Falling employment and rising unemployment indicate that the labour market continues to weaken and with the cost-of-living crisis far from over, the UK economy is at risk of entering a period of “stagflation”. While real pay rose by 0.6%, pay in several sectors of the economy from transport to construction still lags behind inflation which means many workers continues to experience a fall in living standards.

Labour market continues to cool

This month’s labour market statistics suggest that the labour market has turned a corner and is cooling. The employment rate fell by 0.5 percentage points with 207,000 fewer people in work in May-July 2023 relative to February-April 2023. This is the largest fall in employment since 2020. Unemployment increased by 0.5 percentage points on the quarter and now stands at 4.3%. Youth unemployment continues to grow as short-term unemployment (under six months) increased by 50,000 which indicates that it is becoming harder for younger jobseekers to find work. Vacancies fell by 64,000 and now stands at 989,000. While still above pre-pandemic levels, vacancies have been falling consistently for the last year across most sectors which reflects widespread uncertainty about the future health of the economy.

Real pay is positive, but many workers still miss out

Annual growth in regular pay (excluding bonuses) grew by 7.8% which, when we account for inflation, represents a 0.6% increase in real wages. While this is undoubtedly welcome news for many workers, pay increases have been concentrated mainly in private sector services. This means many workers in sectors where insecure work is widespread are missing out on these wage gains. For example, workers in the transport and construction sectors continue to experience real term decreases in pay. Moreover, in the context of falling living standards across this Parliament so far, these wage gains need to be sustained for a longer period and benefit more workers for people to finally feel better off.

Inactivity due to long-term sickness is at another record high

Economic inactivity, which refers to people who are out of work and not looking for work, increased slightly by 0.1 percentage points to 21.1%. This increase was driven by a rise in the number of students and more concerningly, a rise in the number of those who are inactive due to a disability or long-term sickness which rose to a record of 2.6 million. However, around 600,000 in this group would like to work.

Figure 1: Changes in the number of economically inactive between May-July 2023 and Feb-April 2023

Source: Work Foundation calculations based on ONS (12th September 2023) Dataset A01 – Table 11: Economic Inactivity for those aged from 16-64 (seasonally adjusted)

More tailored employment support can bring down inactivity

Given that there are nearly a million vacancies in the economy, more targeted health and employment support can help unlock opportunities for these people to move back into work.

The Government should scale up the new voluntary employment scheme for disabled and those with health conditions announced in its Health and Disability White Paper earlier this year. This would be an improvement on the current benefit system which categorises disabled people into groups —with some having regular contact with work coaches but facing the constant threat of sanctions while others are offered no support at all. The focus within the employment support system of finding “any job” is often ineffective for those facing complex barriers to returning to the labour market. A more tailored employment support programme could help disabled people and those with long-term health conditions find employment that does not negatively impact their health and put them on the path towards more secure employment.

New challenges for the labour market going forward

As we approach the Autumn Statement, the Government will have to respond to the new challenges that the labour market is now facing. With falling employment and rising unemployment, job seekers will find it increasingly difficult look for secure employment amidst the backdrop of stagnant growth and falling vacancies. This is also likely to make it even more challenging to support those out of the labour market due to ill health who want to work back into sustainable employment.

In this context, any moves to introduce more punitive conditionality to the welfare system to ‘encourage’ more Universal Credit claimants into work risks pushing millions of workers and jobseekers into poverty and must be avoided. Instead, the focus must be on developing more tailored forms of employment support, as well as better connections across Government between the DWP, Department of Education, Department of Levelling Up and the Department of Health to ensure that those who would benefit most from additional training are able to access it, and those with long-term health conditions get the support that they require.

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.