ONS data | UK labour market 'can't get back on its feet', experts warn

UK labour market 'can't get back on its feet', experts warn

The UK has had a record jump in the number of people leaving the labour market in the three months to August, with the number of people not looking for work due to long-term illness also hitting a new high, according to the latest labour data..

Newly released figures from the Office for National Statistics (ONS) show that the unemployment jobless rate fell to 3.5% in the three months to August. Regular pay continues to grow at high nominal rates such as 5.4% for the whole economy in the year to June-August.

However, once inflation is considered this turns negative to -2.9%, a real terms fall in pay. In addition to recruitment challenges, helping employees with the cost of living will be one of the biggest crises facing businesses this winter. Some employees are being squeezed harder than others. Regular pay in the private sector grew 6.2% compared to just 2.2% in the public sector. This is one of the largest differences ever recorded between the two and will only make recruitment and retention more difficult for public sector employers.

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Furthermore the data found that the economic inactivity rate – measuring the proportion of people aged between 16-64 not seeking employment - rose to 21.7% in the June to August period. The number of those inactive because they are long-term sick hit a record high of nearly 2.5 million.

Below, HR Grapevine has gathered the thoughts of several HR and employment experts on what the new figures mean for the people function.

‘UK has a problem with long-term sickness’

Jonathan Boys, labour market economist for the CIPD, the professional body for HR and people development, commented: “The number of vacancies may be starting to fall but it’s the relative balance of supply and demand for labour that determines how difficult recruitment is. Unemployment too has fallen to a record low and inactivity increased, both of which restrict the available number of candidates. There is also a worrying continuation of the trend towards increased inactivity due to long term sickness. This requires urgent attention from employers and Government to address problems early on, to ensure people get the support they need and don’t fall out of the labour market entirely.

“The UK clearly has a problem with long-term sickness and employers and policymakers need to take this more seriously. Significantly improving workers' access to occupational health services and advice and support for employers on occupational health issues affecting staff could have a big impact over time. The provision of timely access to occupational health services to workers in their 20s and 30s who suffer from back pain or other musculoskeletal problems would mean that steps can be taken to reduce the likelihood of these conditions becoming chronic, affecting people’s health and their ability to work.

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“Unfortunately, too few employers – particularly smaller businesses – provide workers with access to occupational health services or support, while access to NHS physiotherapy and talking therapy services can be subject to very long waiting times. Consequently, there is a need to replace the former Fit for Work Service which was abolished by Government only two years after it was set up, well before sufficient employers were aware that it existed, and people could be helped.”

‘Labour market can’t get back on its feet’

Pawel Adrjan, Director EMEA Economic Research at the global job site Indeed, said: “The labour market simply cannot get back on its feet after the pandemic. The employment rate is down for a second consecutive month and still has not recovered to its pre-pandemic level, while the number of economically inactive working-age people has risen to its highest since 2015.

“The continued rise in inactivity makes the UK an international outlier with long-term illness a major contributing factor pointing to a growing in-tray for the new health secretary. The labour force participation crisis keeps pulling us away from full pandemic recovery.

“The labour market simply isn’t attracting the number of workers it requires, resulting in a severely challenging outlook for employers at a time when the number of unemployed people per vacancy fell to a record low of 0.9. Despite a weakened economic outlook, there are still more job openings than unemployed people.

“Policy makers have so far resisted the urge to relax immigration rules to allow more foreign workers into the workforce to help release mounting staffing pressures. But with ‘growth, growth, growth’ top of the political agenda, immigration is one lever they could reach to increase the supply of workers.”

'Hiring remains a challenge'

Lauren Thomas, Glassdoor’s UK Economist said: “Today’s labour market report from the ONS shows that the labour market is cooling - alongside the temperatures outside. Vacancies have dropped for the third consecutive month. Though healthcare and public administration maintained their record high vacancy rates, other fields saw a pronounced drop. This latter group includes hospitality, whose vacancies have dropped to levels not seen since last summer, though they remain high overall.

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“However, hiring remains challenging for employers, with persistently higher levels of economic inactivity post-covid and more job vacancies than unemployed people. While involuntary redundancies ticked up slightly this month, they remain low.

“In such an environment, employers need to continue focusing resources on attracting and retaining workers. This might mean providing bonuses or non-cash incentives to make up for the nearly decade-low regular pay growth, at -2.9%. Or it might mean providing hybrid or flexible working - both are both here to stay. Recent Glassdoor research found that employees happy with their hybrid work situation were less likely to apply to jobs, and job seekers’ preferences for hybrid or flexible work means employees will stick around, even through a cooling labour market.”

Number of redundancies in UK drop by a third – defying expectations

Figures published today show the number of redundancies that UK businesses plan on making has decreased 32% from 53,079 to 36,339 in the most recent quarter in spite of the economic downturn, says GQ|Littler, the specialist employment law firm.

So far the UK’s labour market has proven surprisingly resilient in the face of growing economic headwinds. However, as businesses face escalating energy prices and further hikes in borrowing costs, there are concerns that an increase in redundancies may be unavoidable.

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Caroline Baker, Partner at GQ|Littler, says the surprising drop in potential redundancies suggests that, until now, businesses have been taking a more cautious approach to cost-saving measures, such as freezing hiring rather than making large scale redundancies.

Caroline said: “The drop suggest that the tight labour market has made businesses reluctant to reduce headcount. With corporate borrowing costs soaring since the mini-budget, that softly, softly approach to cost management might not be sustainable in the long-term.”

Businesses that plan on making 20 or more employees redundant within a 90 day period must submit a HR1 form to the Government’s Insolvency Service’s Redundancy Payments Service at least 30 days before the proposed first termination date.

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