What’s going on in the labour market and what does it mean for businesses?
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This morning the latest regional employment figures showed a fall in the rate of unemployment in the North East, down 0.4 to 5.4%.
I called it all a sign of “an economic recovery which is stuttering” in my comment, which you may think is harsh given the unemployment rate fell.
At first glance, that’s good news, but that figure not only remains significantly higher than the UK average (which is 3.8%), but also wasn’t matched by a corresponding rise in the employment rate, in fact it fell by 0.3.
Instead, economic inactivity rose by 0.7 to 25.7%.
So, in the North East there are 1.14m people aged 16-64 in employment, 65,000 unemployed and 417,000 economically inactive.
The number of economically inactive people in the North East has risen in the last few years and there has been a fall in the proportion of students in this group and an increase in particular of those who have long term ill health and retirees.
This is a trend that’s occurred nationally too, and the pandemic has had a big impact – especially around those classed as long-term sick.
But in our region, where our labour market already lagged national averages on most measures, this means losing even more by way of skills and talent out of the workforce.
Nationally the labour market is tight – 3.8% is near record lows for the unemployment rate, and there are more vacancies (1.288m) than there are working age people classed as unemployed (1.269m).
The theory goes that it’ll be difficult to fill those vacancies with the right people (there’s less choice per vacancy) and that real wages ought to go up (low supply of people vs the level of demand). Reality isn’t always like that…not least because people move between jobs, not just from unemployment into work.
There are signs the market is getting just as tight in the North East, but at a higher unemployment level.
The latest Chamber economic survey had two-thirds of businesses telling us they’d attempted the recruit in the last five months (mostly for full-time, permanent roles) and then two-thirds of those telling us they’d had trouble recruiting.
Some of this may be down to skills misalignment – certainly more businesses said they were having difficulty hiring into skilled, technical, professional or managerial roles than other roles.
Some of it may be down to a lack of liquidity in the labour market – people definitely sat tight during the last couple of years, fearing lockdowns and missing out on furlough if they moved jobs, and this might be still taking time to unwind, meaning less movement between roles.
Without getting too into the weeds, there are various models of labour markets and some of them take account of skills mismatches, which tend to push up wages in the short to mid-term, but then see a fall back as the supply side loosens.
What they won’t factor in is the impact of the pandemic on behaviour – there’s that market liquidity issue (the lack of movement between jobs, which may suddenly unwind) there’s maybe a hesitancy to push your luck and ask for pay increases, or to negotiate hard when going into a new role.
Businesses are also facing huge costs, with general inflation and energy prices both troubling nine in ten businesses at the moment, so overall ability to pay higher wages will be limited, even if they wanted to.
We asked businesses about recruitment and retention in our economic survey for Q1 this year, and my colleague Freya Thompson published a blog yesterday on what we heard from the survey and a subsequent roundtable.
As Freya notes, adjusting pay is still top of the list of things businesses are doing to attract and retain staff, but only just, as investing in training, focusing on wellbeing or promoting flexible working all rank highly too.
This bundle of different initiatives reflects the changing labour market – pay will always be important, but businesses need to be doing other things to stand out hence the other elements to improve their offer.
Overall this is a situation of two parts.
Short term – businesses need to stand out to prospective recruits, and work hard to retain the talent they have, because this is an exceptionally tight labour market.
Longer term – there needs to be a realignment on skills, as it’s clear shortages still play a significant role in limiting growth and are causing recruitment difficulties.
Businesses can do their part in the short term, but the longer term goals need collaboration across education and employment and a coherent approach from government.
Arlen Pettitt
Knowledge Development Manager
Photo by Eric Prouzet on Unsplash