2022 was the worst year for real wage growth since current records began: Labour Market Sector Response

Today’s (Tuesday) labour market figures, shows that real wage growth fell by 3.4% in 2022 – the worst annual drop since current records began in 2000

Main points

The UK employment rate was estimated at 75.6% in October to December 2022, 0.2 percentage points higher than the previous three-month period. The increase in employment over the latest three-month period was driven by part-time workers.

The most timely estimate of payrolled employees for January 2023 shows another monthly increase, up 102,000 on the revised December 2022 figures, to 30.0 million.

The unemployment rate for October to December 2022 increased by 0.1 percentage points on the quarter, to 3.7%. In the latest three-month period, the number of people unemployed for up to six months increased, driven by people aged 16 to 24 years. Those unemployed for over six, and up to 12, months also increased, while those unemployed for over 12 months decreased in the recent period.

The economic inactivity rate decreased by 0.3 percentage points on the quarter, to 21.4% in October to December 2022. The decrease in economic inactivity during the latest three-month period was driven by people aged 16 to 24 years. Looking at economic inactivity by reason, the quarterly decrease was driven by those inactive because they are students, retired, or long-term sick.

Flows estimates between July to September 2022 and October to December 2022 show that there was a record-high net flow out of economic inactivity, driven by people moving from economic inactivity to employment.

In November 2022 to January 2023, the estimated number of vacancies fell by 76,000 on the quarter to 1,134,000, the seventh consecutive quarterly fall since May to July 2022. The fall in the number of vacancies reflects 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 5.9% and growth in regular pay (excluding bonuses) was 6.7% among employees in October to December 2022. For regular pay, this is the strongest growth rate seen outside of the coronavirus (COVID-19) pandemic period. Average regular pay growth for the private sector was 7.3% in October to December 2022, and 4.2% for the public sector; outside of the height of the coronavirus pandemic period, this is the largest growth rate seen for the private sector.

In real terms (adjusted for inflation), growth in total and regular pay fell on the year in October to December 2022, by 3.1% for total pay and by 2.5 for regular pay. This is smaller than the record fall in real total pay we saw in February to April 2009 (4.5%), but remains among the largest falls in growth since comparable records began in 2001.

There were 843,000 working days lost because of labour disputes in December 2022, which is the highest since November 2011.

Read more here.

Read January’s Labour Market Information here.

Demand for workers softer just as labour supply begins to increase, while real pay stays weak – Resolution Foundation

Labour market data now paints a picture of softer demand for and increased supply of workers – with rising unemployment and falling vacancies contrasting with a welcome rise in participation.

The latest data points to a cooling down in the jobs market. Unemployment increased slightly on the previous quarter (by 45,000), while vacancy levels are still high at 1.1 million but down 76,000 (-6 per cent) on the previous quarter.  The Foundation says that evidence of labour market cooling can also be seen in the rising number of people who want more hours – up from 2.1 million in the three months to June 2022 to 2.4 million in the three months to December 2022 – and falling number who want fewer hours.

Meanwhile, the fall in economic inactivity since the summer – driven by record flows into work since then – is particularly welcome as the Chancellor looks to further boost workforce participation in his upcoming Budget. However, the accompanying rise in Zero Hours Contracts to a record high of 1.13 million is a reminder of the need to boost the quality not just the quantity of work.

Falling demand and increasing supply should feed into lower pay growth in the months ahead, says the Foundation. While these indicators of cooling have yet to impact on annual pay growth – which strengthened across both the public (+4.2 per cent) and private sector (+7.3 per cent) in the three months to December – there are early signs that pay growth is cooling in the private sector. Comparing the past three months with the previous three, annualised pay growth has been falling – from 9 per cent in July to 7 per cent in December.

The Resolution Foundation adds that with the UK experiencing double digit inflation in the last three months of the year, strong nominal pay growth has not prevented real wages fall sharply – by 1.8 per cent in the private sector and 5.4 in the public sector.

This pay squeeze is the primary driver of rising industrial action – which saw the number of days lost to strike action almost double between November and December to 861,000 – a figure that is set to rise again in early 2023.

