June Labour Market 2023- Sector Response

Employment back to pre-pandemic levels but “clear signs that weak labour supply is holding back growth”

The UK employment rate was estimated at 76.0% in February to April 2023, 0.2 percentage points higher than November 2022 to January 2023. The number of people in employment increased to a record high in the latest quarter with increases in both the number of employees and self-employed workers.

The more timely estimate of payrolled employees for May 2023 shows a monthly increase, up 23,000 on the revised April 2023 figures, to 30.0 million. The May 2023 estimate should be treated as a provisional estimate and is likely to be revised when more data are received next month.

The unemployment rate for February to April 2023 increased by 0.1 percentage points on the quarter to 3.8%. The increase in unemployment was driven by people unemployed for up to 12 months.

The economic inactivity rate decreased by 0.4 percentage points on the quarter, to 21.0% in February to April 2023. Looking at economic inactivity by reason, the quarterly decrease was largely driven by those inactive for other reasons and those looking after family or home. Meanwhile, those inactive because of long-term sickness increased to a record high.

In March to May 2023, the estimated number of vacancies fell by 79,000 on the quarter to 1,051,000. Vacancies fell on the quarter for the 11th consecutive period and reflect uncertainty across industries, as survey respondents continue to cite economic pressures as a factor in holding back on recruitment.

Growth in average total pay (including bonuses) was 6.5% and growth in regular pay (excluding bonuses) was 7.2% among employees in February to April 2023. For regular pay, this is the largest growth rate seen outside of the coronavirus (COVID-19) pandemic.

In real terms (adjusted for inflation), growth in total and regular pay fell on the year in February to April 2023, by 2.0% for total pay and by 1.3% for regular pay.

There were 257,000 working days lost because of labour disputes in April 2023.

In March 2023, workforce jobs rose by a record 395,000 on the quarter to a new record high of 36.8 million, with 8 of the 20 industry sectors at record high levels.

Click here to read the complete labour report for June 2023.

Read last month’s Labour market and sector response by clicking here.

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IES analysis on today’s labour market statistics:

The labour market is continuing to recover – with employment up, record earnings growth, falling economic inactivity and unemployment below 4%. Last month’s concerns that the labour market may have been starting to weaken have been dispelled, with strong figures for the month of April and a sharp upward revision in the estimate for payrolled employee jobs. Both the estimated number of people employed and number of hours worked are now at their highest ever levels.

These improvements are being led by more older people in work, and in particular more older men. However while this recovery in employment is welcome, there still remain around half a million more older people out of work than before the pandemic began, while the employment ‘gap’ between older men and older women is rising for the first time on record – from 8.0% on the eve of the pandemic to 9.1% in the most recent data.

Worryingly, today also sees a further rise in the number of people off work due to long-term ill health, which has now hit 2.55 million and has risen for ten of the last eleven months. This is nearly 30% of all of those outside of the labour force, compared with 25% three years ago. Employment for young people outside of full-time education also appears to be falling, from 76% a year ago to 74% now – so fewer students is mainly feeding through into more young people neither earning nor learning (which hit a million today, up from below 900 thousand a year ago).

At the same time, vacancies remain above a million but continue to fall back from the peaks that they reached a year ago. Vacancies are holding up in many public services and in private sector professions, but falling in retail, hospitality and in information/ technology. Given how high vacancies remain overall, it is likely that these recent falls reflect a bit more slack in the labour market (and employers filling their vacancies more quickly) more than a weakening of demand (and wider indicators on short-term unemployment and redundancies were positive today).

Earnings growth was exceptionally strong, up by 7.5% between April 2022 and April 2023 (the highest figure in at least twenty years). In part this pay growth will reflect firms and workers responding to higher inflation, as well as firms responding to labour shortages in some parts of market. However, it also reflects the impacts of a large increase in the National Living Wage in April (up by around 9%) and a slew of pay deals for public sector workforces. So it is likely that nominal pay growth will ease over the summer (alongside lower inflation).

