Strange Times – What’s Happening in the UK Job Market?

Strange Times – What’s Happening in the UK Job Market?

Nov 02, 2022

The latest UK job numbers present a complicated picture. Job vacancies are falling but labour supply issues remain a challenge, even if there are some encouraging signs that migration is starting to recover.  Here we look at what’s happening, why and what the future may hold…



There appear to be three factors influencing the fall in vacancies over the last quarter:

  1. A continuing increase in non-EU migrants coming into the UK.
  2. The demand from employers is cooling off due to high inflation and economic uncertainties creating a more cautious approach to increasing business costs.
  3. Some commentators believe firms may be hoarding staff they would otherwise have previously let go for fear that they will be unable to hire replacements in future.

What do the latest employment figures tell us?

The most timely estimate of payrolled employees for September 2022 shows another monthly increase, up 69,000 on the revised August 2022 figures, to a record 29.7 million.

The unemployment rate for June to August 2022 decreased by 0.3 percentage points on the quarter to 3.5%, the lowest rate since December to February 1974. The number of people unemployed for between 6 and 12 months increased in the quarter, while there were decreases for the short-term (up to 6 months) and long-term (over 12 months) unemployed. From June to August 2022, the number of unemployed people per vacancy fell to a record low of 0.9.

REC, the Recruitment & Employment Confederation, reported 143,000 new job postings in the week of September 19th – 25th, the least in 2022 so far, bringing the total number of active job alerts to 1.45 million.

“Employer demand is still significant, but a cooling-off is no surprise,” said Neil Carberry, REC Chief Executive. “With inflation high, and employers concerned about the economic picture, some moderation in hiring from the sugar rush of the past year was predictable.”

The Bank of England has tried to rein in inflation by raising interest rates since December last year. It expects unemployment to rise from next year.

Tony Wilson, Director at the Institute for Employment Studies said: “The last time unemployment was this low was Christmas 1973 and Slade had just reached Number 1. But despite this record low unemployment, there are still more than a million unfilled jobs and over half a million more people out of work than before the pandemic began.”

This is being driven in particular by an alarming growth in economic inactivity due to long-term ill health, which is up by 170,000 in the last three months alone and has reached its highest figure in at least three decades (2.49 million).

Louise Murphy, Economist at the Resolution Foundation, said: “A tight labour market is delivering stronger pay growth and reducing unemployment to a near 50-year low. But at the same time, more older workers in particular are leaving the jobs market altogether as inactivity due to long-term ill health reaches a record high of 2.49 million. High inactivity and strengthening pay growth present huge challenges for monetary and fiscal policymakers as they seek to cool inflation, boost growth and put the public finances on a sustainable footing.”

What’s happening to job vacancies?

From July to September 2022, the estimated number of vacancies fell by 46,000 in the quarter to 1,246,000, this is the largest fall in the quarter since June to August 2020. Despite three consecutive quarterly falls, the number of vacancies remains at historically high levels which remain above 1.2 million. There simply are not enough workers for the jobs available.

This is likely contributing to very strong nominal pay growth, which is now running at 6.4% in the private sector but at just 2.4% in the public sector, which is in turn likely to be contributing to rising prices – with services inflation and core inflation (which excludes energy and food costs). Overall, however, this high nominal pay growth is still below the (even higher) rate of inflation, so real pay continues to fall (by 2.8% year-on-year in today’s figures).

Vacancies are continuing to grow in the public sector – likely in part reflecting more people leaving public sector jobs for better-paid work in the private sector, as well as continued struggles to recruit new staff in a highly competitive labour market.

The rise in foreign workers

Britain recorded its biggest rise in foreign workers since the start of the Covid pandemic in the year to June, driven almost entirely by people from outside the EU. The number of EU nationals working in the UK is down more than 6% compared to the 2019 average.

Since January 2021, most EU citizens who want to move here to work must be sponsored by an employer and be paid a salary that doesn’t significantly undercut existing wages. The post-Brexit change put EU workers on the same footing as those from the rest of the world but has been criticised by employers who say the process is bureaucratic and a non-starter for most jobs that pay less than £25,600 a year.

The number of foreign-born workers in the UK rose by 223,000 in the year to the end of June, up from an increase of 184,000 in the year to March and the biggest rise since early 2020, according to the Office for National Statistics. Non-EU workers increased by 189,000 while the number of EU-born workers went up by 34,000 over the past year and totals just under 2.4 million.

The number of non-EU people employed in Britain has increased to 3.9 million from 3.1 million since the Brexit referendum in June 2016.

Pay growth

Growth in average total pay (including bonuses) was 6.0% and growth in regular pay (excluding bonuses) was 5.4% among employees in June to August 2022. This is the strongest growth in regular pay seen outside of the coronavirus (COVID-19) pandemic period. Average regular pay growth was 6.2% for the private sector and 2.2% for the public sector.

The reasons behind economic inactivity

Economic inactivity (the measure of those not in work and either not looking and/ or not available to work) experienced its largest quarterly increase since comparable records began in 1971.

Higher economic inactivity continues to be driven particularly by fewer older people in work – who account for three-quarters of the total rise – and by more people out of work due to long-term health conditions, which has again seen a record quarterly rise and reached its highest level in at least thirty years (at 2.49 million).

However, economic inactivity due to caring for family and home is also rising after three decades of sustained falls, which may well reflect more parents (and particularly single parents) struggling to find or stay in work; while student numbers are rising again, and the number of people citing early retirement has also edged up. So overall the labour force is contracting in many different ways and is now half a million smaller than it was before the pandemic.

Alun Baker, CEO of wellbeing and performance expert GoodShape: “The health of UK employees is getting worse. The amount of time people take off work each year, due to ill health has increased 51% in the last five years, from around four days in 2017 to just over six days in 2021. And on average, 1% more of the country’s workers (350,000 people) are absent from work at any time now compared to five years ago. Staggeringly, more than five in ten people who take two mental health-related absences will go on to leave their job. All of that absence adds up to billions in costs to UK businesses.

What does the future hold?

At the time of writing, inflation was running at 10.1%, causing employers to be hesitant about increasing headcounts amid a climate of rising costs and the need to increase prices/reduce margins.

The Bank of England’s official forecasts point to a material increase in the unemployment rate over the next couple of years, but policymakers will be looking for signs that firms are ‘hoarding’ staff even where margins are squeezed, amid concerns about their ability to rehire again in the future.

Whilst Brexit and the pandemic continues to have an effect, there is clearly a continuing need for the UK to facilitate the immigration of appropriate overseas workers where we have skills gaps.

Needless to say, it’s a complex picture for hirers and workers alike.

*Sources: ING Bank, GoodShape, Resolution Foundation, Institute for Employment Studies, Reuters, ONS.

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