March 2023
Stephen Evans, chief executive at Learning and Work Institute, said:
There are one million fewer people in the UK workforce than if pre-pandemic trends had continued. While economic inactivity fell ahead of the Government’s ‘back to work’ Budget, this was driven largely by fewer young people studying. Only one in ten out-of-work 50-64-year-olds and disabled people get help to find work each year. That’s got to change if we’re to tackle the UK’s shrinking workforce.
Real earnings fell at their sharpest rates since the global financial crisis, driven by high inflation. This 10-month fall in real wages is the backdrop to tomorrow’s Budget, the Chancellor must act further to help people through the pain. Slowing nominal wage growth in the private sector suggests that wage pressures may not be embedded in the economy, giving room for action.
1. Inflation may have peaked but real earnings remain depressed
The latest data show average regular earnings grew by 6.5% in the year to January 2023. For public sector workers average regular earnings grew by 4.8%, while average regular earnings grew by 7% for private sector workers. However, high inflation means real regular earnings fell by 2.4% (3-month average change) in the year to January 2023. There is now strong evidence that inflation has peaked as CPIH inflation as fallen consistently in recent months, decreasing from 9.6% in October 2022 to 8.8% in January 2023. Core CPIH (excluding energy, food, alcohol and tobacco) fell from 5.8% in October to 5.3% in January. This means we would see some recovery in real wages later this year if nominal wages continue growing at their current rate. However, 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 640,000 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 9.9 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 rather than older people returning to the labour market. But the challenge remains: the number of those aged 16-64 who are economic inactive is 488,000 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 19.3% since the December 2019-February 2020 quarter. Other important contributors to economic inactivity include students, whose numbers have risen by 2.8% since the pandemic. By contrast, the number of individuals inactive due to family / home responsibilities has decreased by 7.7%, 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 8.5% since the start of the pandemic, whilst the number of economically inactive individuals who do want to work has decreased by 3.6%.
4. Industrial action declined substantially in January
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 220,000. As a number of unions have now suspended planned strikes and cost-of-living pressures are starting to ease, it is likely that the recent wave of industrial action has now peaked.
5. Nearly 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, rising from a low point of 7.5% in June – August 2022 to 9.5% 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 985,000 in November 2022 – January 2023, compared with a low 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 Scotland, Yorkshire and Humberside, and the North East, but are lower or the same everywhere else. Economic inactivity this quarter is higher than the equivalent pre-pandemic quarter everywhere except Yorkshire and Humberside, Eastern England, and Scotland. 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.
