UK labour market continues to behave oddly

Date : 13 April 2022

The UK labour market continued on its previous trajectory over February 2022 with unemployment falling and vacancies rising. Oddly, however, there continues to be a fall in “real” wages for many workers.

The latest information from the ONS shows the unemployment rate continuing to trend down, decreasing by 0.1% over the quarter to 3.8%.



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Job vacancies across the UK economy continue to rise, up to record levels, to nearly 1.3 million.

With unemployment also at low levels, the pool of workers to fill these vacancies will need to come from those defined as economically inactive*. This remains high at 21.4% of 16–64-year-olds, up nearly 1% on pre-pandemic levels. The majority of those leaving the workforce are between the ages of 50 and 64.



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The pressure employers are under to fill vacancies, is increasing the value of work. The average weekly wage is rising, up 5.4% over the year to February 2022. However, adjusting for the impact of RPI inflation, the increased value of work disappears altogether. Overall, workers are actually 2.6% worse off than a year ago. Taking out the effect of bonuses, inflation is outstripping wage growth by 3.8%.

Our Viewpoint

Each month’s labour market update paints an ever-stranger picture for the UK’s labour market.

Unemployment, the traditional measure of labour market health, is historically low. This is primarily due to growth in those defined as economically inactive. If these people are unable to be tempted back to work, there are long-term concerns for the number of people available in the UK labour market.

Unfortunately, those people defined as economically inactive are unlikely to be interested in returning to the workplace.

Of those defined as economically inactive, the ONS tracks those who are discouraged**. By February 2022, this figure has hit a record low of 17,000 people. This, coupled with low unemployment figures implies those who want work can get it.



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The above chart illustrates the varied reasons why individuals leave the workforce. There is significant growth, around 200,000 people, in those leaving the workforce due to long term sickness, a trend that has begun since the beginning of the pandemic.

The data does not illustrate which illnesses are keeping people out of the workforce. However, the pandemic has caused a number of secondary health issues including a record NHS backlog, a reluctance for patients to visit GP surgeries, delayed initial consultations and the emergence of long COVID***.

Last week the ONS reported that the day to day lives of nearly 270,000 people between the ages of 17 and 70 are impacted ‘a lot’ by long COVID.

Most importantly, this raises considerable welfare concerns for those impacted by long term illness. However, from an economic standpoint, the considerable growth in the number of those deemed economically inactive is having significant impacts on the labour market and wider economy, driving vacancies to record highs. Over the medium term, if businesses are unable to hire appropriate levels of staff, growth will be impacted.

A fall in the number of workers available is particularly important for the food and consumer goods industry. Last week the Environment, Food and Rural Affairs Committee reported that the industry faces a chronic labour shortage of around 500,000 people.

* Economic inactivity is defined by ONS as “people who are not in work, who have not sought work in the last 4 weeks and / or are unable to start work in the next 2 weeks”.
** Discouraged is defined as workers who have stopped looking for work because they are unable to find anything suitable
*** Long Covid is defined by the ONS as symptoms persisting for more than four weeks after the first suspected coronavirus (COVID-19) infection that were not explained by something else

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