September 2022
Stephen Evans, Chief Executive of Learning and Work Institute, said:
Real wages continued to fall sharply, driven by high inflation. Capping energy prices at £2,500 per year for an average household will help. But further support is likely to needed for households with the lowest incomes, who tend to spend the highest proportions of their incomes on essentials like energy.
The labour market is showing signs of flattening, with the employment rate down and economic inactivity rate up, particularly due to rises in the number people with long-term health problems leaving the labour market. There are still 300,000 fewer people in work than before the pandemic, again highlighting the need to extend support to find work to all those that want a job, which is currently restricted mostly to those who are unemployed and on benefits. That should form a key part of any plan for growth.
1. The government’s market intervention will cap household energy bills at £2,500, but this raised cap, along with persisting inflationary pressures, means that the cost of living crisis is not going away
The latest data show average regular earnings grew by 5.4% in the year to July 2022, though bonuses for some pushed headline earnings growth up by 5.7%. But with the Consumer Price Index rising to 10.1% in the year to August 2022, the highest level since February 1982, real regular earnings have fallen over the year and are below pre-pandemic levels. In July, pay in real terms fell by 2.8%. The Government’s Energy Price Guarantee is likely to limit future rises in inflation, but the outlook for real earnings remains subdued at best, coming after more than a decade of relatively poor growth since the global financial crisis.
2. Employment rose last month, but the employment rate remains below pre-pandemic levels, and unemployment is rising
Employment rose by 40,000 in May to July 2022 compared to the previous quarter but remains 327,000 lower than before the pandemic. The timelier but less comprehensive measure of PAYE employees increased by 71,137 in August 2022 compared to the previous month and is 717,826 above its pre-pandemic level.
Unemployment decreased by 76,000 in May to July 2022 compared to the previous quarter. Unfortunately, however, the falls in unemployment are driven by rises in economic inactivity (people leaving the labour force) rather than rises in employment.
Economic inactivity increased by 194,000 compared to the previous quarter and is 642,000 higher than pre-pandemic. There are currently 9 million economically inactive people aged 16-64, of which nearly 2.7 million are economically inactive due to suffering from a sickness or disability (long-term or short-term), 377,000 higher than the pre-pandemic figure. Our research shows the UK is an international outlier in seeing this rise in economic inactivity, highlighting the need for a plan to extend employment support and widen our labour force.
The number of people claiming unemployment-related benefits increased by 6,300 on the previous month and remains 310,000 above the survey measure of unemployment.
3. Employers are hiring at record levels, but there are fewer potential workers for employers to recruit, with 649,000 fewer over 50s in the labour market since the pandemic started
Vacancies are at near record levels, but despite record hiring employers are struggling to meet all their needs. 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 and over who are economically inactive increased by 4.7% since the pandemic started.
This is a key challenge – for the Government to support people in this group who want to work and for employers to think about recruitment and job design that will meet their needs. The number of 50-64 year olds who are economically inactive increased by 97,000 in the last quarter, although the number of over 64s who are economically inactive decreased by 41,000 in the last quarter.
4. The cost of living crisis is having a disproportionate impact on those with the lowest incomes
HRMC data suggests that real earnings have been growing fastest for the highest earners – those in the 99th percentile of real incomes earn 104% of their February 2020 real incomes, while those in the 10th percentile of real incomes earn 99% of their February 2020 real incomes. Those on the lowest incomes tend to spend the highest proportion of their earnings on essentials like energy and are less likely to have savings, highlighting the importance of ensuring sufficient support for people with the cost of living.
5. The employment picture varies across the country
Employment rates are higher than pre-pandemic 2019 levels in the North East, the West Midlands, London, and Scotland, but are lower everywhere else. Economic inactivity is highest in Northern Ireland, Wales and the North East, and the only region with a lower economic inactivity rate now compared to 2019 is London. For unemployment rates, only Yorkshire & the Humber, the South East, the South West, and Northern Ireland have a higher unemployment rate now than compared to 2019. 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.