Nonetheless, it is likely that today’s figures will lead to more pressure to raise interest rates in order to dampen demand and bring down pay growth. While this is understandable, our view is that the top priority should instead be to do far more to boost supply, which would in turn support higher living standards and economic growth. This means in particular doing far more to support people who are out of work and who want to work – especially those with long-term health conditions, disabled people, young people and older workers – and working better with employers on inclusive recruitment, job design, workplace support and progression in work.

Resolution Foundation reacts to today’s labour market statistics:

UK’s real wage squeeze may be ending, but its rate-rising cycle is likely to be extended

The strength of regular pay growth in recent months means that the UK’s 18-month real wage squeeze may well have ended, at least for now. But this welcome news for workers will concern the Bank of England who may want to raise interest rates higher and for longer in order to cool pay growth, the Resolution Foundation said today (Tuesday).

Regular pay (excluding bonuses) grew by 7.2 per cent in the three months to April – driven by rises in both private and public sector pay growth (now at 7.6 and 5.6 per cent respectively). Annual regular pay growth in April came in at 7.5 per cent – only marginally below the inflation rate of 7.8 per cent.

Real pay in the three months to April fell by 1.3 per cent on the year. However, the Foundation notes that with the inflation rate set to continue falling over the coming months, a return to annual real wage growth may have taken place as early as last month.

The labour market also continued and grow – with economic inactivity down and employment up. Two key milestones have been passed in recent months, with total employment levels (33.1 million) and total working hours (1.06 billion) both back above pre-pandemic levels. Tightness in the labour market was roughly stable on the month.

But while the UK jobs market is heading in the right direction, it still has plenty of ground to catch up. The UK remains one of the few OECD countries – alongside the US, Switzerland, Latvia, Lithuania, Costa Rica, Chile and Colombia – where its overall participation rate remains below pre-pandemic levels.

Relatedly, the number of people who are economic inactive due to ill-health has reached a record high of 2.55 million. Tackling this issue, as well as boosting employment for under-represented groups such mothers, will hold the key to further boosting the size of Britain’s workforce.

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Sector Response

Chancellor the Exchequer Jeremy Hunt said:

“The number of people in work has reached a record high, and the IMF and OECD recently credited our major reforms at the Budget which will help even more back into work while growing the economy.  

“But rising prices are continuing to eat into people’s pay checks – so we must stick to our plan to halve inflation this year to boost living standards.”

Minister for Employment, Guy Opperman MP said:

“Our drive to get more people into work and grow the economy has seen inactivity fall for the fifth month in a row. Vacancies continue to drop, employment is up and the numbers on company payrolls are also up. 

“We’re investing £3.5 billion to remove barriers to work – with extra support for people with health conditions, an expansion of free childcare and arming jobseekers with the skills they need through tailored training and extra work coach time.” 

Tony Wilson, Director at the Institute for Employment Studies said:

“Today’s jobs figures are broadly positive, with the level of employment finally back to where it was on the eve of the pandemic and with working hours also returning to pre-covid levels. Pay growth was also exceptionally strong at over 7% for regular pay.  Nonetheless, there are clear signs that weak labour supply is holding back growth, with more than a million vacancies still unfilled, unemployment below 4% and nearly 1.8 million people outside of the labour force who want to work. This includes half a million more older people and nearly half a million more with long-term health conditions than before the pandemic began. So we need to do far more to raise participation in work and support growth, rather than just raising interest rates to dampen the recovery.”

Stephen Evans, chief executive at Learning and Work Institute, said:

“The labour market remains resilient with employment up and economic inactivity down in the year to April. Average earnings rose by 6.5%, the highest outside the pandemic. Taken together these figures are likely to strengthen the hand of those arguing for further interest rate rises from the Bank of England.

“However, structural weaknesses remain, with inflation continuing to outstrip earnings making it tough for many to make ends meet. The employment rate is still below pre-pandemic levels, with a record 2.5 million people economically inactive due to long-term sickness. We need to tackle these structural challenges, helping more people to look for work to allow higher growth.”

