Beware the headlines about employment and unemployment. Many news outlets are reporting that Britain’s unemployment rate has now fallen to its lowest since 1974 in the first three months of this year.

Whilst this fact is technically true – in 1974 there was no such thing as zero-hours contracts or the gig economy. In those days, you either had full-time paid work (or chose to be part-time) or you were classed as unemployed and therefore claiming some form of benefits. Today, people can be unemployed, claiming benefits, do one hour of paid work and if included within the benefit claim is classed as employed. In other words, the government has, over time, reclassified what it means to be employed or unemployed.

Amongst these headlines, soaring inflation needs to be stressed because it is actually leading to the biggest annual fall in real earnings for most workers since the effects of austerity became a reality of life for millions of households.

Reuters reports that – “The jobless rate dropped to 3.7% from 3.8% – below forecasts in a Reuters poll for it to hold steady – and the number of people out of work was less than job vacancies on offer for the first time on record.”

Again, whilst this statement is true, it does not inform of the underlying features of the workplace experience for millions. Just for a start, mass job vacancies have suddenly risen for a number of reasons. Brexit and Covid-19 saw two million foreign workers head home. Many more than expected have retired early. Many very low-paid jobs, typically in the care and hospitality industries, have seen workers going for higher paid or less stressful work (the huge increase of delivery drivers for instance).

As The Economic Times wrote last month – There are around 20% more job vacancies than there were pre-pandemic, and that seems to have been stable for 6 months or so now. But new analysis from researchers at the IFS shows that the overall amount of change in the occupational mix of vacancies in the labour market is no greater than would be expected over a ‘normal’ two-year period. Despite all the turbulence of the past two years the overall mix of vacancies today is remarkably similar to 2019 and has changed no more since then than between 2017 and 2019.

However, what has changed is that:

• Vacancies for warehouse workers in the 5 months to February 2022 were more than double their pre-pandemic level, and vacancies for drivers were 80% higher.
• Higher vacancies in some occupations do not appear to have pushed up wages. There is no correlation between vacancy growth between the latter halves of 2019 and 2021 and wage growth over the same period.
• The fact that vacancies have risen most in lower-skilled occupations means that job market opportunities have improved most for low-educated workers. Among unemployed workers, without a degree 70% have seen the number of job opportunities for which they might have the appropriate prior experience increase by more than 40%. Fewer than half of those with a degree have seen an equivalent increase in opportunities.
• This means that, while vacancies are high across the board, many of the new opportunities facing job seekers are in relatively low-paying jobs.

 

The Bank of England is watching the strength of Britain’s labour market warily. Yesterday, its governor, Andrew Bailey set out a dire warning as he was being grilled by MP’s about interest rates – and stated ‘apocalyptic’ times were heading our way. The BoE mistakenly fears that higher-than-normal pay growth is a key channel through which the current energy-driven surge in inflation might become entrenched. The reality is far more likely to be stagnant wages, rising unemployment and rising inflation – and then possibly stagflation.

The latest data in media headlines shows soaring pay in some sectors – with total pay up a record 9.9% in March alone – but the rewards from a tight labour market are not just unevenly distributed but skewed towards a minority of workers. Bankers and builders are doing especially well, while public-sector workers face the biggest pay squeeze. The average bonus for bankers in the City of London has significantly increased with bonuses expected to drive UK pay growth as they soar after a record period of deal-making. But the numbers of people who receive these payouts are minute given the total UK workforce.

Builders are doing well at the moment but this time next year that will not be the case as property transactions will have dramatically slowed and the money used for home improvements – motivated by the pandemic will have been used up.

Nearly a sixth (5.7 million) of all adult workers in the UK are public sector workers, so pay freezes for them has a significant effect on household income performance and therefore in the economy.

When looked at from above, accounting for everyone in the workforce, it is the amount of money generated in a country by its workforce (GDP and productivity) that drives the most important aspect of people’s lives – their standard of living. The standard of living has been falling in the UK for four decades for half the population – and will continue to do so irrespective of the headlines claiming full employment.