Labour Market Shows Signs Of Levelling Off

Today’s labour market data published by the Office for National Statistics reveals a mixed picture.

Although, positively, the number of people in work increased once again, the size of this increase was modest compared to recent months.

At the same time, unemployment nudged up a little while for those in work, growth in the size of their pay packets remained lacklustre compared to before the economic crisis began.
With more uncertainty in the economy, it’s not surprising that labour market performance is showing some signs of levelling off. Employers are also having to take on increased employment costs associated with a range of new policies on wages and skills, which may have delayed growth plans.

Employment rises, but at a slower pace...

Today’s data show a relatively subdued increase in the number of people in work.

  • Employment rose once again in the three months to February. However, the increase of 20,000 in was the smallest rise seen since summer last year (Exhibit 1).
  • The employment rate is now 74.1%, the joint highest since records began.
  • The growth in employment was due to a rise in the number of people choosing to work for themselves (+25,000 in the three months to February). There was also a rise in the number of people employed through government supported training and employment programmes (+13,000).

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  • However, this growth in self-employment is relatively small compared to the stronger rises seen towards the back end of last year. 
  • As Exhibit 2 overleaf shows, this data contrasts to the latter stages of the recovery when employment growth was more often than not driven by increases in the number of people working for a business. Indeed, the latest data shows that, in the three months to February, the number of employees actually fell a little (-23,000). 
  • However, with businesses advertising around 751,000 vacancies, this suggests that, if people with the appropriate skills to fill these vacancies are available, there is scope for further growth in the number of employees.

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...while unemployment edges up a notch...

Alongside the small rise in employment in this month’s data, unemployment also crept up a little (+21,000).

  • In total, 1.7 million people were unemployed in the three months to February (Exhibit 3), an unemployment rate of 5.1%, unchanged compared to the previous three months. 
  • Simultaneous increases in employment and unemployment are possible because of changes in the size of the population and number of people described as ‘economically inactive’. People classed as economically inactive are not in work and do not want, or are not able, to work. 
  • Looking at the data in a little more detail, the rise in unemployment was concentrated amongst those people who had been out of work and looking for work for shorter periods of time. 
  • In the three months to February, the number of people short-term unemployed (unemployed for up to six months) increased by 32,000. 
  • At the same time, medium-term unemployment (unemployed for between six and 12 months) increased by 11,000. 
  • In contrast, the number of people long-term unemployed (unemployed for over 12 months), and generally considered to be further away from the labour market, actually fell by 21,000.

...but remains unchanged for young people

Turning to look at unemployment amongst young people, the figures are broadly unchanged compared to the recent past.

  • In the three months to February, there were 627,000 16-24 year olds out of work and looking for work. Similarly, in the three months to November 2015, there were 628,000 unemployed young people.
  • The youth unemployment rate stood at 13.7%, unchanged compared to the previous consecutive quarter.
  • In fact, it was 25-49 year olds that were most impacted by the slight rise in unemployment (+13,000) in the three months to February. 

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Employment creeps up in one quarter of UK nations and regions...

The slight employment growth seen across the UK as a whole was thanks to growth in the number of people in work in a small number of nations and regions.

  • In the three months to February, Wales saw the largest rise in employment (+36,000) followed by Yorkshire & Humber (+15,000) and the East of England (+12,000). 
  • In Northern Ireland, the East Midlands (both +5,000), London, the West Midlands, the north east (all +4,000) and the north west (-2,000) employment remained fairly steady. 
  • However, the number of people in work actually fell in the south east (-11,000), Scotland (-21,000) and the south west (-32,000).

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…while unemployment rises in a couple of places

The slight rise in UK unemployment was driven by a handful of nations and regions (Exhibit 4).

  • It was Scotland that saw the largest rise in unemployment in the three months to February (+20,000) although unemployment also edged up slightly in the south east (+8,000). 
  • There was little to no change in the number of unemployed in the East Midlands (+5,000), Yorkshire & Humber, Northern Ireland (both +4,000), London (+3,000), the north east (+1,000), the north west (-1,000) the south west (-2,000) and Wales (-5,000).
  • In contrast, the number of people out of work and looking for work fell ever so slightly in the West Midlands (-6,000) and the East of England (-9,000).  

Pay growth creeps up a little

For people in work, although today’s data revealed a slight rise in the pace at which peoples’ pay packets have been expanding, pay growth remains sluggish compared to before the crisis.

  • Annual growth in regular pay, which excludes bonus payments, in the private sector stood at 2.5% in the three months to February (Exhibit 5). This was up just a touch from 2.4% in the three months to January. 
  • Total pay, which includes bonuses, actually fell to 1.9% from 2.4% over the same time period as the pace of growth in bonus payments fell. 
  • Although low inflation continues to provide a boost to peoples’ ‘real’ spending power at the till, this effect will weaken this year. Meanwhile, wage growth is still far weaker than before the crisis began (averaging around 4%). Boosting productivity remains the key to sustainable faster wage growth. 

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