Matthew Percival, the CBI’s Director for People and Skills policy, said:

“While the number of people in work is rising and unfilled vacancies are slowly falling, the difficulties companies face when hiring is still a hard brake on growth. Signs that stubbornly high inactivity is starting to fall are encouraging, but a new record high number of people unable to work because of long-term sickness is a real cause for concern.

“Business and government have identified getting people back into work as a top priority. A laser-like focus on delivering the promised expansions to childcare and occupational health services, and businesses increasing flexible working can quicken the pace of easing shortages.”

Ben Harrison, Director of the Work Foundation at Lancaster University, a leading think tank for improving working lives in the UK said:

“Today’s figures show the UK employment rate is at a record high, but they also point to underlying weakness that are hampering growth and living standards.

“Even with vacancies falling for the eleventh consecutive month and economic inactivity dropping, employers are still facing worker shortages. Despite strong public and private wage growth, inflation has resulted in workers being on average 1.3% poorer on the year.

“With a record 2.55 million long-term sick, the UK is the worst performer in the G7 for workforce participation since the start of the pandemic. Yet nearly one in four people who are long-term sick want to work. Mel Stride MP’s review of workforce participation therefore must recognise the importance of improving the quality of jobs on offer.

“That means strengthening job security and flexibility via a new Employment Bill, as well as improving support like Statutory Sick Pay, which is currently among the least generous offers in Europe.”

Jack Kennedy, UK Economist at the global hiring platform, Indeed, commented:

“The latest ONS figures show rising pay pressures which will be of concern to the Bank of England as it seeks to calm a wage-price spiral. Regular wage growth accelerated to 7.2% year-on-year in the three months to April, the highest rate outside the pandemic period. Private sector wage growth jumped to 7.6% while public sector wage growth was at 5.6%. Rising pay pressures are in line with Indeed’s real time data released in our monthly Wage Tracker and point to the need for further monetary policy tightening from Threadneedle Street.  

“Though minimum wage increases and recently agreed public sector pay deals are drivers, it’s also a reflection of continued tightness in the labour market, with the unemployment rate unexpectedly dipping to 3.8% and a historically low 1.2 unemployed jobseekers for every vacancy.

“Though worker shortages have eased, with vacancies falling for the eleventh consecutive month in May, they are likely to remain a long-term issue. Inactivity among working age people remains almost 350,000 above its pre-pandemic level despite having dropped nearly 300,000 from its peak last summer. Inactivity due to long-term sickness remains a key concern, hitting a new record high in the latest period at over 2.5 million. 

“Indeed data shows that hiring challenges persist particularly in lower-paid, in-person sectors. Jobseeker interest in occupations like cleaning, community work, hospitality & tourism and construction remains lower than pre-pandemic. But higher-paid, remote-friendly sectors like tech, mathematics and media & communications continue to see increased jobseeker interest. These trends are reinforced by the UK’s post-Brexit migration policy which prioritises the higher-skilled end of the labour market and healthcare occupations in particular. Worker shortages in lower-paid sectors are likely to remain a feature of the labour market for some time to come.”

Neil Carberry, Chief Executive of REC, said:

“The jobs market remains reassuringly resilient in the face of economic headwinds and sluggish growth. While employers are feeling uncertain about the future they still need to hire, in part because of ongoing labour shortages. These shortages are combining with high inflation and changes to the National Living Wage to drive very strong pay growth.

“For jobseekers, this should be a welcome picture – there are opportunities out there to get into work or move to raise wages. For companies, there is little sign of a change from the need to really focus on their talent strategy – recruiters are here to help with this, including changing the mix of skills as firms invest more in technology.

“For policy makers, this picture of shortages should be a concern, as it is likely to constrain a recovery in growth. An industrial strategy that includes workforce thinking is essential to tackling economic inactivity, developing new skills and a pragmatic approach to immigration.”

