Employment Rises, But Wage Growth Weakens

Today’s data revealed a strong rise in the number of people in work as well as a fall in unemployment, demonstrating that the labour market continues to be a bright spot for the UK economy.

In fact, the rise in employment was the largest in around 18 months while unemployment declined amongst people who had been looking for work for both shorter and longer periods of time. Youth unemployment also fell.

The picture on pay however is more mixed. The rate at which average weekly earnings are increasing in the private sector slowed further this month, continuing a recent trend. Boosting productivity is key to turning this around. This is particularly important as inflation, which impacts on peoples’ purchasing power at the till, is likely to pick up gradually this year.

Strong rise in the number of people in work... Data out today show that the number of people in work has risen once again.

  • The number of people in work increased by 267,000 in the three months to November, the largest rise in around 18 months (Exhibit 1).
  • At the same time, the employment rate edged up a little further to 74.0%.
  • The rise in employment was due to an increase in the number of people working for a business as well as an increase self-employment. In the three months to November, the number of employees increased by 160,000, while the number of people choosing to work for themselves rose by  121,000.

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  • The majority (70%) of people taking up employment in the three months to November, whether with a business or working for themselves, entered into full- time roles.

Demand for new recruits looks set to continue in the immediate future according to provisional data on the number of job vacancies for which businesses are actively seeking recruits from outside their organisation.

  • In the final quarter of 2015, the number of vacancies increased by 13,000 to reach 756,000, the highest level since records began.
  • The key question however, is whether those people looking for work have skill sets that are well matched to the vacancies that businesses are recruiting for.

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...alongside a fall in unemployment

Continuing the good news story, as UK employment rose, unemployment fell.

  • The number of people unemployed in the UK fell by 99,000 in the three months to November. As Exhibit 2 shows, this means that 1.68 million people are now out of work and looking for work.
  • The unemployment rate fell back to 5.1%, which was slightly lower than most people had expected (5.2%). Positively, the unemployment rate is now a touch lower than just before the crisis began (5.2%), and is the lowest since early 2006.

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Delving a little deeper, the data released today reveal that unemployment has fallen for people who had been looking for work for both shorter and longer periods of   time.

  • In the three months to November, short term unemployment (out of work and looking for work for up to six months) fell by 28,000.
  • Medium term unemployment (those unemployed for over six months and up to 12 months) fell by 33,000.
  • The number of long term unemployed (over 12 months), who are generally considered to be the furthest away from the labour market, fell by 38,000.

Young people benefit from a healthy labour market

Today’s data also show that young people have been benefiting from the strength of the UK’s labour market.

  • In the three months to November, the number of unemployed 16 to 24 year olds fell by 56,000.
  • Encouragingly, 66% of the decrease in the number of young unemployed people was due to a fall in those not in full-time education. The remaining third that found employment were in full-time education and therefore took up part-time work.
  • As Exhibit 3 shows, the youth unemployment rate also fell back to 13.7%, down from 14.8% in the previous quarter.

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Employment rose in three quarters of nations and regions...

The healthy rise in UK employment was shared across three quarters of nations and regions (Exhibit 4 overleaf).

  • The north west saw the largest increase in employment in the three months to November (+86,000) although  the

South east (+58,000) and north east (+38,000) also made impressive gains.

  • In Yorkshire and Humber, the West Midlands  (both

+23,000) and Scotland (21,000) growth in employment, while a little more modest, was still significant.

Employment also rose in London (+17,000), Northern Ireland (+13,000) and the East of England (+10,000).

  • In contrast, the number of people in work remained more or less unchanged in the south west (+3,000) but fell in Wales (-4,000) and the East Midlands (-22,000)

…with a similarly widespread fall in unemployment

The rise in employment across most regions and nations was accompanied by a similarly widespread fall in unemployment.

  • In the three months to November, the south east was the region that saw the most substantial fall  in Unemployment (-20,000), followed closely by Scotland  (-19,000), the North West (-15,000), East of England (-14,000) and Wales (-11,000).
  • Unemployment also fell, although by less, in the East and West Midlands (both -8,000), the south  west (-7,000) and the north east (-6,000).
  • In Yorkshire and Humber (-3,000) and Northern Ireland (0), unemployment was broadly unchanged compared to the previous quarter. London was the only location where unemployment edged up a touch (+13,000).

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Wage growth weakens once again

Although the labour market picture so far is positive, today’s data reveal more mixed prospects for peoples’ pay packets.

  • In the private sector, annual growth in regular pay (excluding bonus) stood at 2.1% in the three months  to 

    November. This was down from 2.3% in the three months to October and from a peak of 3.4% in the three months to May (Exhibit 5)

  • This slowdown was seen across the other sectors of the economy too. In fact, annual growth in regular pay also fell in the service sector (from 1.8% in the three months to October to 1.7% in the three months to November), the wholesaling, retailing, hotels & restaurants sector (from 3.2% to 2.9%) and construction sector (from 6.4% to 6.2%). In the finance & business services and manufacturing sectors pay growth remained unchanged (at 1.6% and 1.5% respectively).

  • Looking at annual growth in total pay, which includes bonuses, the slowdown in underlying pay growth described above was compounded by a sharp slowing in the growth of bonus payments. As a result, total pay growth in the private sector weakened from 2.7% in the three months to October to 2.2% in the three months to November.

  • Despite this, low inflation has boosted the ‘real’ value, or purchasing power at the till, of employees’ pay packets. But, with inflation likely to pick up gradually this year, there is a real need to boost ‘nominal’ pay growth. To do this, there must be a sustained recovery in productivity.

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The next labour market update will be published on 17 February.

A CBI/Pertemps update will follow soon.

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