As the UK emerged from the Covid-19 pandemic, its labour market was running hot with high nominal wage growth, over a million vacancies, and low unemployment. This month’s labour market figures suggest that that phase has now ended. Given the upcoming changes to the UK’s tax and regulatory environment as well as uncertainties in the global economy, we can expect a much more subdued labour market going forward.

This month’s headline indicators point to a largely stable labour market. The employment and unemployment rates have increased slightly by 0.3 and 0.1 percentage points respectively. The employment rate of 74.8% is still below pre-pandemic levels. Economic inactivity is at 21.8%, down by 0.4 percentage points on the quarter but 1.2 percentage points higher than before the pandemic. Overall economic inactivity is still driven by rising long-term sickness. Nearly one-third of the inactive population is inactive due to long-term sickness.

The stability of the headline indictors mask some of the underlying challenges that are likely to affect the UK labour market going forward.

Economic uncertainty likely to slow hiring and wage growth

Vacancies have fallen to 831,000 on the quarter, which is 35,000 higher than pre-pandemic levels. This is the 28^th consecutive month where vacancies have fallen. As we emerged from the pandemic, vacancies peaked at 1.3 million in March-May 2022 as employers struggled to filled vacancies. In 2022, the number of unemployed people equalled the total number of vacancies. Therefore, the initial drop in vacancies was welcome as business were able to fill open positions. However, the persistent fall in vacancies has pushed up the number of unemployed people per vacancy to 1.8 which points to a significant loosening of the labour market. Vacancies have fallen or remained the same across all sectors of the economy apart from financial and insurance services.

Nominal wage growth has slowed too which also points to falling labour demand. Nominal regular pay grew up 4.8% but has been slowing for 13 months since reaching a record high of 7.9% in August 2023. However, due to falling inflation, real wages continue to grow which will be a welcome respite to workers who have endured over a decade of largely stagnant living standards.

The changes to employer National Insurance Contributions (NICs) announced in the Autumn Budget is likely to further slow wage growth and hiring. The Chancellor announced an increase in employers’ NICs from 13.8% to 15% which is due to come into effect in April 2025 while also reducing the earnings threshold at which employers start paying national insurance. This increase in employer NICs coupled with an uncertain global economic outlook is likely to weigh on business confidence which in turn will lead to a further cooling of the labour market.

Youth unemployment is a cause for concern

The Labour Government aims to increase the employment rate to 80% which is equivalent to getting around 2.4 million back into work. There are two groups that need targeted employment support if the Government is to meet its ambition.

This month’s statistics on employment outcomes for young people are a cause for concern. Youth unemployment for July-Sept 2024 was 13.6%, an increase of 1.7 percentage points on the quarter. This could be because of young people leaving full-time education and entering the labour market. A brief period of unemployment might not be harmful as young people look for jobs. However, the unemployment rate was around two percentage points lower than this time last year.

A longer period out of work can have detrimental long-term effects. This month’s data shows that nearly one in five young people have been unemployed for over a year. This is worrying as long-term youth unemployment can have scarring effects on future earnings prospects. Furthermore, the number of young people not in full-time education and out of work (unemployed or economically inactive) now stands at 1.06 million, an increase of over 100,000 on the quarter. These figures reinforce the importance of the Government releasing more details on its proposed Youth Guarantee scheme to help young people back into work. The Government’s “Get Britain Working” white paper will shed more detail on the scheme which we help us to analyse how effective it will be in getting young people back to work.

Long-term sickness highlights scale of “Get Britain Working” challenge

Economic inactivity due to long-term sickness remains worryingly high at 2.78 million. This has decreased by 20,000 on the quarter but is still substantially higher than pre-pandemic levels and has been above 2.7 million for 15 consecutive months which indicates that this might be a new normal. There are 671,000 more people economically inactive due to long-term sickness since December-February 2020.

The Government needs a multi-pronged approach to tackle this challenge. It needs to clear up the NHS waiting lists so that people can get timely access to treatment, scale up voluntary employment support for those out of work with health conditions and reform the punitive aspects of the benefits system to de-risk the journey back into work. The increased spending on the NHS announced in the Budget as well as the £240 million package to boost employment and health support are steps in the right direction.

Government agenda must meet the scale of labour market challenges

This Government has put raising living standards and getting people back to work at the centre of its governing agenda. While the UK is facing economic headwinds in the short run, Ministers must not lose sight of the long-term labour market challenges of insecure work, economic inactivity due to sickness and stagnant wages. With the Employment Rights Bill and Autumn Budget now published, it is vital that the Get Britain Working White Paper sets out how the Government can work with employers to tackle the UK’s participation crisis.

Related Blogs

• 

  Frosty Days, Festive Ways!

• 

  Taking student issues to Parliament

• 

  The financial career landscape

Disclaimer

The opinions expressed by our bloggers and those providing comments are personal, and may not necessarily reflect the opinions of Lancaster University. Responsibility for the accuracy of any of the information contained within blog posts belongs to the blogger.