The Office for National Statistics has released the latest set of UK labour market data, mostly covering the three months to August this year. The headline employment number is very good – the number of people in work increased by 155,000 (almost all of this full-time work) in the latest quarter and the level of job vacancies is at a five year high. The number of Jobseeker's Allowance claimants fell by more than 40,000 – the biggest monthly fall for 16 years.
However, the subsequent ‘record number in work’ headlines are a tad misleading – the employment rate remains well below the pre-recession peak. And while there are now more vacancies than in autumn 2008 there are still around a quarter fewer vacancies than before the recession hit in spring 2008.
As a result, these good employment figures are having relatively little impact on unemployment, especially youth (16-24 year olds) unemployment which is unchanged on the quarter at still close to 1 million. The overall unemployment rate remains very high at 7.7% and indeed jumped to 8% in the final month of the quarter. Meanwhile, underemployment, as measured by the number of part-time workers who want a full-time job has risen to a record level of 1.45 million.
This continued high rate of unemployment and underemployment shows that the labour market is not tightening in any noticeable sense and, for the time being at least, remains an ‘inflation free zone’ as far as the Bank of England will be concerned. An unemployment rate of 7% or less, which might trigger an interest rate rise, still looks to be a distant prospect.
The underlying weakness of the labour market is reflected in a depressing fall in wage pressure, with growth in regular pay now running at just 0.8%, way below consumer price inflation at 2.7%. Workers in the public sector are now bearing the brunt of the real pay squeeze, adding to the pain imposed by job cuts in the order of 10,000 per month. This degree of real wage squeeze is not conducive to a strong and sustained recovery in the UK economy. The ‘cost of living crisis’ is an economic crisis.