Wednesday 13 December 2017

Falling UK employment - a labour supply story

The latest official UK jobs figures (for August to October 2017) show a quarterly fall of 56,000 in the number of people in work (lowering the employment rate from 75.3% to 75.1%), a small fall in the number unemployed - leaving the unemployment rate steady at 4.3% - and a very slight pick-up in nominal pay growth (i.e. average weekly earnings excluding bonuses) to 2.3%, with real pay once again fallen by 0.4% once adjusting for consumer price inflation.

However, although the figures suggest the jobs boom of recent years has come to end this is due to emerging weakness in the supply of employable people to the labour market rather than a fall in demand from employers. 

Redundancies are still on the decline (down 11,000 on the quarter) and unfilled vacancies have risen to yet another record high of 798,000; but the rapid growth in labour supply of recent years has seemingly gone into the reverse. The total labour supply as measured by the economically active population aged 16 and over fell by 82,000 in the quarter. The main reasons for this are a sudden surge in economically inactive student numbers (up 35,000, 1.5% on the quarter ) and a fall in the number of citizens of the central and eastern European countries (the A8) that joined the EU in 2004 (the number of people born in these countries fell by 35,000, -3.2%, in the year to the third quarter). 

In principle, this drop in available labour should be good news for unemployed jobseekers. The steady unemployment rate may therefore indicate a lack of employability on the part of the remaining pool of unemployed. Assuming no overall weakening of demand for workers, or renewed growth in supply, the labour market is thus likely to show greater signs of tightening in the coming months which, fingers crossed, should mean somewhat better news on the pay front.