May Labour Market 2023- Sector Response

There were 556,000 working days lost because of labour disputes in March 2023, up from 332,000 in February 2023.

May Labour Market Main Points:

The UK employment rate was estimated at 75.9% in January to March 2023, 0.2 percentage points higher than October to December 2022. The increase in employment over the latest three-month period was driven by part-time employees and self-employed workers.

The more timely estimate of payrolled employees for April 2023 shows a monthly decrease, down 136,000 on the revised March 2023 figures, to 29.8 million. This is the first fall in total payrolled employees since February 2021, though this should be treated as a provisional estimate and is likely to be revised when more data are received next month.

The unemployment rate for January to March 2023 increased by 0.1 percentage points on the quarter to 3.9%. The increase in unemployment was largely driven by people unemployed for over 12 months.

The economic inactivity rate decreased by 0.4 percentage points on the quarter, to 21.0% in January to March 2023. The decrease in economic inactivity during the latest three-month period was largely driven by people aged 16 to 24 years. Looking at economic inactivity by reason, the quarterly decrease was largely driven by those inactive because they are students or inactive for other reasons. Meanwhile, those inactive because of long-term sickness increased to a record high.

Flows estimates show that, between October to December 2022 and January to March 2023, there has been a record high net flow out of economic inactivity. This was driven by people moving from economic inactivity to employment.

In February to April 2023, the estimated number of vacancies fell by 55,000 on the quarter to 1,083,000. Vacancies fell on the quarter for the 10th 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 5.8% and growth in regular pay (excluding bonuses) was 6.7% among employees in January to March 2023. Average regular pay growth for the private sector was 7.0% and for the public sector was 5.6% in January to March 2023. A larger growth for the public sector was last seen in August to October 2003 (5.7%).

In real terms (adjusted for inflation), growth in total and regular pay fell on the year in January to March 2023, by 3.0% for total pay and by 2.0% for regular pay.

There were 556,000 working days lost because of labour disputes in March 2023, up from 332,000 in February 2023.

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

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

IES Analysis

Another month, another record set for the number of people out of work due to long-term health conditions. At 2.55 million people, the number off work due to ill health has risen by 440 thousand since the start of the pandemic and by 85 thousand in the last quarter alone. At the same time, economic inactivity for every other reason is now falling – with particularly large falls in student numbers and those off for ‘other’ reasons.

This means that despite rises in long-term ill health, economic inactivity overall is down on the quarter and on the year; with this translating into rises in both employment and unemployment (as those previously economically inactive start to look for work).

Vacancies are also down on the quarter, but remain above a million and may start to level off in the next month or two. Vacancies remain strongest in public services, professional services and administrative roles but have fallen further in hospitality and retail. This may point to fewer ‘entry level’ roles for those (re)joining the labour market, and potential risks around mismatches in people’s skills or where they live.

Earnings growth remains strong, at around 7%, with pay growth high in both the public and private sectors. Continued high inflation, however, means that real pay growth remains negative. We may see that change in the next few months if inflation falls back to the extent that some analysts are predicting.

Overall, our view is that today’s figures show that labour demand is continuing to hold up. However, with higher worklessness due to long-term ill health, rising long-term unemployment and widening employment ‘gaps’ for disabled people, older people and young people outside of full-time education, it is hard to escape the conclusion that those who are more disadvantaged in the labour market are being increasingly left behind. This in turn is holding back our economic recovery and undermining living standards.

Sector Response

Chancellor the Exchequer Jeremy Hunt said:

“It’s encouraging that the unemployment rate remains historically low but difficulty in finding staff and rising prices are a worry for many families and businesses. That’s why we must stick to our plan to halve inflation and help families with the cost of living, while delivering our childcare reforms and supporting older people and disabled people who want to work.”

TUC General Secretary Paul Nowak said:

“Workers have lost more than £1,000 from their pay over the last year. But there’s still no end in sight for the longest wages slump in modern history.

“Real wages remain below where they were in 2008, and the already 15-year pay squeeze is set to last another three years, until 2026.

“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 must focus on resolving all of the current pay disputes.

“And they must act now to put money in people’s pockets – starting with giving our public sector workers a real pay rise, boosting the minimum wage to £15 per hour, and ending their attack on the right to strike for better pay and conditions in the Strikes Bill.”

