Office for National Statistics service returns to normal by providing robust evidence on the number of people who are out of work and not looking for work next month.

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