Additional information:

Unemployment is higher in Canada, France, Italy, Spain, and the Euro area.

Employment is lower in the US, France, Italy, Spain and the Euro area.

The government is committed to halving inflation this year, reducing debt and growing the economy.

The unemployment rate remains low (3.7%) by historical standards.

There were over 30 million employees on payrolls in January 2023, over a million above pre-pandemic levels.

As set out at the Autumn Statement, the Department for Work and Pensions will thoroughly review workforce participation to understand what action should be taken on increased economic inactivity, which will conclude in early 2023.

Monetary policy is the responsibility of the independent Bank of England. The government remains fully committed to the Bank’s independence, and the inflation target of 2%.

In addition to the Energy Price Guarantee this winter, which is saving the average household £900 on energy bills, the government provided £1200 worth of support to the most vulnerable households for 2022-23: 

• £650 in cost of living payments;
• £400 through the Energy Bill Support Scheme;
• £150 Council Tax rebate;

Additional support for pensioners and those claiming disability benefits.

The government has announced further support on the cost of living in 2023-24, targeted at those most in need: 

• UK households on means-tested benefits will receive a further £900 Cost of Living Payment;
• Pensioner households across the UK will receive an additional £300 Cost of Living payment;
• People across the UK on non-means-tested disability benefits will receive a further £150 Disability Cost of Living payment, to help with the additional costs they face.

We have extended the Household Support Fund for another year in England, with £1 billion of extra funding (including Barnett funding for the devolved administrations).

The government has introduced changes to the Energy Price Guarantee (EPG), building on the measures already announced which provided much needed support to domestic and non-domestic users. The action taken on Energy support at the Autumn Statement will reduce the fiscal impact of the package whilst saving the average UK household £500 in 2023-24 from a £3000 Energy Price Guarantee.

Sector Response

Chancellor Jeremy Hunt said:

“In tough times unemployment remaining close to record lows is an encouraging sign of resilience in our labour market.

“The best thing we can do to make people’s wages go further is stick to our plan to halve inflation this year”.

Minister for Employment, Guy Opperman MP said:

“It’s encouraging to see that more people are moving into work, as we know that being in employment is the best way to deliver financial security, skills and confidence. 

“We’ve also made huge progress for everyone looking to boost their earnings or land a new role, with the employment rate increasing and more people joining payrolls. 

“Growing the economy is one of our top five priorities which will deliver more high quality jobs, boosting everyone’s prospects and prosperity.”

Stephen Evans, Chief Executive at Learning and Work Institute, said:

“Real earnings are falling at their fastest rates since the financial crisis due to high inflation, leaving them no higher now than before the pandemic. A miserable 15 years for real wage growth means people would be earning £11,000 a year more on average if pre-financial crisis trends had continued. So as well as bringing inflation under control, we urgently need a growth plan for our economy. 

“There was a welcome fall in economic inactivity, but it was driven more by a reduction in young people studying than older people returning to the labour market. Economic inactivity is still 500,000 higher than pre-pandemic, and almost 2.5 million people are out of the labour market due to long-term sickness. Only one in ten out-of-work older people and disabled people get help to find work each year, the Chancellor must change that in next month’s Spring Budget.”

Ben Harrison, Director of the Work Foundation at Lancaster University:

“Today’s figures suggest the cost of living crisis is pushing young people back into work from economic inactivity at time when everyone is feeling poorer – with employment rising by 53,000 people (0.2 percentage points). This should not mask the fact that real pay is down 2.5% on the year for workers, with those in the public sector hit hardest despite moderate pay growth that continues to fall short of double-digit inflation.

“Employers, workers and job seekers are feeling the squeeze. With the IMF singling the UK economy to be the only major economy to shrink in 2023, persistent worker shortages are likely to become a vital political topic in the months to come.

“The Government has hinted it will double down on its approach of increasing welfare sanctions, notionally intended to get those out of work into any job and those in part-time work to up their hours. The reality is this will not help grow the UK economy nor support people into sustained employment. But it will acutely increase the stress and anxiety of low-income workers and their families.

