Since the start of the Covid-19 pandemic, we have gotten used to negative statistics as the UK labour market struggles to recover. This month’s labour market statistics provide a glimmer of hope with employment on the rise, economic inactivity decreasing, and labour demand remaining strong. However, we know that some workers are consistently worse off than others. It is therefore key that Government capitalises on the positive trends, and develops a vision for a strong labour market in which everyone can access high quality, secure jobs.

Older workers are rejoining the labour market

This month’s labour market statistics show that the employment rate increased by 0.1 percentage points on the quarter to 76.0, which is broadly in line with pre-pandemic figures. The largest increase in employment of 116,000 was seen among those aged 65 and over. At the same time, we have seen a reduction in inactivity among those aged 50 to 64 years old, meaning people who are out of work and not looking for work. This could be a sign that people in this age group are unretiring, likely due to cost-of-living pressures. This will be welcome news to Government, which has been concerned about older workers opting out of work. Earlier this year, MP Mel Stride was tasked with a review of labour market participation in the UK, and is reportedly considering measures such as tax incentives for older workers to tempt them back into work.

Across February-April 2023, the number of people out of work and not looking for work declined by 140,000. Although this is a substantial fall, we still have 272,000 more people in inactivity this quarter than we did in Jan-March 2020, prior to the onset of the pandemic. Most concerningly, the number of people who are inactive due to long-term sickness remains at an all-time high of 2.55 million. Among these, however, approximately one in four people indicate they are keen to have a job. This represents a group of over 592,000 people who may, with the right support, rejoin the labour market.

Figure 1: Nearly one in four people who are out of work due to long-term illness do want a job

Source: Work Foundation calculations based on ONS (13 June 2023) Dataset A01 – Table 11: Economic inactivity by reason for those aged from 16-64 (seasonally adjusted).

We know that people with long-term health conditions or disabilities can struggle to find work, particularly good quality, well-paid work that do not exacerbate existing conditions. It is therefore important that Government rethinks its punitive approach to getting people into any job. Instead, it must focus on providing tailored employment support to access good quality jobs, both to people on benefits and to the much wider group of people out of work who are not on benefits.

Strong wage growth is still leaving some behind

This month continues the trend of strong average wage growth, at 7.2% for the whole economy. Although there remains a gap between private sector and the public sector, this has narrowed compared with previous quarters. Wage growth in the private sector was 7.6% compared with 5.6% for the public sector. Growth for the private sector was driven particularly by the 9.2% growth in finance and business services, whereas wage growth in sectors such as wholesale and retail are more comparable with the public sector. It is important to note that due to inflation, workers’ wages have fallen by 1.3% on average in real terms on the year. However, this affects people in sectors with less than average wage growth much more than those who have had more wage growth. Particularly as rent, mortgages and food prices continue to rise.

After an 18 month fall or around 2% in real term pay, it looks like this decline is decreasing. It is possible that if inflation continues to decrease, and wage growth remains strong, we will see gains in real wages over the next few months. However, it is also possible that as vacancies decline further, we will see wage growth stalling, and inflation is likely to continue to exert pressure on real wages for many months to come.

A vision for a labour market that works for everyone

This month’s labour market statistics undoubtedly indicate a positive direction for the labour market. However, we know there are groups of people, such as those in insecure work, and those with disabilities and long-term health conditions, are less likely to benefit from these improvements. Therefore, Government must ensure the current platform is used to improve work for everyone and ensure that we support people into good quality, secure jobs.

As a country, the UK needs a vision for our labour market that bridges the gap between those who are well-served by the economy, and those who are consistently left behind. Key to this is dedicating more resource to enforcing the minimum standards that are already in place, and properly addressing violations of workers’ rights and protections. Although the promised Employment Bill is indefinitely delayed, Government should improve policies in priority areas that would support people to remain in, or enter into work, such as widening access, and raising the levels of Statutory Sick Pay.

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