Hannah Slaughter, Senior Economist at the Resolution Foundation, said:

“Record pay growth across Britain means our 18-month run of falling real wages may have ended. But while this is welcome news for workers, it will worry the Bank, and by extension anyone looking to remortgage, as it adds to the case for raising interest rates for longer.

“The UK’s jobs market is also recovering – with employment and total hours worked finally back above pre-pandemic levels. But with the number of people too ill to work reaching a record high of 2.55 million, policy makers still face a huge task in helping more people back into employment.”

TUC General Secretary Paul Nowak said:

“Working people have had enough.

“Wages are still not keeping up with inflation and family budgets can’t take any more pressure. 

“It’s no wonder workers are reluctantly taking strike action to defend their living standards. They’ve been backed into a corner and pushed to breaking point.

“Ministers need to get round the table and resolve all of the current pay disputes.

“People need money in their pockets now.

“The government must give public sector workers a real pay rise, boost the minimum wage to £15 per hour, and end their draconian attack on the right to strike in the Strikes Bill.”

Co-founders of Rethinkly, Andrew Jackson and David Tinker, outline some other ways in which workplaces can support employee wellbeing amidst a mental health crisis: 

1. Build a culture that promotes ‘psychological safety’

The term now ubiquitous in organisational settings, but key to unlocking a healthy culture, describes a shared belief held by members of a team that it’s OK to take risks and to express their ideas and concerns, as well as to speak up with questions, and admit mistakes — without fear of negative consequences or judgement. However, Rethinkly’s latest study reveals that just under one in five Gen Z workers (22%) worry that their employees will judge them for making a mistake, and consequently, 23% harbour all workplace tension due to finding confrontation too difficult. 

David Tinker from Rethinkly says: 

“An unhealthy culture tends to be one where even the fact that something is undiscussable cannot be discussed – the huge elephant in the room. This normally results in avoidance of risk, poor decision making and low levels of creativity all resulting in poor performance. We don’t like working in unhealthy cultures as we know it has a negative impact on our wellbeing and yet we can feel trapped. The only way out is to create ‘psychological safety’, especially at the top. Psychological safety is achieved by increasing levels of self-awareness through some kind of reflective practice – looking in the mirror and listening to feedback”.

2. Promote proactive and clear communication 

Rethinkly’s data shows that a staggering 22% of Gen Z employees say that verbal communication with bosses and peers is the hardest part of their job. Perpetuated by a two-year hiatus, Zoom interactions and isolated communication, Tinker argues that it is no surprise that workplace anxiety is on the rise following the pandemic. Another study from the Harvard Business Review showed that employees who felt their managers were not good at communicating have been 23% more likely than others to experience mental health declines. 

Andrew Jackson from Rethinkly says: 

“Most challenges at work stem from a lack of or just bad communication. Communication challenges are directly aligned with morale, productivity, and commitment which have real business impact. Effective communication and building a strong culture based on healthy engagement are often talked about but surprisingly difficult to achieve. But when organisations start to embed and grow critical communication skills and adopt them as a competitive advantage, they can start to see a significant shift in their trajectory.” 

3. Invest in coaching and training

Now more than ever proactive and preventive workplace mental health training for leaders, managers, and individual contributors is essential to foster an environment that supports staff wellbeing. As more and more people struggle with mental health, it’s important to debunk common myths, reduce stigma, and build the necessary skills to have productive conversations about mental health at work.

David Tinker comments on the need for a scalable organisational solution for mental health: 

“There are two reasons why organisations need to think about providing support to their entire businesses – one ethical, one commercial. In many organisations, coaching is reserved for the very senior but actually, those that need it the most are those starting out their careers who are just forming their approaches and skill sets.

“Only providing a critical skill to a senior few isn’t fair and it isn’t a great strategy for the future of your business. Our vision is that this level of interaction and support should be available to everyone in an organisation. And organisations that do this find that it unlocks creativity and innovation on a wider scale. All this is better for the bottom line.”