February 2022
Stephen Evans, Chief Executive at Learning and Work Institute, said:
The cost of living crisis is setting in, with real wages falling in the last quarter of 2021. This is only likely to worsen with current inflation and rising energy prices - the Government must do far more to help protect living standards.
Meanwhile, the recruitment crisis continues. The Government’s Way to Work initiative is focused on the wrong problem and it should instead do more to help the 1.1 million fewer people in the labour market than on pre-pandemic trends, driven by rising numbers of people who are long-term sick. This shortage of workers is making recruitment difficult and means employment is still almost 600,000 lower than pre-pandemic despite record vacancies. We need a new Plan for Jobs, Growth and Living Standards.
1. The labour market continues to recover, though employment remains below pre-pandemic levels
Employment fell by 38,000 in October to December 2021 compared to the previous quarter and remains 588,000 lower than before the pandemic. The timelier but less comprehensive measure of PAYE employees increased by 108,000 in January 2022 compared to the previous month and is 436,000 above its pre-pandemic level. Unemployment fell by a further 74000, but economic inactivity has risen and is now 394,000 higher than pre-pandemic. The single month data for December 2021 look more positive, but we should be wary of putting too much weight on a single month’s figures.
The number of vacancies in the ONS vacancy survey remains at record levels. The number of online postings supplied to Adzuna has recovered after the usual Christmas drop and it is 24% above the same week in 2019.
2. A lower economic activity rate means fewer potential workers for employers to recruit
Our analysis shows there are 1.1 million fewer economically active people (either employed or unemployed) than if pre-pandemic trends had continued. Around one third is the result of a lower population, two thirds due to people stopping looking for work (growth in economic inactivity).
The number of economically active people fell during the pandemic, partly due to lower vacancies, health concerns and economic restrictions. Worryingly, economic inactivity is now rising again, after falling in the second half of 2021. This helps to explain the difficulty some employers are reporting in filling vacancies – there are fewer people looking for or available for work. The 2.3 million people economically inactive due to long-term sickness or disability, up 8.8% in the last six months, should be a key focus.
In addition, the number of people claiming unemployment-related benefits remains 466,000 above the survey measure of unemployment, despite a fall of 31,900 in January 2022 compared to the previous month. It is important that Jobcentre Plus engage with all of those on out-of-work benefits to ensure their status is recorded correctly and everyone who wants to work gets help to find a job.
3. Prices rose faster than wages in December, suggesting a cost of living crunch was already underway and is likely to worsen
The latest data show average earnings grew by 4.9% in the year to December 2021. With the Consumer Price Index rising by 5.4% in the year to December 2021, this means that real wages fell in December. While HMRC data suggest a faster growth in earnings in the year to January 2022, this is affected by the picture in January 2021 including the impact of furlough. Rising energy prices and inflation in early 2022 and the planned rise in National Insurance mean real wages may fall further in the months ahead.
Care should be attached in interpreting average earnings data. It has been affected through the pandemic by the impact of the furlough scheme and also changes in employment (for example, lower paid workers were more likely to lose their jobs). However, this picture certainly suggests talk in some quarters of the risk of a wage-price spiral is some way off the mark.
4. 2 million people started a new job in the last three months of 2021, showing a dynamic labour market
Flows between employment, unemployment and economic inactivity were all at high levels in the last quarter of 2021, as the economy rebounded after various lockdowns. 2.0 million people started new jobs in that period, showing the amount of change in the labour market. .
Most newly unemployed people find work quickly, suggesting the Government’s Way to Work Initiative (which aims to increase the number of newly unemployed people finding work), is aimed at the wrong challenge. The bigger challenge is further increasing the number of economically inactive people finding work.
5. Long-term unemployment remains above pre-pandemic levels, but it’s good news that it’s falling for both young people and older adults
Long-term unemployment is a particular concern as it reduces people’s chances of finding work and can reduce their health and wellbeing.
Long-term unemployment rose significantly through the pandemic. It has fallen recently for young people and is just 3,000 higher than pre-pandemic. There are 84,000 more people aged 25 and over out of work for 12 months or more than before the pandemic (Dec 19-Feb 20), though this is now falling (either due to people finding work or moving into economic inactivity).
The number of young people staying in full-time education has risen through the pandemic. However, around 900,000 young people are not in employment or full-time education, up on the lows seen in summer 2021 but down on pre-pandemic levels. Overall, support for young people remains too disjointed: we argue for a Youth Guarantee to offer all 16-24 year olds a job, training place or apprenticeship.
