November 2015 - Labour Market Update

LABOUR MARKET SEEMS IN GOOD HEALTH

After a wobbly patch earlier in the year, today’s data shows a labour market which seems to be in rude health.

Employment has risen solidly due, in the main, to a rise in the number of job opportunities offered by businesses. Positively, the growth in employment benefited both men and women.

The increase in employment was accompanied by a fall in unemployment. Encouragingly, unemployment fell amongst people who had been looking for work for only a short space of time, but also amongst people who were further away from the labour market e.g. the long-term unemployed.

For those in work already however, the picture was a little more mixed. Annual growth in regular pay eased back in the private sector as a whole, although there was quite a
pronounced pick up in the construction sector, possibly due to skills shortages. But that said, low inflation means that pay packets are still stretching further at the till.

Employment growth has picked up...

Today’s labour market statistics show a rise in the
number of people in employment.

In the three months to September, the number of people in work rose by 177,000 (Exhibit 1). This was the strongest increase since the beginning of the year.

  • As a result, the employment rate for people aged 16 to 64 edged up to 73.7%.
  • As we reported last month, the vast majority of the growth in employment was due to a rise in the number of jobs offered by businesses (+146,000), as opposed to an increase in the number of people working for themselves (+38,000).
  • Over three quarters of the employee positions filled were part-time. Similarly, the growth in selfemployment was mainly amongst people choosing to
    work for themselves on a part-time basis.

...with both men and women benefiting

  • The increase in employment benefited both men and women. Employment amongst men rose by 107,000 in the three months to September while employment amongst women ticked up by 69,000.
  • As a result, the male employment rate now stands at78.5% and the female employment rate at 69.0%. And while there is still a clear difference the employment rate for men and women, encouragingly the female
    employment rate has now reached an all time high.

The number of people out of work has fallen

Continuing the positive story, today’s data show that unemployment fell.

  • In the three months to September, unemployment fell by 103,000, leaving 1.7 million people out of work and looking for work (Exhibit 2).
  • As a result, the unemployment rate has now fallen back to 5.3% which is only fractionally higher than just before the crisis began (5.2%).

Encouragingly, and as we reported last month, the fall in unemployment was seen amongst people who had been out of work for both shorter and longer periods of time.

  • The number of short-term unemployed (unemployed for up to six months) fell by 14,000 in the three months to September.
  • The number of medium-term unemployed (over six months and up to 12 months) declined by 27,000.
  • The number of long-term unemployed (over 12 months) dropped by 62,000.
  • These changes mean that the short, medium, and longterm unemployment rates are all just about back to where they were just before the crisis began.

Prospects for young people improve too

Young people also fared well in the latest unemployment statistics.

In the three months to September, the number of 16 to 24 year olds out of work and looking for work fell by 85,000.

Like the overall unemployment rate, the youth unemployment rate, which has now fallen back to 14.2%, is only a touch away from it’s pre-crisis level (14.0%).

The labour market is close to full employment

With employment up and unemployment down, we are approaching full employment. Although there is no single definition of full employment, at it’s most basic, it describes a situation where everyone that wants to have a job can find a job at the going wage rate, while allowing for frictional unemployment - the period of time when workers are transitioning from one job to another.

Whilst reaching full employment is a goal we should be working towards, as we get closer, skills shortages are starting to bite. Currently this is most notable in the construction sector where some businesses are finding it hard to recruit bricklayers, for example. This is one of the reasons why annual pay growth in the construction sector has leapt to 6.6%.

To help resolve this, the Government needs to ensure the new apprenticeship levy delivers the right skills. We need an independent levy board to set the rate and measure standards if we are going to deliver large numbers of high quality, business-relevant apprenticeships.

Employment rises in half of UK nations and regions...

Turning now to look at the local picture, rising employment in over half of UK nations and regions was the driver behind strong UK-wide employment growth.

  • Employment rose most sharply in the south east (+45,000) and the north west (+40,000).
  • Other locations seeing strong employment growth included the East of England (+27,000), the West Midlands (+26,000) and London (+24,000).
  • Employment growth was more subdued, in the East Midlands (+9,000) and the south west (+8,000) but remained broadly unchanged in Scotland (+3,000), Northern Ireland and the north east (both +2,000).
  • In contrast, employment actually fell in Yorkshire & Humber (-4,000) and Wales (-6,000).

…while unemployment fell almost everywhere

Similar to the picture on employment, widespread falls in unemployment across the UK’s nations and regions led to a UK-wide decline in unemployment.

  • Unemployment fell most significantly in the south east (-27,000) and the north west (-20,000).
  • Unemployment also fell fairly substantially in Yorkshire & Humber (-17,000), the south west (-14,000), the East of England (-13,000), the West Midlands and
    London (both -10,000).
  • The East Midlands (-7,000) and Northern Ireland (-5,000) also saw slight declines in unemployment.
  • In Wales (+3,000) unemployment was more or less the same while in the north east (+6,000) and Scotland (+11,000) unemployment crept up a little.

As Exhibit 3 shows, in areas like the East Midlands, the north west and London, the unemployment rate is now lower than before the crisis began.

That said, in some of these locations, like the north west, there is scope for further progress as the unemployment rate, at 5.5%, remains higher than the UK average (5.3%).

In other locations like the north east, Northern Ireland and Scotland, unemployment remains elevated compared to before the downturn. However, in other locations, like the south west where this is also the case, we can be a bitless concerned because, at 3.9%, the unemployment rate is still well below the UK average.

Pay growth ticks down slightly 

Although as we have described, more people have been moving into work, the picture on pay is less rosy.

  • Annual growth in regular pay (excl. bonus) in the private sector fell from 3.2% in the three months to August to 2.8% in the three months to September (Exhibit 4).
  • Similarly, across the economy as a whole annual growth in regular pay fell from 2.8% to 2.5% over the same time period.
  • Total pay (incl. bonus) growth held up better thanks to a pick up in the pace of bonus pay growth. In the private sector, annual growth in total pay stood at 3.4% in the three months to September, down from 3.5% in the three months to August.
  • Despite the weakening in regular and total pay growth, real income growth has remained close to pre-crisis levels thanks to rock-bottom inflation. Improving productivity remains vital to achieving sustainable pay growth going forwards.

 

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