October Labour Market 2023: Sector Response

Labour market continued to cool over the summer – but data quality problems make it harder to make crucial decisions on interest rates and inactivity  

The estimate of payrolled employees in the UK for September 2023 is largely unchanged on the month, down 11,000 on the revised August 2023 figure, to 30.1 million. The September 2023 estimate should be treated as a provisional estimate and is likely to be revised when more data are received next month.

UK payrolled employee growth for August 2023 compared with July 2023 has been revised from a decrease of 1,000 reported in the last bulletin to a decrease of 8,000.

Because of the increased uncertainty around the Labour Force Survey (LFS) estimates, today we are publishing an alternative series of estimates of UK employment, unemployment, and economic inactivity as experimental statistics. The experimental figures were derived using growth rates from Pay as You Earn Real-Time Information and the Claimant Count for the periods from May to July 2023 onwards. This is to provide a more holistic view of the state of the labour market while the LFS estimates are uncertain. Unadjusted June to August LFS data are not published. 

Experimental estimates for June to August 2023 show a 0.3 percentage point decrease in the UK employment rate to 75.7% compared with the previous quarter (March to May 2023).

Experimental estimates for June to August 2023 show a 0.2 percentage point increase in the UK unemployment rate to 4.2% compared with the previous quarter (March to May 2023).

Experimental estimates for June to August 2023 show a 0.1 percentage point increase in the UK economic inactivity rate to 20.9% compared with the previous quarter (March to May 2023).

In July to September 2023, the estimated number of vacancies in the UK fell by 43,000 on the quarter to 988,000. Vacancies fell on the quarter for the 15th consecutive period, with vacancies falling in 14 of the 18 industry sectors. 

Annual growth in regular pay (excluding bonuses) in Great Britain was 7.8% in June to August 2023, similar to recent periods and one of the highest regular annual growth rates since comparable records began in 2001. Annual growth in employees’ average total pay (including bonuses) was 8.1%. This total annual growth rate is affected by the NHS and Civil Service one-off payments made in June, July, and August 2023. In real terms (adjusted for inflation using Consumer Prices Index including owner occupier’s housing costs (CPIH)), annual growth for total pay rose on the year by 1.3%, and regular pay rose on the year by 1.1%.

There were 119,000 working days lost because of labour disputes across the UK in August 2023. The majority of the strikes were in the health and social work sector.

Read more here.

Or read last month’s labour market information here.

Resolution Foundation Response

Delayed labour market data showed that the labour market continued to cool over the summer, with unemployment up and employment down. However, the poor quality of this data will hamper key decisions, including the Bank of England’s on interest rates and the Government’s on labour market inactivity, the Resolution Foundation said today (Tuesday).

The latest ONS labour market data, which combines today’s Labour Force Survey (LFS) with last week’s PAYE data from HMRC and claimant count data from the DWP, showed that in the three months to September employment was down 0.3 percentage points on the previous quarter, while unemployment was up 0.2 percentage points and economic inactivity up 0.1 percentage points.

The new data did not however tell us much about how unemployment or employment had changed over the past year, or whether inactivity due to ill-health – a trend that the March Budget focused on tackling – has continued rising. The new data lacks detail about which groups are being affected by unemployment or sickness. We also don’t know whether employment hasn’t risen at all in levels terms since the pandemic, as the old LFS showed, or whether it’s risen by one million, as other data sources show.

The Foundation notes that the poor quality of the data, which is likely to continue until next Spring, presents a real problem for policy makers – for example the Monetary Policy Committee in the Bank of England – as they have to make key judgement without being fully informed of the health of the UK labour market.

IES Analysis

Today was meant to see publication of the latest labour market statistics from the Labour Force Survey. Unfortunately however, issues with the reliability of the survey mean that instead only three figures were published: experimental estimates of employment, unemployment and economic inactivity which have been derived instead from administrative data from the tax and benefits system. Given the unavailability of any underlying data on labour force activity for different groups, we will therefore not be producing our usual briefing and analysis.

