As the UK labour market continues to struggle against a backdrop of growing global uncertainty, the Work Foundation at Lancaster University hosted an online event to review the latest labour market and inflation statistics, and discuss how policymakers can best respond.

Conflict in the Middle East has created fresh economic headwinds for workers, employers and policymakers, raising concerns about renewed pressure on growth, inflation and household finances. While the inflation rate fell on the morning of the event to 2.8%, it may prove to be the calm before the storm, with global volatility threatening to prolong pressure on growth, prices and living standards.

Ben Harrison (Director of the Work Foundation) chaired the conversation and was joined by Emma Taggart (Economics Reporter, The Telegraph), Simon French (Chief Economist and Head of Research, Panmure Liberum) and Dr Andrea Barry (Deputy Director for Work, Retirement, and Transitions, Centre for Ageing Better).

A softening labour market is creating tougher conditions for workers

The latest labour market figures underline the difficult backdrop facing workers and employers. Unemployment has risen to 5%, with 1.81 million people now out of work. Outside of the pandemic, vacancies have fallen to their lowest level for 11 years, standing at 705,000, creating an increasingly competitive jobs market with 2.5 jobseekers per vacancy.

Simon French argued that the figures point to “pretty soft labour demand”. He warned that employers are facing several pressures at once, including National Living Wage increases, higher employer National Insurance Contributions, employment rights reform and questions over how AI may change workforce needs.

Emma Taggart added that with domestic political instability now increasing too, “it provides a really challenging picture for businesses to want to increase hiring.”

Yet, there was a bright spot. For the first time, people born outside the UK and Europe now have a higher employment rate than the native-born population – something Simon French described as “a really positive development on labour market attachment of migrant cohorts”.

Young people and older workers are being squeezed at both ends of the labour market

Panellists were particularly concerned about the position of young people. Youth unemployment has reached an 11-year high, with one in seven young people aged 18-24 actively looking for work. Worryingly, one in five young unemployed people have been out of work for more than a year.

Emma Taggart warned that “in a downturn, young people often bear the brunt of a cooling labour market”. She linked the rise in youth unemployment to falling opportunities in retail and hospitality, where many young people traditionally get their first step into work.

She also stressed the long-term risks of young people spending time out of work early in their careers, stating it can have “long-term scarring impacts”. With the number of young people aged 16-24 not in education, employment or training close to one million, Emma described the situation as “really troubling for the economy”.

But the labour market is also failing many older workers. Employment rates are similar to a year ago, but there are nearly 200,000 more people aged 65 and over in work. Dr Andrea Barry said this was welcome where people wanted to remain in work, but stated it was concerning that some older people were returning because they had no choice.

“We do recognise that there are some people who are heading back into work past state pension age… because they have to, not because they want to,” Andrea said. She argued that the UK labour market is struggling to support both under-25s and over-50s, and is currently unable to “absorb people” when they want to work.

Falling inflation will not be enough to ease pressure on living standards

While inflation fell to 2.8% in April, panellists warned people are still feeling under pressure, even if inflation has fallen from its peak. April’s fall was driven by lower electricity, gas and food prices, but renewed global volatility could push costs back up. Nominal wages are rising by 3.4% on the year, but workers are experiencing real wage growth of just 0.1%.

Emma argued that the cost of living remains the “number one issue” for households in the bottom half of the income distribution, particularly if energy prices rise into winter. She warned that rising prices, unemployment and precarious work can quickly combine into a crisis for households who will be questioning if they can make it to their next payday.

Andrea agreed, stressing that falling inflation still means prices are rising. “We should expect wages to rise above what the prices are, and that’s not happening,” she said.

As the event came to a close, speakers agreed that policymakers face an increasingly difficult balancing act: supporting employers, protecting living standards and ensuring people at both ends of the labour market are not locked out of opportunity. For Andrea, the answer must include “really targeted, well thought through plans” to grow the economy nationally – growth that would provide many more secure and well-paid job opportunities, and relieve some of the pressure facing employers and families across the country.

Watch the full discussion on YouTube.

Related Blogs

• 

  Weak labour market requires Government’s full attention

• 

  Weak labour market may struggle to withstand renewed global economic stability

• 

  Can unemployment and employment rise at the same time?

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.