July 2023
Stephen Evans, chief executive at Learning and Work Institute, said:
The cost of living crisis continues to hit those on lower incomes hardest. Average regular wages grew by 7.3%, but those in higher paid sectors saw the biggest increases. Wages grew by 9% for those working in finance and business services, compared to 5% for people working in retail and hospitality.
There was a further welcome rise in employment and fall in economic inactivity. But there are still 245,000 people fewer in work than if the employment rate had stayed at pre-pandemic levels. Only one in ten out-of-work disabled and older people gets help to find work each year. We need a strategy to increase employment, grow our economy and raise incomes for those with the lowest incomes.
Helen Gray, chief economist at Learning and Work Institute, said:
The gap between inflation and pay rises is finally starting to close, with average regular pay dropping by 0.8% in real terms in May 2023, when nominal pay increased by 7.3%. Strike action is also starting to abate and May saw the lowest number of working days lost to industrial action since July 2022. Inflationary pressures from the relatively low number of unemployed people per vacancy remain however. This hit a record low this century in the Jun-Aug 2022 quarter and although on the increase now, is likely to continue to exert upward pressure on wages while those who left the labour market during the pandemic remain economically inactive.
1. The scale of real wage reductions is falling as inflation declines
The latest data show average regular earnings grew by 7.3% in the year to May 2023. For public sector workers average regular earnings grew by 5.8%, while average regular earnings grew by 7.7% for private sector workers. Declining inflation means real regular earnings fell by only 0.8% (3-month average change) in the year to May 2023, with the single month data for April showing a similar decline of 0.7% in the year to May 2023. Inflation increased slightly in May – CPIH increased from 7.8% in April to 7.9% in May. Core CPIH (excluding energy, food, alcohol and tobacco) rose for the third successive month, from 6.2% in April to 6.5% in May. Also, inflation in areas like food and non-alcoholic beverages is still very high. The UK remains an inflation outlier, as inflation continues to fall across all other advanced economies. The United States is currently experiencing an inflation rate of 4.1% while the Eurozone average is currently 6.1%. In Spain, inflation has even returned below target, as the Spanish CPI inflation rate recently fell to 1.9%, below the European Central Bank’s 2% target.
2. There are fewer potential workers for employers to recruit, with 522,000 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 7.6% since the pandemic started.
Economic inactivity fell again in the most recent quarter, but the number of those aged 16-64 who are economically inactive remains 281,000 higher than pre-pandemic. Despite this, only one in ten out-of-work people who are older or have a disability 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 19.5% since the December 2019–February 2020 quarter. Other important contributors to the increased level of economic inactivity include students, whose numbers have risen by 3.2% since the start of the pandemic. By contrast, the number of individuals inactive due to family / home responsibilities has decreased by 11.8%, and the number of individuals who are retired has decreased by 4.0% over the same period. The number of economically inactive individuals who do not want to work has increased by 6.5% since the start of the pandemic, while the number of economically inactive individuals who do want to work has decreased by 7.7%. However the number of discouraged workers (those who are not looking for work because they believe no jobs are available) has decreased by nearly 30% since the start of the pandemic.
4. The number of working days lost to industrial action is declining, but remains relatively high in comparison to recent decades
December saw the highest level of industrial action in over 11 years, with 829,000 working days lost. In March, the number of days lost due to industrial action stood at 553,000, which decreased to 316,000 in April and fell again to 128,000 in May, the lowest level since July 2022. Over the past six months 2.37 million working days have been lost to industrial action. Sustained industrial disputes on this scale have not been seen since the late 1980s.
5. The employment picture varies across the country
Employment rates this quarter are higher than the equivalent quarter in 2020 in the North East, Yorkshire and the Humber, West Midlands, Scotland, and Northern Ireland, and are the same in the South East, but lower everywhere else. The largest increase was seen in Yorkshire and the Humber while the largest decrease was seen in Wales. Economic inactivity this quarter is higher than the equivalent pre-pandemic quarter everywhere except Yorkshire and the Humber, the West Midlands, Eastern England, the South East, Scotland and Northern Ireland. Yorkshire and the Humber saw the largest decline in economic inactivity, while the largest increase was seen in the East Midlands. 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.
