Wednesday, 18 February 2015

February 2015 Labour Market Statistics Briefing

This morning, the Office for National Statistics published the Labour Market Statistics (LMS) for February 2015, which draws on Labour Force Survey data for the final quarter of 2014 (October to December) and Jobseekers’ Allowance data for January 2015.

This is the first monthly LMS published within the 100 days prior to the General Election on the 7th of May.  The state of the labour market will be a key battle ground between the two largest parties.  The Conservatives are emphasising the strength of recovery - the extent of increasing employment and falling unemployment - and are likely to continue to do so, presenting themselves as the party of job creation.  The Secretary of State for Work and Pensions, Ian Duncan Smith, described the recovery as “jobs-led” and that is was “changing lives for the better on a daily basis,” according to the BBC.  Labour, on the other hand, are emphasising the uneven nature of the recovery and the poor quality of many jobs (part-time, temporary, etc.), contributing to weak wage growth and what they call the ‘cost of living crisis’.  Shadow Employment Minister Stephen Timms’ response to Duncan-Smith was to argue that working people are “£1,600 a year worse off since 2012.”

This month’s LMS suggests that there are elements of truth behind both perspectives.   Employment has continued to increase.  There were 103,000 more individuals employed in the latest quarter compared to the previous Labour Force Survey Period, July to September 2014.  Notably, this increase has outstripped the growth in the working age population, meaning that the employment rate increased (although only slightly) to 73.2%.  This is higher than the pre-recession peak of 73% and level with the highest rate on record (which was in the three months to February 2005).  Unemployment is now well below the 2 million level experienced through the period of recession, at 1.86 million (97,000 fewer than the previous quarter) although, again, the unemployment rate has only fallen very slightly, to 5.7%.

But looking beneath these headline indicators, it is difficult to agree with the Conservative claim that lives are being substantively improved across the country.  Data pertaining to quality of work and living standards continues to suggest an uneven recovery.  The increase in real earnings is more due to the very low rate of inflation at the present time (0.3% on the CPI in the 12 months to January) rather than a recovery in nominal earnings growth.  Excluding bonuses, average pay increased by 1.7% between October to December 2014 and the same period a year earlier - which is not substantively different than the rates of earnings growth estimated over much of the period following the onset of recession in 2008.  Furthermore, although the number of employees increased significantly (by 2.2% compared to the same period a year earlier) – the number of these who were on temporary contracts increased far more significantly (by 5.1%, to a total of 1.7 million individuals).

Geographically, there continues to be significant variation in the extent of recovery.  Although unemployment fell in the majority of English regions and UK nations on the previous quarter, it increased in the North West, the East of England, London and Wales, whilst economic inactivity (people who are neither employed nor unemployed) increased in many regions and nations.

For a discussion on issues related to the quality of employment over the longer-term, please see our recent article for The Conversation.  Further blog articles on these issues will be circulated in the run-up to the election. 

Unemployment and Employment Rates
According to the latest Labour Force Survey, for the period October to December 2014, the unemployment rate[1] fell by 0.3 percentage points on the previous quarter to 5.7% of the economically active population aged 16 and over.  This is the lowest rate since the period July to September 2008, as the recession began to impact the UK labour market, but still higher than the pre-downturn trough of 5.2% at the end of 2007.  The number of people unemployed fell by 97,000 on the previous quarter and by 486,000 on the same period a year earlier, to a total of 1.86 million people.

The number of people who have been unemployed for more than one year fell significantly - by 210,000 (a fall of almost 25%) on the same period a year earlier, to a total of 638,000 adults. 

Youth unemployment was little changed on the previous quarter, at a rate of 16.2% of individuals aged 16 to 24 – although this is down from 19.9% in the same period a year earlier.

The employment rate (for adults aged 16-64) increased slightly on the previous quarter, by 0.2 percentage points to 73.2% - which is level with the rate for the period December 2004 to February 2005.  The rate of employment has never been higher than this since comparable records began in 1971.  The number employed increased by 103,000 on the previous quarter to a total of 30.9 million individuals in work, which is the highest on record.

In previous recent LMS releases, self-employment has accounted for a large share (and in the some cases the majority) of the increase in the number of individuals in employment.  In the latest LMS, the number of self-employees fell on the previous quarter (by 19,000) whilst the number of employees increased strongly (by 154,000).  Compared to the same period a year earlier, the total number self-employed increased by 2%, whilst the number of employees increased by slightly more (2.2%).  However, the number of employees on temporary contracts increased very significantly – by 5.1% compared to the same period a year earlier (or an additional 83,000 individuals to a total of 1.7 million, or 6.5% of all employees).

Earnings Growth
Between October to December 2014 and the same period a year earlier, total pay (including bonuses) rose by 2.1% and regular pay (excluding bonuses) rose by 1.7%.  This means that earnings are currently growing in real as well as nominal terms (having shrunk in real terms through much of the period from 2008), as the rate of earnings growth is now significantly higher than the rate of general price inflation.  However, this change is more due to the current very low rate of inflation rather than a substantive change in the rate of nominal earnings growth.  Inflation on the Consumer Prices Index fell from 0.5% in the 12 months to December to a record low of 0.3% in the 12 months to January, principally due to steep falls in fuel prices (due to low international oil prices) and lower food prices (due to a price war between the largest supermarkets).  The Bank of England are even predicting a short period of deflation through the Spring.

Job Seekers’ Allowance Claimants
The number of Jobseekers’ Allowance (JSA) claimants in January 2015 fell on the previous month, by 38,600, whilst the rate was down 0.1 percentage points to 2.5% (and down 1.1 percentage points on the same month a year earlier).  This is the 27th consecutive month in which the number of claimants has fallen.

Redundancies and Vacancies
In the three months to December 2014, 107,000 people were made redundant, 16,000 more than the previous quarter but little changed from the same period a year earlier.
The number of vacancies (advertised through Jobcentre Plus) in the three months to January 2015 increased by 22,000 on the previous quarter to total 718,000.  The number of ILO unemployed adults to every one vacancy in the three months to December 2014 was 2.6, down by 0.2 on the previous quarter.

Key Regional Developments
  • Compared to the previous quarter, unemployment rates and levels fell in five of the nine English regions.  Unemployment increased in the North West, the East of England and London, and remained flat in the South East.  Unemployment also increased in Wales, though it fell in Scotland and Northern Ireland.
  • Unemployment fell most significantly in the West Midlands, by 1.2 percentage points and 32,000 individuals (although the rate remains above the national average, at 6.1%).  The North East continues to have the highest rate of unemployment of the nine English regions, at 8%.
  • In the East Midlands, the unemployment rate fell by 0.8 percentage points on the previous quarter to 4.9%, significantly below the national average of 5.7%.  This is equivalent to 17,000 fewer individuals unemployed compared to the previous quarter.  The total number unemployed in the region in the three months to July 2014 was 115,000. 
  • The rate of employment increased in the East Midlands, to 74.5%, whilst the number of people employed increased by 37,000 on the previous quarter.  The employment rate in the region is higher than the UK average, which was 73.2% in the three months to December 2014.

[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.