The issues with the reliability of the Labour Force Survey have been building for some time, with response rates to the survey having declined significantly in recent years – from an average of nearly 50% of surveyed households a decade ago to under 15% in the most recent data. This accelerated with the pandemic, as the first wave of the survey moved from being face-to-face to telephone-based. Falling response rates in themselves are not necessarily a problem, as long as samples are big enough and we know enough about the people who do not reply (so that responses can be weighted properly). However it seems that the scale of recent falls and the impact of the shift to phone-based interviewing has made it impossible to produce reliable, weighted estimates based on the dwindling numbers of people who do complete the survey.

The ONS deserves credit for the work that they have done to try to address these issues in recent years, with extensive changes to how data is weighted and also a doubling of the number of households contacted in order to boost sample sizes. However, it appears that these efforts ultimately have not been successful. As a result we are left in the very unsatisfactory position of not being able to use Labour Force Survey data at all, at least for the time being.

As noted, the figures that have been published today appear to be based on the most recent LFS data, then rolled forward and adjusted based on changes in estimates of employee jobs from HMRC data and changes in unemployed benefit claimants from Universal Credit and Jobseeker’s Allowance systems. All of these data sources have had their own issues in the recent past, but in as far as they can tell us anything, they suggest that the overall labour market picture is broadly unchanged on recent months: with employment still a bit below where it was before the pandemic, unemployment and economic inactivity both a bit higher, and signs that things may have weakened slightly in the last few months.

Looking forward, it is not yet clear whether LFS data will be published again. If it is not, then we may not need to wait too long for a decent replacement, as thankfully the ONS has also been working on a replacement, ‘Transformed’ LFS which uses a combination of online, telephone and face-to-face collection. The ONS intends to start publishing findings from this in early 2024. However given the importance of having a full understanding of what is happening in the labour market, we would hope that they will be exploring the scope to bring these plans forward – even on an experimental basis.

Finally, it is important to note that other data on the labour market continues to be published as normal, including on earnings and on vacancies – on which Tony Wilson published a short thread last week and data from HMRC and Universal Credit systems.

Sector Response

Secretary of State for Work and Pensions, Mel Stride MP said: 

“There are more than one million more people on company payrolls compared to 2019, a near record high, and today’s statistics also show inactivity has fallen by over a quarter of a million since the pandemic peak.

“Growing the economy is our priority. That’s why we are bearing down on inflation and bringing in the next generation of welfare reforms to drive down inactivity and help more people into work.”

Background

• Payroll employment is close to a record high at 30.1 million – 370,000 higher than this time last year and 1.1m higher than before the pandemic.
• There are 3.9 million more people in work than in 2010.
• The unemployment rate is below many of our international peers, including Canada, France and Spain. Long-term unemployment continues to fall, down over 10% on the year and over 60% since 2010.
• Economic inactivity has fallen by over a quarter of a million since the pandemic peak and is lower than the average for the G7, the EU and the OECD.

Neil Carberry, REC Chief Executive, said:

“Throughout 2023, the jobs market has been normalising after the post-pandemic boom. While vacancies are dropping, they remain above their levels of 2019. But sector demand is varying widely, and workers are facing having to make more transitions to new areas to find new roles. This transition is a primary driver of rising unemployment – though it is still low by historic standards.

“With pay growth at levels not seen for many years, firms will be concerned at the prospect of having to find resources for a second year of significant wage settlements, given low economic growth this year. Businesses can ensure they get the best outcome by ensuring they use their whole benefits package and workplace culture to attract and retain staff, taking advice from their professional recruiters.”  

On data issues, Neil Carberry said:

“We should be careful about drawing conclusions from this experimental data set, which may be prone to fluctuations as it develops. The Labour Force Survey remains the best official monthly guide to the performance of the jobs market, and it is essential that ONS resolves concerns about it as quickly as possible.”

Neil Carberry added:

“We know from recent ONS data that economic inactivity is an issue for 16 to 24 years old, who can fall out of education and not find work quickly. We need better and more fixed pipelines into work for young people to land them in what remains a welcoming jobs market. Reforming the flawed Apprenticeship Levy, to reverse the trend away from young apprenticeships and improving accessibility for those who do not have the same employer for a year and thereby lose access, like the 960,000 temporary workers currently ineligible, would be a big step forward.”

