Experts have cautioned that the UK’s labor market, which has been robust since the economy began to recover from the epidemic, may be turning.
Even while the unemployment rate fell to 3.6% in the three months leading up to July – the lowest level since 1974 – both the employment rate and the number of job openings decreased.
In addition, regular income increases are not keeping pace with escalating living expenses.
“The employment surge that began six months after the outbreak is likely to stop soon,” the CEO of Reed stated.
James Reed, chairman of the recruitment firm, stated on the BBC’s Today program, “There are still a huge number of vacancies and individuals are still advertising a lot of positions, which is why unemployment continues to decline.
“The question is what will occur next? Will there be a labor shortage? Clearly, this is a problem, but our current data does not indicate this, as we still have a huge number of vacancies and many firms are still battling to recruit.”
The Office of National Statistics (ONS) reported that the inactivity rate jumped to 21.7%, the highest level since 2017 and a contributing factor to the decline in the jobless rate.
The inflation-adjusted value of regular pay decreased by 2.8%, according to the ONS, as regular pay increases lagged behind inflation.
Inflation, a measure of price increases, continues at a 40-year high of 10.1%, and the newest figure, expected to be released on Wednesday, is anticipated to be even higher.
According to ONS data, the gap between private and public sector wage increases continued to widen.
According to the ONS, the average regular pay rise for the private sector from May to July was 6%, compared to 2% for the public sector. This is the biggest disparity between the private and public sectors outside of the pandemic period.
Despite the unemployment rate reaching its lowest level in 48 years, other indicators indicated that the labor market may be beginning to shift.
The number of job openings decreased by 34,000 between June and August, the largest decrease in two years, although the overall number of openings remains historically high.
Additionally, the employment rate decreased to 75.4%, a slight down from the prior three-month period.
According to the EY Item Club, the decline in the unemployment rate hid some deterioration in the labor market.
“The decrease in unemployment masked a modest 40,000 increase in employment, the weakest increase since January to March,” said Martin Beck, chief economic consultant for the EY Item Club. Beck attributed the decline in unemployment to an increase in inactivity.
“Additionally, the month-to-month data revealed that the number of employed declined in July by the highest amount since January 2021. This indicates that the sluggish economy is beginning to negatively impact the job market.”
While the headline employment statistics remain positive, with the unemployment rate at its lowest level in nearly half a century and long-term unemployment falling, there are indications of a shift.
Firstly, the lower unemployment rate is not a result of a jobs boom, but rather a result of fewer individuals actively looking for work. This, according to the most recent estimates, is a result of record numbers of long-term sick, which may have an economic impact.
Thus, the most recent employment figures continue to offer a bright lining amidst some economic gloom, while other factors reflect broader cost-of-living challenges.
Despite some strong cash-term pay growth, real pay continues to fall substantially, notably for public sector workers. Despite a slowing economy, vacancies remain high. Labor shortages are limiting firms, and in particular, could imply inflation remains higher for longer.
There is one unemployed person for every job opening, a record low, and the vacancies are not being filled, but this must change if the government wishes to “go for growth.”
Rob Sutton founded RKW, the largest producer, distributor, and designer of small household appliances in the United Kingdom.
He employs 500 employees in Stoke-on-Trent, West Midlands, and his salary cost has increased by almost £2.5 million over the past two years.
“We need to assess our wage costs every month due to the rapid rate of change,” he said.
“It has been an absolute disaster, since we have had to increase [wages] constantly, causing all of our costs to rise and nothing to decrease at the moment.
His firm is booming and he is attempting to hire more employees, but it has proven difficult.
“We have approximately 20 open positions that we cannot fill,” he says.
“There have been instances where recruitment agencies have come onto our parking lot, where our employees are parked and placed letters on the windshields stating, ‘We will pay you £1,000 to join our company,’ in an attempt to lure them away, as there has been a severe shortage of order pickers and warehouse workers.
This is primarily due to the departure of many European workers before Covid.
Labor deficits
Companies have warned that the tight labor market is having negative effects.
The British Chambers of Commerce’s Jane Gratton remarked, “As businesses struggle to stay afloat during a period of spiraling expenses, they also face an extraordinarily tight labor market, which hinders their ability to invest and expand.”
During an era of rising inflation and sluggish economic growth, we cannot allow recruitment issues to further impede growth.
Tony Wilson, the head of the Institute for Employment Studies, also cautioned that “companies cannot find workers to complete their positions.”
This is stifling growth and pushing up inflation, with private sector wage growth currently exceeding 6% and adding to even higher prices.
