Labour Market Statistics, July 2022

There is mixed news in today’s figures. After very disappointing data last month, this month has seen significantly stronger data on employment and economic inactivity, with the prospect that employment could return to pre-crisis levels by the end of the year (if – a big if – the cost of living crisis and interest rate rises do not lead to a wider slowdown). In particular, economic inactivity (the measure of those out of work and not looking and/ or not available for work) appears to be falling back for older people, after very large rises through the pandemic.

On the other hand though, there are a number of worrying signs in today’s pay data. Pay overall continues to fall sharply in real terms, with soaring inflation wiping out strong nominal pay growth (with nominal pay growth well ahead of the pre-pandemic rate). However underneath this, there are signs that private sector pay is being driven by continued labour shortages and may not be sustainable, especially in private sector services, while public sector pay is barely growing at all – leading to very large real-terms falls.

This will be a very challenging set of circumstances for a new Prime Minister and Cabinet to take on, with the need to raise pay in the public sector, address shortages in the private sector and navigate falling real incomes even as government support payments kick in. As we have said in previous briefings, our view is that a key priority must be to raise participation in the labour force – in other words, to boost labour supply through better support for those out of work, not just try to weaken labour demand through interest rates. There are savings of at least £2 billion that could be put to use to do this, from underspends on measures for the unemployment crisis that never came.Firms will need to step up too, as many are already doing, with inclusive recruitment, flexible job design, and improving job security, quality and support at work.