October 2015 CBI Labour Market Update

Businesses Are Creating Jobs

Today’s labour market statistics are encouraging.
Positively, the number of people in employment rose almost wholly due to businesses creating more jobs.

The other piece of good news in today’s data was the decline in unemployment, which more than offset the very recent increases in the jobless total. Positively, the drop in unemployment was shared amongst people who had been out of work and looking for work for both shorter and longer periods of time. Youth unemployment also fell.

For those already in work, the picture was more mixed. Indeed, although annual pay growth in the private sector edged down a touch, extremely low inflation continues to
provide a boost to living standards.

Employment continues to rise...

Positively, today’s data shows that the number of people in work has risen again and at a slightly faster pace than we reported in last month’s labour market update.

  • In the three months to August, the number of people in work rose by 140,000 (Exhibit 1). This compared to growth of 42,000 in the three months to July.
  • As a result, the employment rate for those aged 16 and
    over rose to 59.9%.
  • The growth in employment was primarily thanks to a rise in the number of job openings offered by business (+120,000 in the three months to August). The positions filled were a mix of full- and part-time posts (growth of +70,000 and +50,000 respectively).
  • In contrast, the number of people choosing to work for themselves increased by a much smaller amount (+29,000). The rise in self-employment was wholly driven by those working for themselves on a part-time basis.
  • Looking at the gender split, the growth in employment mainly benefitted men. Employment amongst men rose by 114,000 in the three months to August, while employment amongst women increased by just 27,000.

The rise in employment seen in today’s data is of course very welcome news. However, given the volatility in employment growth in recent months it is difficult to predict whether this pace of improvement will continue.

Indeed, provisional data shows that growth in the number of job vacancies advertised by business has started to level off (Exhibit 2 overleaf). This indicates that, while firms are still looking to take on employees, the rate at which employment rises may be slower in future compared to the more rapid increases seen in early 2014 and early 2015.

 

 ...and unemployment falls once again...

In contrast to last month when we reported a small rise in unemployment, today’s data reveals that unemployment has recommenced a downward trajectory.

  • In the three months to August, the number of people unemployed fell by 79,000. As a result, there were 1.8 million people out of work and looking for work.
  • Reflecting this change, the unemployment rate edged down to 5.4%, very close to its pre-recession rate of 5.2%.

Positively, unemployment fell amongst people who had been out of work for both shorter and longer periods of time. In fact:

  • The number of people out of work for up to six months - known as short-term unemployment - fell by 24,000.
  • Similarly, the number of people out of work for slightly longer (over six and up to 12 months) dropped by 11,000.
  • And it was particularly encouraging that unemployment amongst those who are furthest from the labour market (out of work for over a year) fell by 44,000.

...particularly amongst young people

The picture on unemployment amongst young people also looks rosier.

  • In the three months to August, the number of 16 to 24 year olds unemployed fell by 46,000. This meant that a total of 683,000 young people were out of work and
    looking for work.
  • As a result, the youth unemployment rate fell to 14.8% and is therefore creeping back towards its pre-recession rate of 14.0%.

To look at prospects for young people in more detail, the statistics can be broken down into two age categories - 16 to 17 year olds and 18 to 24 year olds.

As Exhibit 3 shows, the unemployment rate amongst 16 to 17 year olds remained stubbornly high at 27.9% in the three months to August, still some way off its
pre-recession rate of 24.2%.

In contrast, the unemployment rate amongst 18 to 24 year olds was much lower at 13.3% and is getting closer to its pre-recession rate of 12.2%.

In the three months to August, 16 to 17 year olds accounted for 20% of the total number of unemployed 16 to 24 year olds while the remaining 80% was accounted
for by 18 to 24 year olds.

Employment growth focused in four regions…

Although the growth in employment registered in today’s data was shared across half of the UK’s nations and regions it was most concentrated in four locations.

  • As Exhibit 4 overleaf shows, in the three months to August, London (+63,000), the south west (+47,000), the East of England (+32,000) and the East Midlands
    (+23,000) saw the most impressive increases in employment.
  • Employment also rose, albeit by a smaller amount, in Wales (+9,000) and the south east (+5,000).
  • In the north west (+2,000), Northern Ireland (0) and the West Midlands (-3,000) the number of people in work remained broadly unchanged.
  • In contrast, employment fell in Scotland (-6,000), the north east (-7,000) and Yorkshire and Humber (-25,000).

 

 …while the fall in unemployment was more widespread

Although the growth in employment was concentrated in a handful of regions, the fall in unemployment was more spread out.

  • The sharpest falls in unemployment were seen in London (-33,000), Yorkshire and Humber (-18,000), the north west (-16,000) and the south west (-13,000).
  • Unemployment also dropped in the south east (-10,000), the East of England and Wales (both -7,000) and the East Midlands (-4,000).
  • The number of people out of work and looking for work remained broadly unchanged in Northern Ireland (-2,000) and the West Midlands (+1,000).
  • However, in the north east (+12,000) and Scotland (+18,000) unemployment rose.

Pay growth ticks down slightly

Turning to the picture for those already in work, regular pay growth (excl bonus) edged down very slightly.

  • In the three months to August annual growth in regular pay in the private sector stood at 3.2%, down from 3.3% in the three months to July (Exhibit 5).
  • The picture was similar across the economy as a whole where annual growth in regular pay dipped (to 2.8%, from 2.9%).
  • Looking at total pay (incl bonus), annual pay growth did speed up, but only very slightly. In the private sector, annual growth in total pay crept up from 3.3% in the three months to July to 3.4% in the three months to August.
  • To achieve sustainably higher pay growth, a recovery in productivity is necessary. It’s crucial that the Low Pay Commission retains autonomy over future National Living Wage rises to avoid unnecessary political interference and help boost jobs.

 

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