Data reveals jobs market tipping point that will worry ministers as much as employers

The latest labour data reveals the pay gaps fuelling public sector discontent, and a potential tipping point in the jobs market that will worry ministers almost as much as employers.

Average pay rose 6.4% in the three months to November, the strongest growth in 20 years excluding the pandemic period, but there’s a chasm between public and private earnings.

Private sector settlements ran at 7.2%, the upward pressure driven largely by labour shortages that have defined the jobs market since the pandemic.

In the public sector wages rose by just 3.3%, a gap of almost 4% that is impacting the ability to recruit and retain staff and fermenting discontent in the labour force.

That unhappiness was expressed in the more than 460,000 working days lost to strike action in November, the highest monthly number in 11 years, taking the total to 1.6 million since June. (Those figures would have been even higher had the RMT not cancelled three days of strike action planned for November)

Whether you work in the public or private sector, pay is not even close to keeping up with inflation running at more than 10%. As a consequence, real-terms wages – the value of the pound in your pocket when you come to spend it in the real world – fell by 3.8%.

Those gaps, between public and private wage increases, and everyone’s pay and inflation, explain the demand from health and education unions for wage increases, as well as in legacy industries like transport and the postal service.

Wage growth at fastest rate in 20 years, but failing to keep up with inflation

Profit warnings at recruitment firms show unemployment is likely to rise

Of all the troubling signs, the increase in ‘economic inactivity’ is perhaps the most worrying

The post-pandemic labour market

Away from pay, the data contains signs that the slowing economy may be turning the labour market from its curious post-pandemic state.

There is unquestionably still a shortage of workers, with one vacancy for every person unemployed.

The number of jobs advertised has fallen for the sixth successive quarter however, something the Office of National Statistics attributes to “uncertainty across industries, as [employers] continue to cite economic pressures as a factor in holding back on recruitment.”

The impact of economic inactivity is still significant, with 574,000 people having left the workplace since COVID-19.

That figure fell in the quarter by 67,000, a glimmer of light for the Treasury, which has made the issue its number one priority, but it does not tell the whole story.

The definition “economically inactive” covers a wide range of people, including students and those who care for family or home, but at the heart of the increase is the flight of older workers, and perhaps more intractably, illness.

More than half of the newly economically inactive are over 50, and 325,000 of the total are long-term sick.

Bringing that number down with an over-stretched NHS and seven million people on waiting lists is a huge challenge.

Too early to call a turning labour market?

One other number to note is unemployment, once the headline figure in any labour data, rising again, marginally by 0.2% to 3.7%.

Taken with the fall in vacancies it could signal that the labour market has finally turned, the economic slowdown finally outweighing demand for workers.

It may be too early to call.

You cannot walk down a high street without seeing posters seeking staff and the hospitality industry says demand is as strong as ever. If they could meet it they would be doing a great deal more trade, contributing to growth rather than contraction.

The worker shortage undoubtedly remains a huge challenge, and here there is one more piece of intelligence to consider today.

Research by UK in a Changing Europe estimates a net loss of 330,000 EU workers since Brexit, the departure of 460,000 European employees only partially offset by an increase in non-EU staff.

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