Labour Market Statistics, October 2022

At just 3.5%, the last time unemployment was this low was when Slade released Merry Christmas Everybody. But if that counts as good news, there’s really very little else to welcome today. The employment rate has fallen again on the previous quarter, down by 0.3 percentage points to 75.5%, while ‘economic inactivity’ (the measure of those not in work and either not looking and/ or not available to work) has risen by a 0.6 points to 21.7%. Apart from the rise in economic inactivity during the first lockdown, this is the largest quarterly increase since comparable records began in 1971.

Higher economic inactivity continues to be driven particularly by fewer older people in work – who account for three quarters of the total rise – and by more people out of work due to long-term health conditions, which has again seen a record quarterly rise and reached its highest level in at least thirty years (at 2.49 million). However economic inactivity due to caring for family and home is also rising after three decades of sustained falls, which may well reflect more parents (and particularly single parents) struggling to find or stay in work; while student numbers are rising again, and the number of people citing early retirement has also edged up. So overall the labour force is contracting in many different ways, and is now half a million smaller than it was before the pandemic.

This is happening in spite of (and is likely contributing to) continued very high vacancies – which remain above 1.2 million. There simply are not enough workers for the jobs available. This is likely contributing to very strong nominal pay growth, which is now running at 6.4% in the private sector but at just 2.4% in the public sector, which is in turn likely to be contributing to rising prices – with services inflation and core inflation (which excludes energy and food costs) both now running at around 6%. Overall however, this high nominal pay growth is still below the (even higher) rate of inflation, so real pay continues to fall (by 2.8% year-on-year in today’s figures).

As with last month, there are some early signs that demand may be starting to weaken in the private sector, with vacancies falling slightly from their peaks in a number of industries. However vacancies are continuing to grow in the public sector – likely in part reflecting more people leaving public sector jobs for better paid work in the private sector, as well as continued struggles to recruit new staff in a highly competitive labour market.

Overall these are pretty worrying figures and an inauspicious backdrop against which to be looking for tens of billions of pounds of cuts to public spending. Perhaps the best (but least likely) course that the government could take would be not to make those cuts and instead delay its tax plans. Failing that though, we would argue that there are now four key priorities for the Chancellor’s statement at the end of this month: to extend the Restart Scheme, which is due to underspend by around £1.2 billion; to do far more to improve access to specialist health and work related support; to ensure a decent settlement on public sector pay and reform; and to increase investment in skills and training, particularly for those out of work.

Employers will continue to need to step up too – particularly in understanding their workforces and local labour markets, broadening and simplifying recruitment, making work more flexible and secure, and improving access to workplace training and support.