Real incomes eroded, despite record jump in wages
17 January 2023
November labour market figures released today paint a mixed picture for the labour market.
The employment, unemployment and inactivity rates remained broadly flat in the three months to November.
However, these figures only tell part of the story, because of the way in which they are computed. Looking at the number of people in each category, employment has inched up, with the decrease in inactivity offsetting the slight uptick in unemployment.
Vacancies fell for a seventh consecutive month. However, at 1.1mil in December, they remain at historically high levels, with over 300,000 vacancies compared the pre-pandemic period persisting. There were 3.8 vacancies for each 100 employees in the UK, down from 4.3 in April 2022, but well above the 2.7 rate of February 2020, signalling that the labour market remains tight. Pressures are slightly easing in the manufacturing sector as well, but remain elevated, with a vacancy rate of 3.3%, significantly higher than the pre-COVID rate of 2.3%.
The fall in vacancies taken together with the employment data suggests vacancies being closed, so a slowdown in hiring, against a background of weakening and highly uncertain economy. This is likely to explain the rise in redundancies as well, which have been edging up since May, but also remain low relative to the pre-pandemic period.
Nominal pay rose by 6.4% the strongest pace, the pandemic period notwithstanding. Even so, they didn’t keep abreast of inflation, running at 10.7% in November. As a result, price rises eroded real incomes, which fell by 2.6%, one of the largest falls since records began in 2001.
The robust pick-up in wages, in itself a reflection of the continued strength of the labour market, will prove challenging for the Bank of England. Higher pay will make the case for a new rate raise in February. The risk is that if businesses will pass on these extra costs, inflation will persist.
The most recent ONS data shows that the food and drink manufacturing sector shed 4,000 jobs in Q3, bringing the total number employed in our industry to 456,000, while our members reported a rise in their vacancy rate to 9.3%, up from 6.3% in Q2. This adds to the relentless pressures manufacturers faced over the last three years from rising costs of ingredient, packaging and transportation and, over the last year, of energy.
We would welcome further conversations with the Government on the independent review into labour shortages and on how to make the skills system work better right across the country as well as a reformed and more flexible Apprenticeship Levy.