“Instead, we need long-term investment and reform to make employment services more inclusive and effective, and an Employment White Paper to strengthen worker rights and protections to be fit for the 21st century.”

TUC General Secretary Paul Nowak said:

“Family budgets have been decimated by more than a decade of pay stagnation. 2022 was the straw that broke the camel’s back.

“Instead of recognising the huge pressure households are under, the government is choosing to make millions poorer by holding down public servants’ pay.

“And rather than imposing a proper windfall tax on BP and Shell, ministers are planning to force families to cover the cost of sky-rocketing energy bills this April.

“It is little surprise that workers are having to take strike action to defend their living standards. They have been pushed to breaking point

“Ministers should be negotiating with unions on credible pay offers that protect workers from rising prices.

“But the Conservatives are investing far more energy in attacking the right to strike than in resolving disputes.”

TUC analysis published this month shows that public sector workers are earning £200 a month less in real terms than in 2010.

Commenting on the number of people on zero-hours contracts rising to over 1.1 million – the highest number on record – Paul Nowak added:

“Zero-hours contracts have no place in modern Britain. They allow workers to be treated like disposable labour.

“They should be banned along with other exploitative working practices like fire and rehire.

“The Conservatives promised to make Britain the best country in the world to work in.

“But they have presided over a huge explosion in insecure jobs and are now attacking a host of other workers’ rights – including the right to strike.”

Kate Shoesmith, deputy chief executive of REC, said:

“This is a very steady set of job figures and further evidence of the UK’s robust labour market – which is good news, given the global levels of uncertainty right now. But when both productivity and economic inactivity are not improving from pre-pandemic levels, we must focus on the fixes.

“Recruiters and business groups still warn that labour shortages are holding back economic growth. Only by working together can employers and government hope to draw more people, from a range of backgrounds, into the labour force.

“Next month’s Spring Budget is the opportunity for government to provide further stability, clarity and much needed support so that the economy can thrive despite the now stubborn labour shortages. Improving childcare support and provision to enable more parents to work and older workers such as grandparents to stay in work is vital, as is reinvigorating welfare to work schemes. Where investment is needed, the government should keep in mind that the return will be far greater over the medium and long-term, helping to save money and boost growth. A failure to address shortages will only constrain growth and feed inflation.”

Nye Cominetti, Senior Economist at the Resolution Foundation, said:

“The labour market is sending a tentative signal to policy makers, with evidence of cooling in the jobs market and extra labour supply alongside early evidence of slowing pay growth.

“The fall in economic inactivity since the summer is welcome, though the accompanying rise in Zero Hours Contracts less so. And the bigger picture is a stark real wage squeeze that is prompting ever more industrial action.”

James Reed, Chairman, Reed.co.uk, comments:

“22 percent more people applied for a job via Reed.co.uk last month compared to January 2022. This is a trend that has continued in February – so far, we’ve seen a 19 percent year-on-year increase compared to the first two weeks of February 2022. And we are still seeing a good number of jobs being posted.

Wael Makarem, Senior Market Strategist – MENA at Exness:

“Currency price movements could be relatively limited overall ahead of the publication on inflation rates in the US tomorrow. These figures will be monitored closely by traders to understand how monetary policy would progress. This could be a critical data point for the dollar and other assets in particular after the Federal Reserve slowed the pace of its interest rate increases and the surprise over the US job market’s figures.

“Inflation in the US has been declining on a year on year basis pushing the US central bank to review its policy. However, a surprise tomorrow could alter expectations. Higher-than-expected inflation figures could reinforce the case for higher interest rates for a longer period of time, which could push the US dollar higher. In any case, higher volatility could be expected.

“The euro area could also see inflation to continue to decrease on a year on year basis while forecasts are reviewed downward. However, core inflation could constitute a challenge as it has not peaked yet. Uncertainty around energy prices could also have an impact on interest rates and the euro.

“On another note, the yen has been declining against the dollar while the Bank of Japan could maintain its dovish monetary policy despite relatively high inflation levels. The announced nomination of a new central bank governor created some volatility but could leave the Japanese currency exposed against its other counterparts if no major changes are made to monetary policy.”