Commenting on the number of people on zero-hours contracts – now 1.13 million, up from 1.02 million this time last year – Paul Nowak added:

“Zero-hours contracts don’t belong in modern Britain. They should be banned along with other outdated and exploitative working practices like fire and rehire.

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

“Instead, 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.”

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

“Real wages have fallen for 11 months in a row, driven by high inflation. Inflation is likely to ease in the months ahead, providing some respite for hard-hit households. But the longer-term picture is that average wages are £11,000 per year lower than if pre-financial crisis trends had continued. To end these lost years, we need to restart growth.

“Rises in employment and falls in economic inactivity are welcome and may indicate an easing of labour shortages. But worryingly the number of people economically inactive due to long-term sickness hit another record high. The UK’s employment rate recovery remains the slowest in the G7. Only one in ten out-of-work disabled and older people get help to find work each year. That needs to change.”

The Minister for Employment, Guy Opperman MP said:

“We’re continuing to see progress in the labour market as we take action across government to grow the economy. Employment is up; economic inactivity is down; and vacancies have fallen in successive quarters.

“As well as helping deliver on our priority to grow the economy, we know that being in work remains the best way for people to get on in life. That’s why I’m focused on matching jobseekers with roles, and businesses with a resilient and skilled workforce. Through partnerships with local employers, we have thousands of placements in sectors such as banking and engineering, helping people to achieve new qualifications and build rewarding careers.”

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

“Today’s jobs data underlines how urgent it is that the Government gets to grips with the long-term sickness challenge facing the UK labour market amidst worker shortages.

“Employers are still struggling to recruit, with vacancies at over a million, despite falling for the tenth consecutive month. Long-term sickness has hit a record at 2.55 million and the number of people opting out of work on the grounds of ill health suggests a radically different approach is needed to boost the UK workforce. Although economic inactivity has fallen by 156,000 on the quarter, this is driven by students entering the jobs market.

“Workers are facing a painful Groundhog Day on pay. For the 16th consecutive month regular pay has fallen – it’s now 2.0% lower on the year as double-digit inflation outpaces any wage increases. This highlights the pressure facing the UK’s six million workers in low paid and insecure jobs, who are being hit hardest as the cost of living continues to bite.

“It’s not too late for the Government to return to its commitment to introduce an Employment Bill that could strengthen job security and guarantee a right to job flexibility on day one. These steps could attract hundreds of thousands of people into work by driving up the quality of jobs on offer, and ensure that more people are better able to balance work and any long-term health condition they may have.”

Neil Carberry, REC Chief Executive, said:

“These figures show some gentle progress on bringing people back to the labour market, and overall employment remains high. But we should be concerned by the high number of people who are economically inactive because they are sick, and progress on tackling inactivity overall is too slow. It is a year, since the ONS reported on high worklessness, labour shortages and high inflation and too little, has changed. This is holding the economy back by constraining companies’ ability to grow.

“There is work for both business and governments to do to address this. Firms can help themselves by taking innovative approaches to how they hire, working with recruitment professionals. They should also be considering their offer on both flexible work and employee engagement as part of a wider recruitment and retention strategy. For governments, tackling the NHS backlog, skills reform, and a sensible approach to immigration for work all matter and should form part of a wider industrial and workforce strategy.

“Other headline data in this release supports the trends identified in our own REC surveys. Vacancies are falling back from post-pandemic highs but remain elevated – while firms are raising pay faster than they have for decades, Even so, high inflation is reducing the impact of these rises for workers.”

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

“The labour market continues to soften but there are still signs of resilience. Vacancies and job-to-job moves continue to decline from peaks but remain 30% and 20% above pre-pandemic levels respectively.The unemployment rate ticked up to 3.9%, driven by long-term unemployment, but remains historically low. 

The strength of the labour market remains a key determinant of how much further the Bank of England will raise interest rates to cool stubbornly high inflation. The Bank expects job losses to remain modest over coming quarters as employers prioritise retention of existing workers. Though the hiring appetite for new staff continues to wane, the labour market remains historically tight with just 1.2 unemployed jobseekers for each vacancy. 

That tight labour market continues to generate strong regular wage growth at 6.7% year-on-year, still uncomfortably high for Threadneedle Street, but after accounting for inflation real wages were down -2.0%. Public sector wage growth picked up to 5.7% y/y, the fastest since 2003, though remains below private sector wage growth at 7.0% y/y. 

