April 2023
Helen Gray, chief economist at Learning and Work Institute, said:
Real regular pay excluding bonuses fell by 2.3% in the year to February 2023. In nominal terms, regular pay growth in the private sector continues to outpace that seen in the public sector, although the gap has been closing in recent months. Upward pressure on pay continues to be felt due to increases in the cost-of-living, industrial disputes and the fact that 422,000 more people of working age are economically inactive compared with before the Pandemic.
In February 348,000 working days were lost to industrial action. Whilst this represents a fall compared with the most recent peak of 826,000 days in December 2022, ongoing disputes in some sectors, including health and teaching, have the potential to undermine the prospects for economic growth over the coming months.
1. Real earnings continue to decline as inflation increased in February
The latest data show average regular earnings grew by 6.6% in the year to February 2023. For public sector workers average regular earnings grew by 5.3%, while average regular earnings grew by 6.9% for private sector workers. However, high inflation means real regular earnings fell by 2.3% (3-month average change) in the year to February 2023. Inflation increased in February, breaking a 3-month trend of falling inflation seen from October 2022 to January 2023. CPIH rose from 8.8% in January to 9.2% in February. Core CPIH (excluding energy, food, alcohol and tobacco) also increased from 5.3% in January to 5.7% in February. The UK has become something of an outlier, suffering from persistently high inflation, compared with other advanced economies such as the United States, Germany or France. Weak growth since the global financial crisis means average earnings are around £11,000 per year lower than if pre-crisis trends had continued.
2. There are fewer potential workers for employers to recruit, with 552,000 fewer over 50s in the labour market since the pandemic started
Recruitment is more challenging for employers because of rises in economic inactivity – people leaving the labour market. This has been primarily driven by those aged 50 and over and people with long-term health problems and disabilities. The number of people aged 50-64 who are economically inactive has increased by 9.2% since the pandemic started.
Economic inactivity fell in the most recent quarter, though driven more by falls in the number of young people in education than older people returning to the labour market. But the challenge remains: the number of those aged 16-64 who are economic inactive is 422,000 higher than pre-pandemic, yet only one in ten out-of-work older people and disabled people get employment support each year. The Government needs to extend employment support to more people outside the labour market and employers need to think about recruitment and job design to attract and retain staff.
3. Current levels of economic activity have many causes
Post-pandemic increases in economic inactivity have been heavily influenced by the numbers of individuals inactive due to long-term health problems, which have increased by 19.6% since the December 2019–February 2020 quarter. Other important contributors to economic inactivity include students, whose numbers have risen by 2.2% since the start of the pandemic. By contrast, the number of individuals inactive due to family / home responsibilities has decreased by 9.1%, and the number of individuals who are retired has decreased by 1.1% over the same period. The number of economically inactive individuals who do not want to work has increased by 7.5% since the start of the pandemic, whilst the number of economically inactive individuals who do want to work has decreased by 3.7%.
4. Industrial action increased in February
December saw the highest level of industrial action in over 11 years, with 822,000 working days lost. In January, the number of days lost due to industrial action stood at 210,000, which increased to 348,000 in February. As a number of unions have suspended planned strikes, it is likely that the recent wave of industrial action has peaked, although ongoing disputes in the health and education sectors continue to have an impact on prospects for economic growth.
5. Over one million young people are not in either employment or full-time education
Over the past few months, the unemployment rate for young people aged 18-24 has begun to rise, from a low point of 7.5% in June–August 2022 to 10.0% in the latest quarter. The number of young people aged 16-24 not in employment or full-time education has also increased in recent months, to 1,014,000 in December 2022–February 2023, compared with a low point of 820,000 in June–August 2022.
6. The employment picture varies across the country
Employment rates this quarter are higher than the equivalent pre-pandemic quarter in 2019 in the North East, Yorkshire and the Humber, Eastern England, the South West, and Scotland, but are lower everywhere else. Economic inactivity this quarter is higher than the equivalent pre-pandemic quarter everywhere except Yorkshire and the Humber and Eastern England. This varying picture, which is even greater at sub-regional level, shows the importance of tackling inequalities so everyone has a fair chance in life wherever they live.