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

“Today’s new labour market data from the ONS seeks to address increased uncertainty around the accuracy of the Labour Force Survey, and so features experimental data derived from Pay as You Earn Real-Time Information and Claimant Count data.

“This makes direct comparisons with previous months challenging, but nevertheless the overall trend appears to show the labour market cooling as the post-Covid jobs recovery slows.

“Experimental data shows employment has fallen to 75.7% with unemployment rising to 4.2% and vacancies down for the 15th consecutive month. This points to a falling demand for workers which is likely to dampen pay growth in the coming months. Experimental estimates for economic inactivity suggest it has risen by 0.1% to 20.9% on the quarter.

“Policy-makers were already facing difficult decisions as we head towards the King’s Speech and Autumn Statement, but need access to the best quality data to make sure any changes in policy support workers and employers still struggling with the cost of living crisis.”

“Even though there is uncertainty regarding elements of labour market data, the overall picture still underlines the importance of Government boosting skills training and providing more tailored support for jobseekers with different needs.”

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

“The employment rate is estimated to be flat at 75.7% using a new approach that uses administrative data like the number of payrolled employees to adjust Labour Force Survey estimates affected by falling survey response rates. This is ahead of a new Labour Force Survey being rolled out in 2024.

“The new estimates should be treated with caution but add to the picture from other data of a softening labour market, with vacancies dipping below one million for the first time since 2021. Meanwhile, last week’s data showed earnings growing slightly faster than inflation but still £12,000 a year lower than if pre-financial crisis trends had continued.”

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

“Today’s Labour Market Statistics release was delayed by a week but sadly not worth waiting for. Problems with falling response rates in the main Labour Force Survey mean that the Office for National Statistics was not able to publish official estimates at all today. Instead, a new ‘experimental’ series has been released, providing estimates of employment, unemployment and ‘economic inactivity’ based on tax and benefit records.

“These data sources have themselves had their issues over the years, so it is not a good sign that they are now considered more reliable than the official survey. In as far as the three figures published tell us anything at all, they suggest that the overall labour market picture is broadly unchanged in recent months: with employment still below where it was before the pandemic, unemployment and economic inactivity both a bit higher, and signs that things may have weakened a bit in the last few months.

“Hopefully normal service will be resumed in the coming months, otherwise we may need to wait until next spring’s ‘transformed’ Labour Force Survey before we start to get a better idea of what is going on.”

TUC General Secretary Paul Nowak said:  

“The red warning lights are still flashing.

“Our labour market is deteriorating with unemployment up by 74,000 over the last quarter and employment falling across the majority of UK industries.

“People will rightly be worried about their jobs – with many companies considering cutting back.

“We can’t go on like this. The Conservatives’ lack of a credible economic plan is destroying business confidence and sucking the life out of our economy.

“Working people deserve much better.”

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

“Today’s data showed that the labour market continued to cool over the summer, with employment falling and unemployment rising.

“But equally worrying is the state of the data, which makes it harder to assess the true health of the labour market. We still don’t know whether employment has failed to grown since the pandemic, or risen by one million.

“This is particularly worrying for both the Chancellor as he prepares his Autumn Statement, and the Bank of England as they make crucial decisions in the coming months over whether to raise, hold or cut interest rates.”

Rosalind Gill, Head of Policy and Engagement at NCUB said:

“UK ambition to scale up innovation and meet the national challenges outlined at the Conservative Party Conference cannot be met with the current skills gaps across the economy. Action is needed to address this gap, anticipate skills needs and build a workforce fit for the future. Indeed, recent data further underscores the urgency of the situation, revealing that there were 988,000 vacancies, in July to September 2023. This highlights the severity of skills gaps and mismatches that specific sectors in the UK are grappling with.”

Gill concluded: “To help cope with this, we are urging the Government to create a new body to tackle the current skills crisis, proactively address future skill demands, and cultivate a workforce ready for the upcoming challenges. Since the dissolution of the UK Skills and Employment Commission in 2017, the UK has lacked a national body dedicated to gathering labour market intelligence to guide policy making. This new body will be vital for businesses, universities and the Government alike, to better understand the labour market needs.”