Rebalancing is happening on the labour supply side with a record high net flow from inactivity to employment in the first quarter, mainly driven by students entering the workforce. However, inactivity due to long-term sickness hit a new record high. 

After a period in which the labour market has been in candidates’ favour to an unprecedented extent, that’s becoming less the case. Indeed’s survey data shows that jobseekers are now less confident in their ability to find a new job in the next month than at any time since the survey began in July 2021. The recent dip in confidence has been particularly marked among older people over 55 and younger people under 25. With the labour market on course to soften further in the coming months, those wanting to find a new job should take action while there are still plentiful opportunities.”

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

“The stand-out figure in today’s data is another sharp increase in the number of people off work with long-term health conditions, up by nearly a hundred thousand in the last quarter to over 2.5 million people. This is now comfortably the largest number of people out of the labour market due to long-term health problems that we have ever seen. This is being masked to some extent by a fall in overall economic inactivity, which is mainly being driven by big falls in the number of students, with student numbers almost back to where they were before the pandemic. So it looks like those people closer to work are still moving into jobs, while those more disadvantaged in the labour market are getting left behind.

Figures on employment are more mixed, with vacancies edging down again slightly and the latest payroll data from HMRC showing its first fall in over two years. However, this experimental payroll data can be subject to significant revisions, while vacancies remain incredibly high by historic standards. Pay growth is also holding up, in both the private and public sectors now. So it is too early to say whether the labour market is weakening, but our assessment is that there is still very strong demand and that it’s more likely a lack of supply than a lack of demand that is holding back growth.

Given this, there’s still a lot more that we can do to help people out of work to prepare for work and to get back in, and particularly those with long-term health conditions. The announcements at the Budget on this were a start, but will largely only replace provision that is already in place and due to end next year. So we need to see more focus in our existing employment services like Jobcentre Plus and the Restart Scheme on helping these groups, and more investment in the sorts of specialist employment support, occupational health and workplace practices that will make a difference.”

David Morel, CEO, Tiger Recruitment said:

“There are few surprises – and one or two bright spots – in the ONS labour market statistics for January to March 2023.

It is encouraging to see a rise in vacancies in the administrative and support service activities Tiger Recruitment specialises in. With many employers returning to full-time office work, we’re seeing a growing demand for office support staff at the moment, with one change being increased requests for receptionists – a role that declined in popularity during the pandemic.

At a macro level, however, ONS’ data shows that vacancies declined for the 10th consecutive period, albeit they are 282,000 above their pre-pandemic levels, as employers scale back on recruitment amid economic uncertainty.

From a recruitment standpoint, the market feels more stable than it has done since 2020, as employers consolidate and recalibrate. Many went on a hiring spree post-pandemic and hired more people than they needed. We are now seeing more caution as businesses take stock, streamline existing teams to improve efficiencies, and become more discerning in their hiring decisions. Last year, it was a candidate led market, and employers were prepared to hire people who were perhaps 80% right for them. That has crept back to 100%, with employers unwilling to compromise.

That said, despite some easing of the labour market, there are still 1.2 unemployed people per vacancy, as the number of vacancies fell while unemployment rose in the last quarter. So, while businesses are hiring fewer people, finding the right ones isn’t any easier.”

Tina Woods, CEO & Co-Founder of Business for Health, comments:

“Today’s findings from the ONS should come as no surprise to those who have been tracking the UK’s growing health crisis — from an NHS crippled by waiting lists to the steady decline in life satisfaction levels and the rising pressures of the cost-of-living crisis.   The nation’s poor health is creating a drag on the economy now and is compromising economic growth ambitions ahead.

“This should be a watershed moment for business leaders across the country. It is clear that improving employees’ health and wellbeing should be a top investment priority for any business looking to retain existing staff and deliver on long-term growth ambitions. Business leaders and employers can play a key role in promoting prevention, especially in mental health, advocating health equity and tackling health disparities in the workforce.”

“There is a lot that employers can do to create a health and supportive workplace environment. For instance, offering greater flexibility around how, where and when people work or creating peer support networks to enable open discussions around health issues can greatly lift the mood of the workforce.”

“It is clear that the health of UK’s workforce is in critical need of resuscitation — it’s not just a moral obligation, but also a business imperative. Without immediate intervention from both industry and government, we risk calling time of death on the UK economy.”