Thursday, 19 December 2013

December 2013 Labour Market Statistics Briefing

Yesterday morning, the Office for National Statistics published the monthly Labour Market Statistics (LMS) release.   This summarises Labour Force Survey data for the period August to October 2013 and Jobseeker’s Allowance (JSA) claimant count data for November 2013.  Key indicators for the UK labour market overall continue to improve, with further increases in both the number of people employed and the employment rate alongside a further fall in both unemployment and economic inactivity (people who are neither employed nor unemployed). The number of people in employment, at 30.1 million, is the highest on record - although the rate of employment, at 72%, remains below the pre-recession peak.

The rate of unemployment, at 7.4% of the economically active population, fell on the previous quarter, although it remains significantly higher than pre-recession rates (which were around 5.5% through 2006 and 2007, and below 5% through most of 2004 and 2005). 

The fall in unemployment prompted further discussion amongst the Bank of England’s Monetary Policy Committee (MPC) around the timing of a future increase in interest rates.  Under the policy of ‘forward guidance’, Governor Mark Carney had stated that the Bank would maintain interest rates at the current level of 0.5% at least until unemployment fell below 7%.  At the time of this announcement, within the new Governor’s first 100 days from his appointment in July this year, the Bank did not expect unemployment to fall below this threshold until early 2016.  This month’s data has led to speculation that it may fall below 7% by the end of 2014, possibly triggering an earlier rise in interest rates.  This speculation led to a jump in the value of sterling.  As the UK’s currency has been rising compared to its major trading partners since March, this has in turn led to concern amongst the MPC that appreciation of the pound may act as a significant drag on the recovery.

MPC members and other policy makers and commentators remain concerned about several underlying weaknesses visible in the latest ONS data, which have been discussed in our previous monthly briefings.  These issues include record under-employment, very weak earnings growth, and relatively weak productivity (measured in the LMS in terms of labour productivity – output per hour worked).  Output per hour increased by only 0.5% between the 1st and 2nd Quarters of 2013, whilst unit labour costs increased by 2.2% over the same period.

A further issue dominating the public debate around the economy, labour market and the welfare system in recent weeks has been migration – in advance of the lifting of transitional restrictions on migrants from Bulgaria and Romania in January 2014.   As a follow-up to an earlier article published on the NTU website and the Huffington Post, Chris Lawton and Professor Rob Ackrill produced analysis on recent immigration and emigration flows and the contribution they have made to overall UK population change.  This article is available on the NTU website.   The observations on the higher levels of economic activity amongst EU migrants compared to all UK residents, and the lack of evidence for the existence of significant ‘benefit tourism’, has been further supported by analysis published by the ONS in the December LMS.  This indicates that EU migrants resident in the UK, especially those from the eight Central and Eastern European Countries (CEECs)  that joined the EU in 2004, had significantly higher rates of employment than average for all UK residents and when compared to those residents who were born in the UK.  This is discussed in more detail in the section below.

Unemployment and Employment Rates
According to the latest Labour Force Survey data (for August to October 2013), the unemployment rate[1] fell by 0.3 percentage points on the previous quarter, to 7.4% of the economically active population aged 16 and over.  The number unemployed fell by 99,000 on the previous quarter.  The total number of adults who are estimated to be unemployed is 2.39 million.

The number of people unemployed for over one year has also decreased, by  33,000 on the previous quarter (to a total of 866,000). 

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 941,000 young people unemployed.  This is 20.5% of the economically active population in that age group (down 18,000 and 0.5 percentage points on the previous quarter).
The employment rate (for adults aged 16-64) for August to October 2013, increased on the previous quarter, by 0.4 percentage points to 72%, equivalent to 30.1 million resident adults in employment in the UK (an increase of 250,000 on the previous quarter).

In this month’s LMS, the ONS have included analysis of employment by country of birth, based on the July to September Labour Force Survey period.  Compared to the employment rate of all UK residents at this time (72.1%), these tables show the following:
  •  EU migrants (defined as current UK residents born in the 27 EU member states excluding the UK) had significantly higher rates of employment than average, at 77.8%.  This compares to 72.7% for those born in the UK (i.e. non-migrants);
  • Within this group of EU migrants, those born in the 8 Central and Eastern European Countries that joined the EU in 2004 had an employment rate of 79.1%;
  • The employment rate for those born in Bulgaria and Romania, who are already resident in the UK, was 76.9%.   This is equivalent to 135,000 individuals; and
  • The employment rates for non-UK born individuals from other parts of the world were lower in some cases, with the average employment rate for migrants born in non-EU countries estimated to be 64.5% in this period.

Earnings Estimates
Earnings growth remains weak and below the rate of inflation.  Total pay (including bonuses) increased by only 0.9% between the periods August to October 2012 and August to October 2013, whilst regular pay (excluding bonuses) increased by only 0.8%.  These rate of pay increase in total pay is slightly higher than the rate reported last month, though the increase in regular pay has remained the same.  The rate of inflation on the Consumer Prices Index (CPI) for the period October 2012 to October 2013 was 2.2%.  Therefore prices continue to rise at a considerably faster rate than earnings, which has been the case in almost every quarter since the onset of recession in 2008.

Job Seekers’ Allowance Claimants
The number of Jobseekers’ Allowance (JSA) claimants in November 2013 fell on the previous month, by 36,700, whilst the rate was down 0.1 percentage points to 3.8% (and down 0.9 percentage points on the same month a year earlier).  This is the sixth consecutive month in which the rate of claimant count unemployment has fallen. 

Redundancies and Vacancies
In the three months to October 2013, 120,000 people were made redundant, down 1,000 from the previous quarter and down 27,000 from the same period a year earlier.

The number of vacancies (advertised through Jobcentre Plus) in the three months to November 2013 increased by 22,000 on the previous quarter to total 562,000.  The number of ILO unemployed adults to every one vacancy in the three months to October 2013 was 4.3, down 0.3 percentage points on the previous quarter.

Key Regional Developments
  • Compared to the previous quarter, unemployment rates and levels fell in all English regions except for London and the South West.  The most significant falls were in the North West (where the number estimated to be unemployed fell by 29,000), the West Midlands (where the number fell by 26,000(, and the East of England (where it fell by 35,000).
  • The North East continues to have the highest rate of unemployment of the nine regions, at 10.1%, although this fell by 0.3 percentage points on the previous quarter.
  • In the East Midlands, the unemployment rate fell by 0.4 percentage points to 6.9%, below the national average of 7.4%.  This is equivalent to 162,00 individuals unemployed in the region over the period August to October 2013.
  • The employment rate in the East Midlands increased significantly on the previous quarter, by 1.2 percentage points (or 54,000 additional individuals in employment), to 72.7%.  This is higher than the UK average of 72%.

[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.