Wednesday, 13 November 2013

November 2013 Labour Market Statistics Briefing

This morning, the Office for National Statistics published the monthly Labour Market Statistics (LMS) release.   This summarises Labour Force Survey data for the period July to September 2013 and Jobseeker’s Allowance (JSA) claimant count data for October 2013.  Headline developments include a continued increase in both the number of people employed and the employment rate.   The number in employment has increased to 29.95 million, which is the highest level on record.  However, the employment rate (all those in paid employment as a proportion of all working age adults resident in the UK) remains well below its pre-recession level, as the total working age population in the UK has continued to increase significantly.

Unemployment has also fallen on the previous quarter.  However, the total number of adults who are unemployed, at 2.47 million, is still well above the pre-recession level.  The latest rate, at 7.6%, remains above the rate identified  by the Bank of England (7%), below which it will consider raising interest rates.    Economic inactivity, where individuals are neither employed nor unemployed, has also fallen on the previous quarter.  Finally, the more timely measure of claimant count unemployment fell between October and September, for the fifth consecutive month.

Despite these positive developments in the headline labour market indicators, there continues to be evidence of underlying weaknesses, including rising levels of underemployment.  The proportion of employees and self-employed people working part-time because they could not find full-time work (i.e. working fewer hours than they would like) was the highest since records began in the latest LFS period.

Despite the unexpected fall in inflation reported yesterday (from 2.7% to 2.2% on the CPI), wage growth remains well below inflation.  Wages have grown more slowly than the rate of inflation in almost every quarter since the onset of recession in 2008.  This issue has been growing in prominence in political debate, with Labour attempting to focus public attention on living standards and the ‘living wage’ campaign whilst the Government have conceded that recovery will only be meaningful to the majority of people if it is accompanied with an increase in real incomes. 

Also published today was the Bank of England’s Inflation Report.   This commented on a number of labour market indicators and their significance in terms of wider recovery and future monetary policy.  The Bank describes the recent falls in unemployment as exceeding expectations (associated with the stronger than expected output growth, provisionally estimated to be 0.8% for quarter 3 of 2013).  The Bank expect that unemployment will continue to fall, as demand for labour increases, but do not believe it likely that it will fall below the 7% threshold before the end of 2014 – suggesting that it is highly likely that the base rate of interest will remain at  its current 0.5% level for the next 12 months.  Alongside this expectation of a continued, steady fall in unemployment, the Bank also expect increased demand for labour to lead to strengthening wage growth.  With inflation expected to fall back to around the 2% target within the next year, it is hoped that this will result in a return to wage growth in real terms in 2014.

Unemployment and Employment Rates
According to the latest Labour Force Survey data (for July to September 2013), the unemployment rate[1] fell by 0.2 percentage points on the previous quarter, to 7.6% of the economically active population aged 16 and over.  The number unemployed fell by 48,000 on the previous quarter.  The total number of adults who are estimated to be unemployed is 2.47 million.

The number of people unemployed for over one year has also decreased, by 19,000 on the previous quarter (to a total of 890,000).  However, the number unemployed for between 6 months and a year has remained stable compared to the previous quarter, at 428,000.

The number and rate of young people (16 to 24 year olds) who are unemployed have also fallen on the previous quarter, with a total of 965,000 young people unemployed (down 9,000 from April to June 2013) which is 21% of the economically active population in that age group (down 0.4 percentage points on the previous quarter).

The number of employed and self-employed people who stated that they were working part-time because they could not find full-time work reached 1.46 million in July to September 2013, the highest since records began in 1992 – equivalent to a third of employed men and 13.5% of employed women.

The employment rate (for adults aged 16-64) for July to September 2013 increased on the previous quarter, by 0.3 percentage points to 71.8%, equivalent to 29.95 million resident adults in employment in the UK (an increase of 177,000 on the previous quarter).   The current employment rate remains below the pre-recession rate  (although the number is significantly higher) because there has been a sustained and significant increase in the total population of working age adults in the UK, increasing by 36,000 on the previous quarter and 86,000 on the same period a year earlier.

Earnings Estimates
Earnings growth remains weak and below the rate of inflation.  Total pay (including bonuses) increased by only 0.7% between the periods July to September 2012 and July to September 2013, whilst regular pay (excluding bonuses) increased by only 0.8%.  These rates of pay increase are level with the rates reported last month, although inflation has fallen between September and October, from 2.7% to 2.2% on the Consumer Prices Index (CPI).

Time series analysis published by the ONS show that earnings growth (both total and regular pay) has been below the rate of inflation in almost every quarter since in the onset of recession in 2008.

Job Seekers’ Allowance Claimants
The number of Jobseekers’ Allowance (JSA) claimants in October 2013 fell on the previous month, by 41,700, whilst the rate was down 0.1 percentage points to 3.9% (and down 0.8 percentage points on the same month a year earlier).  This is the fifth consecutive month in which the rate of claimant count unemployment has fallen. 

Redundancies and Vacancies
In the three months to September 2013, 124,000 people were made redundant, unchanged from the previous quarter and with the same period a year earlier.

The number of vacancies (advertised through Jobcentre Plus) in the period August to October 2013 increased by 6,000 on the previous quarter to total 545,000.  The number of ILO unemployed adults to every one vacancy in the three months to September 2013 was 4.5, 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 East, the West Midlands, the East Midlands, the East of England, and the South East.  The most significant falls were estimated to be in the East and West Midlands, where the number estimated to be unemployed fell by 15,000 in both cases, and the East of England, where the number unemployed fell by 23,000.
  • However, unemployment increased significantly on the previous quarter in the South West, by 11,000, and remained broadly flat in the North West, Yorkshire and the Humber, and London .  The highest rate of unemployment continues to be in the North East, at 10.2%.
  • In the East Midlands, the unemployment rate fell by 0.8 percentage points to 7.1%, below the national average of 7.6%.  This is equivalent to 166,000 individuals unemployed in the region over the period July to September 2013.
  • The employment rate in the East Midlands increased significantly on the previous quarter, by 1.2 percentage points (or 44,000 additional individuals in employment), to 72.4% -  higher than the UK average of 71.8%.
  • Prior to the onset of recession in 2008, employment rates in the East Midlands were  consistently estimated to be higher than in the UK, whilst the region had significantly lower than average rates of unemployment.  Through much of the period 2009 to 2012, as employment fell in the region by more than average and unemployment increased at a slightly faster rate, the East Midlands has had employment rates in line or slightly below the UK, and unemployment rates in line or slightly above the UK.    This is the first monthly Labour Market Statistics release in some months to indicate more favourable labour market conditions in the East Midlands than in the UK overall  – although it is important not to rely too heavily on three months’ worth of LFS data, as the sample size is relatively small at a regional level.

[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.