July 2022
Stephen Evans, Chief Executive of Learning and Work Institute, said:
On the cost of living rises
The cost of living crisis is laid bare today as real regular pay saw its biggest quarterly fall on record dating back to the start of the century, seeing a drop of 2.8% from March to May 2022. With energy bills set to rocket further in the autumn, this must be top of the new Prime Minister’s in-tray. But the crisis is being felt unevenly with larger pay rises in sectors like finance, up 6.2%, while the public sector saw the lowest pay rises, at 1.9% - much lower than inflation. With public sector pay bodies set to report shortly, this highlights the need for action to tackle recruitment and retention challenges in our public services.
On the recruitment crunch
The UK has seen the biggest drop in its employment rate of the major G7 economies, driven by an exodus of over 50s from the workforce. Despite a welcome fall in economic inactivity of 144,000 in the last quarter, it’s still up 360,000 since the start of the pandemic. There are now twice as many people economically inactive due to sickness as there are unemployed people. This helps explain why, despite employment still being down, employers are struggling to find enough staff.
Our recent report showed other countries recovering quicker than the UK. The Government should review and reinvest the £2 billion underspend from its Plan for Jobs into a new plan to re-engage the thousands of people who left the workforce through the pandemic.
On workless young people
Every young person deserves the chance to make the most of their talents, so supporting the hundreds of thousands of young people locked out of the jobs market must be a social justice priority. It’s also an economic imperative, given employers are hiring at record levels but still struggling to fill all their roles. Today’s figures show that, despite recent recovery, there are still 624,000 16-24 year olds who are not in full-time education but are economically inactive. With record vacancies, we need to tackle the issues uncovered by today’s research to boost growth, improve our public finances, and help every young person reach their full potential.
We continue to call on the Government to work with partners to urgently roll-out a ‘Youth Guarantee’ to support all young people to access a job, apprenticeship, or a high quality training opportunity.
1. The cost of living is still outpacing wages, with rising inflation meaning we saw the biggest quarterly drop in real regular earnings this century
The latest data show average regular earnings grew by 4.3% in the year to May 2022, though bonuses for some pushed headline earnings growth up by 6.2%. With the Consumer Price Index rising by 9.1% in the year to May 2022, this means that real regular earnings have fallen over the year and are now back at pre-pandemic levels. In May, regular pay in real terms fell by -2.9%. The cost of living crisis is likely to deepen even further in the months ahead, with the Bank of England forecasting inflation to rise to around 11% this year.
2. Employment rose last month, but remains 210,000 lower than pre-pandemic due largely to people leaving the labour market
Employment rose by 296,000 in March to May 2022 compared to the previous quarter but remains 210,000 lower than before the pandemic. The timelier but less comprehensive measure of PAYE employees increased by 30,733 in June 2022 compared to the previous month and is 561,419 above its pre-pandemic level.
Unemployment fell by 12,000 in March to May 2022 compared to the previous quarter, but short-term unemployment (under 6 months) rose by 65,000 compared to the previous quarter, with approximately 12% of that rise being 18-24 year olds. The monthly estimate (rather than the quarterly one) shows a larger fall in unemployment. Economic inactivity fell by 144,000 compared to the previous quarter but is still 378,000 higher than pre-pandemic. Inactivity among the long term sick and disabled and those looking after family decreased compared to the previous quarter, though remains substantially up on pre-pandemic levels.
3. There are fewer potential workers for employers to recruit, with 524,000 over 50s leaving the labour market since the pandemic started
Rises in economic inactivity have been primarily driven by those aged 50 and over and people with long-term health problems and disabilities. There are 2.32 million people economically inactive due to long-term sickness or disability, up 4.87% in the last year.
In addition, the number of people claiming unemployment-related benefits remains 264,000above the survey measure of unemployment, despite a fall of 20,000 in June 2022 compared to the previous month.
The UK’s employment rate is still 0.7 percentage points below its pre-pandemic levels. Yet hiring and vacancies have been at record highs. The difference is explained by slower growth in the workforce – there are just under one million fewer workers than if pre-pandemic trends had continued – in particular due to people leaving the workforce, particularly the over 50s (up 8% since the pandemic started) and people with long-term sickness (up 10%). There are now 1.8 times as many people economically inactive due to sickness as there are unemployed people.
Our recent report shows the UK is an international outlier, seeing the biggest drops in over 50s in the workforce of ten major countries studied. The Government should reinvest the £2 billion underspend from the Plan for Jobs to support the over 50s and people who have left the workforce to help ease the current recruitment crunch. Employers too need to think about how they recruit, with many over 50s open to returning to work if the right job is available and they can work flexibly.
4. Inactivity among young people continues to rise, driven by mental health and confidence barriers
There are 905,000 (13.3%) young people not in employment or full-time education, up on the lows seen in summer 2021 but down on pre-pandemic levels. There has been a rise of 21% in young people in education taking up work since last year, and it’s good news that youth unemployment and long-term unemployment are at record lows. However, the number of young people economically inactive and not in full time education (624,000 or 9.1% of young people) is 123,000 above its’ 501,000 minimum (November-January 1999).
Our new research with The Prince’s Trust, supported by HSBC UK, shows that, underneath the substantial decline in the proportion of young people who are NEET since 2008, economic inactivity represents 54% of young people who are NEET compared to 41% in 2011. This has been driven by a gradual but continual increase over the past ten years in the proportion of young people who are economically inactive due to sickness or disability or who are inactive for ‘other’ reasons. Tackling this rise is crucial in reducing the overall numbers of young people who are NEET.
To help every young person reach their full potential, the Government should work with partners to urgently roll-out a ‘Youth Guarantee’ to support all young people to access a job, apprenticeship, or a high quality training opportunity.
5. The employment picture varies across the country
Employment rates are now higher in the North East, Yorkshire and the Humber, the West Midlands, London than pre-pandemic 2019 levels, but remain lower in other regions and countries. Economic inactivity is highest in Northern Ireland and the North East, and lowest in the South East, South West, 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.
