Wednesday, 12 June 2013

June 2013 Labour Market Statistics Briefing

This morning, the Office for National Statistics published the monthly Labour Market Statistics (LMS) release for June 2013.   This contains Labour Force Survey data for the period February to April 2013 and Jobseeker’s Allowance (JSA) claimant count data for May 2013.   As in the case of last month’s LMS, this month’s data is fairly flat, with little change in either the employment or unemployment rates on the LFS-based measures, alongside a slight fall in the more timely claimant count unemployment.
Weak earnings growth remains the preeminent story.  Although estimates of earnings growth in the latest release are higher than the estimates published last month, they remain significantly below the rate of inflation.  Total pay (including bonuses) is estimated to have increased by 1.3% since February-April 2012 and regular pay is estimated to have increased by 0.9%.  Between April 2012 and April 2013, prices were estimated to have increased by 2.4% on the Consumer Prices Index (CPI). 
As we have reported previously, earnings growth has been weak since the recession began in 2008, and has been below the rate of inflation for much of this period.  The Institute for Fiscal Studies (IFS) summarised the findings of three linked studies in a special issue of their ‘Fiscal Studies’ journal, also published today.  In these articles, the IFS observe that real wages fell more significantly than in any comparable five year period, with a reduction in wages in real terms of 6% over the period (prior to the recession, wages in the UK were rising by an average of 2% per annum in real terms). 
One-third of workers experienced nominal wage freezes or cuts between 2010 and 2011 (i.e. individuals staying in the same job experiencing a freeze or reduction in their take-home pay).  A total of 70% of UK workers experienced a real wage decrease, reflecting the fact that inflation has outpaced pay growth. The IFS identify a number of factors behind this.  Reductions in nominal pay for workers staying in the same job have been more likely to occur in smaller companies (with larger firms more likely to lay off workers).  Correspondingly, smaller firms (with fewer than 50 employees) have experienced particularly large falls in productivity – of 7% compared to the pre-recession period, compared to no change in firms employing more than 250 employees.  Investment has also fallen more significantly in smaller firms – who may be more likely to substitute cheaper, low skilled labour for investment in machinery etc., thus pursuing more labour intensive (and thus less productive ) strategies.  Additionally, the UK labour force has continued to grow throughout the period since 2008, due to changes to the state pension age, welfare changes (increasing economic activity amongst single parents, for example), indigenous population growth and net migration – which together may be increasing the supply of workers who are prepared to work for a lower wage. 
Claire Crawford, program director at the IFS, summarized the key messages as follows: "The falls in nominal wages that workers have experienced during this recession are unprecedented, and seem to provide at least a partial explanation for why unemployment has risen less – and productivity has fallen more – than might otherwise have been expected.  To the extent that it is better for individuals to stay in work, albeit with lower wages, than to become unemployed, the long-term consequences of this recession in terms of labour market performance may be less severe than following the high unemployment recessions of the 1980s and 1990s."  However, this rather optimistic interpretation is put in a more negative context when reviewing the detail of the IFS journal articles, which illustrate the full extent of falling productivity compared to previous recessions.  Nearly 5 years after the start of the recession, UK output remains 3% lower than the pre-recession level, whilst it was 15% higher within five years of the start of the recession in the early 1990s and 13% higher than at the start of the recession in the early 1980s.  Moreover, the monthly LMS estimates demonstrate that the labour market impacts for certain groups are severe, including when compared to previous recessions, with youth unemployment remaining close to a record 1 million whilst long-term unemployment continues to increase on a number of measures.
Unemployment and Employment Rates
LFS data for the three months to April 2013 suggest that the unemployment rate[1] was unchanged from the previous quarter (November 2012-January 2013) at 7.8% of the economically active population.  The number unemployed fell slightly on the previous quarter, by 5,000, and more significantly on the same period a year earlier, by 88,000.  The total number of adults currently estimated to be unemployed is 2.51 million.
The number of adults unemployed for up to six months has increased by 18,000 (to 1.2 million), whilst the number unemployed for over a year has increased by 11,000 (to reach 898,000 individuals).  Of these, 458,000 have been unemployed for more than two years, which is an increase of 7,000 on the previous quarter.
The employment rate (for adults aged 16-64) has fallen very slightly on the previous quarter, by 0.1 percentage points to 71.5%.  However, this is up 0.7 percentage points on the same period a year earlier.  The number employed has increased both on the previous quarter and on the year, by 24,000 and 432,000 respectively, to reach a total of 29.76 million.  That this has not resulted in an increase in the employment rate (when compared to the previous quarter) is due to the continuing significant growth in the total size of the UK working-age population and labour force (for the reasons noted by the IFS in the above summary). 
Earnings Estimates
Earnings growth remains weak and below the rate of inflation.  Total pay (including bonuses) increased by 1.3% between February-April 2012 and February-April 2013 whilst regular pay (excluding bonuses) increased by 0.9%.
Job Seekers’ Allowance Claimants
The number of Jobseekers’ Allowance (JSA) claimants in May 2013 fell on the previous month, by 8,600, whilst the rate was unchanged at 4.5% (but down 0.3 percentage points on the same month a year earlier).
Redundancies and Vacancies
In the three months to April 2013, 141,000 people were made redundant, up 9,000 from the previous quarter but down 14,000 from the same period a year earlier.
The number of vacancies (advertised through Jobcentre Plus) in the period March to May 2013 increased by 19,000 on the previous quarter to total 516,000.  The number of ILO unemployed adults to every one vacancy in the three months to April 2013 was 4.9, down 0.2 percentage points on the previous quarter.
Key Regional Developments
·         Unemployment rates and levels fell compared to the previous quarter in the North West, by 0.8 percentage points and 28,000 individuals, whilst levels fell in Yorkshire and the Humber and the South East, by 2,000 individuals in both cases.
·         Unemployment increased significantly on the previous quarter in the West Midlands, by 19,000 and 0.8 percentage points, in the South West, by 12,000 and 0.4 percentage points, and in the North East, by 4,000 and 0.3 percentage points, whilst remaining flat or increasing very slightly in all other regions.  The unemployment rate in the North East remains the highest of the nine English regions, at 10.1%, followed by 9.4% in the West Midlands.
·         In the East Midlands, unemployment has increased very slightly, by 1,000 individuals and 0.1 percentage points, whilst employment has decreased more significantly, by 10,000 individuals and 0.6 percentage points.  The unemployment rate in the East Midlands for the period February to April 2013 is estimated to be 7.8%, in line with the UK average, whilst the employment rate is estimated to be 71%, below the UK average (of 71.5%).
·         The total size of the labour force (economically active adults), has continued to decline in the East Midlands, with the economically active population falling by 8,000 on the quarter, whilst the number who are economically inactive (neither in work nor unemployed ) has increased by 15,000 on the previous quarter.   This suggests that a significant number of individuals could be moving directly from employment to economic inactivity.

[1] According to the International Labour Organisation (ILO), this is defined as those who are out of work but available for, and actively looking for, employment within a set period.  This is expressed as the proportion of ‘economically active’ (employed plus unemployed) adults.