Tight labour market, concern over inactivity
12 March 2024Featuring latest ONS data on labour demand, unemployment, inactivity and wage growth.
The ONS has issued new data on the UK labour market, showing that the market is still “tight” (i.e. demand for labour consistently matches or exceeds supply), despite signs that demand is easing slightly.
There are limited signs that demand for labour is weakening – not a surprise given weak economic performance. The number of unfilled job vacancies is falling and the number of redundancies is rising. The Bank of England’s Decision Maker Panel suggests that recruitment is becoming much easier than it was only a few months ago (note that this data spans the whole economy).
On the other hand, employment is steady and unemployment remains low. There is no sign that the total number of hours worked in the UK economy is falling – hours have levelled off since recovery from the pandemic.
Annual average wage growth peaked in Summer 2023 and has slowed somewhat since then, but wage growth remains ahead of inflation, for now. “Real” wage change is therefore still positive, allowing at least some workers to rebuild recent losses to their spending power. The new Economic & Fiscal Outlook from the Office for Budget Responsibility (OBR) does not anticipate significant swings in the labour market over the near-to mid-term.
The Spring Budget reveals that economic activity remains a major concern for the government since this means a loss of economic productive capacity and, possibly moving from “tax payer” to “benefit recipients” status. Economic inactivity – which means “not in work and not looking for work” – is far higher than it was pre-pandemic, in terms of both numbers and prevalence.
Ill health is a major reason why inactivity is rising, although this issue is quite complex. During and after the pandemic, older adults with ill health were the major drivers of inactivity. More recently, young adults with ill health – especially mental ill health – have become the major drivers of change. This point was highlighted in a recent report by the Resolution Foundation.
There are strong correlations between poor mental health and unemployment or low earnings when in work meaning that young people falling into poor health may suffer lifetime impacts. There is a high chance that employers will need to deal with poor mental health issues, either in the recruitment process or in the workplace.