Labour market stays strong, but concerns rise over growing inactivity

The Office for National Statistics (ONS) Labour Force Survey data for August to October this year shows that the labour market remains tight as employment increased and unemployment decreased over the quarter.

The employment rate increased from 75.3% to 75.5%, driven in part by a quarterly rise in part-time workers, which has been on the up since the period April to June 2021.

Though unemployment decreased by 0.4 percentage points to 4.2%, which is considered almost full employment, a rise in economic inactivity is creating cause for concern.

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Inactivity, whereby people have dropped out of the workforce entirely and gone into, for example, full-time education or retirement, rose by 0.1 percentage points to 21.2%.

Neil Carberry, chief executive of the Recruitment & Employment Confederation (REC), said: “The real elephant in the room is rising inactivity and a smaller UK workforce – people either not in the UK or not looking for work […] This is a huge challenge to business and government.”

Overall hours worked over the quarter are still below pre-pandemic levels, Carberry noted.

Though up 17.6 million hours on the last quarter, UK workers are still working 27.8 million fewer weekly hours than in December 2019 – February 2020.

Carberry added: “New approaches to recruitment and workforce planning are needed – and genuine partnership between government and employers on skills, unemployment support and sensible immigration rules.”

Jonathan Boys, labour market economist for the CIPD, said the latest dataset from the ONS is more faithful to the real state of the labour market, being less skewed by the effects of the pandemic, such as furlough.

As such, employers can be more confident that the challenges they are experiencing now will hold for the months ahead.

“The labour market looks much like it did pre-pandemic era, that is tight,” said Boys.

“This is feeding into wage growth – average regular pay growth is strong at 4.3%.

“CIPD research shows raising wages is employers’ top response to hard-to-fill vacancies. Not all employers have scope to raise pay and so recruitment and retention challenges are biting.”

To overcome retention challenges, Boys urged employers to advertise jobs as flexible so that they can attract a wider range of candidates.

On the other hand, Pawel Adrjan, economist as job site Indeed, expressed concern about how the labour market will weather an Omicron winter, especially if the UK faces further virus-related restrictions.

“While this data tells us lots of good things about the labour market’s recovery, it tells us comparatively little about its ability to withstand the shock of another lockdown,” Adrjan said.

“The very earliest signs are not encouraging though. Indeed’s data, which captures employers’ demand for staff in real-time, shows job posting growth may be stalling.

“As the Omicron variant takes hold and MPs vote on a new set of COVID restrictions, many sectors that have been doing particularly well this year – from hospitality to high-street retail – will be deeply worried that their progress could be abruptly halted.”

The ONS’ Labour market overview, UK: December 2021 can be found here.