POSITIVE LABOUR MARKET HEADLINES, BUT COST-OF-LIVING CRISIS PRESENTS INCREASING CHALLENGES FOR WORKERS

Here is an update and some analysis on the latest labout market statistics for the Work Foundation – some really interesting figures here!

This month’s labour market statistics indicate a continuing recovery in employment figures and vacancies, but areas of concern remain beyond those broadly positive headlines. Inflation is outpacing wages and the rise in temporary work and economic inactivity hint at a challenging landscape for workers over the coming months. 

With inflation outpacing wage growth, many workers will experience real term earnings reductions

This month’s figures show that wage growth is being outpaced by inflation. This is particularly true for the manufacturing and construction sectors, which saw an average weekly total pay increase of 2.4% on the year, whereas inflation rose to 5.4% in October. Across the whole economy, this quarter saw a real term reduction in earnings of -0.8%. With the Bank of England forecasting inflation to rise over 7% in spring 2022, this will lead to real terms pay cuts for millions of workers, with those on low incomes likely to be particularly hard hit. In this context, the current ‘council tax rebate’ on offer from Government is unlikely to be sufficient to ensure many families can make ends meet. More targeted support for those least well off must be prioritised – including by ensuring that Universal Credit payments rise in line with the increased cost of living in the short-term.

Figure 1: Average weekly earnings in 2015 constant prices, percentage change December 2020- December 2021

Source: Work Foundation analysis using ONS dataset A01-Feb2022: Table 16, 15 February 2022. 

Inactivity among older cohorts remains persistent

In the final quarter of 2021, economic inactivity continued its upward trend with another slight increase. The term inactivity describes people who are out of work and not looking for work. There are now 287,000 more workers aged 16-64 in inactivity than there were at the same time in 2019. Although the onset of the pandemic saw young and older workers fall out of employment and into inactivity at, young people have increasingly re-entered the labour market since restrictions eased in July, filling job openings in sectors such as retail and services, which saw huge demand for labour and tends to offer jobs with low barriers of entry. 

In the fourth quarter of 2021, increased levels of inactivity persist mainly among people aged over 50 with an estimated increase of 257,000 50-64-year olds in inactivity compared with the same period in 2019. Whether this reflects an active decision or an involuntary exit from the jobs market, we know that prolonged periods of inactivity for this age group may have concerning implications for their ability to re-enter the labour market as well as for their savings for retirement. 

Increasing levels of temporary work in an uncertain landscape

Another area of concern is the rise in temporary work. This quarter again saw an increase in the number of workers employed on temporary contracts with 292,000 more temporary workers in October-December 2021 than there were at the same time in 2019. This raises the share of temporary workers from 5.1% to 6.1% of all employees. 

Although we would expect a rise in temporary work in the run-up to the holiday period, it appears there was a greater tendency towards the use of temporary contracts than in previous years, which could be related to the continued uncertainty for businesses facing the end of furlough and the rise of the new variant Omicron. 

It is however positive to note that the share of temporary workers who are doing temporary work involuntarily, i.e., because they couldn’t find permanent work, is coming down from a peak of 33.8% in March-May 2021 to 25.8% this quarter. 

Without addressing persistent skills mismatches, record vacancies will go unfilled 

Vacancies hit a new record high, increasing by 10% on the quarter and 112% on the year, to 1.29 million. There are now 178,000 vacancies in the hospitality sector, an increase of 13% on the quarter and more than double the same quarter in 2019. Indeed, vacancies are up on pre-pandemic levels across every sector of the economy, with notable increases in administrative and support services, transport and storage, and professional, scientific and technical activities. 

Despite the high number of vacancies, some individuals may still struggle to obtain work due to higher levels of competition and skills mismatches. Many wouldn’t be entitled to support and advice to find a new job due to an undue focus on moving individuals on Universal Credit in to work. 

Figure 2: Hospitality sector vacancies, Nov-Jan 2019 – Nov-Jan 2022

Source: Work Foundation calculations using ONS Dataset: A01 – Vacancies by industry (seasonally adjusted). 15 February 2022.

Government’s new Way to Work scheme, which aims to fill these vacancies by obliging claimants to broaden their job search to occupations and sectors beyond their previous experience after just four weeks, is the wrong tool for tackling this problem and risks deepening worker insecurity. Ultimately, directing individuals to apply for ‘any job’ without taking account of their aspirations, skills and personal requirements such as caring responsibilities increases the probability that they will quickly fall back out of work. 

Rather than taking a punitive approach, individuals on Universal Credit should be supported to access a wider range of training and support. There is a need for intensive and personalised employment support and training to help workers to transition between sectors, and enable individuals who aren’t currently participating in the jobs market to take steps towards employment.