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Employment figures strong, but underlying paradoxes still remain

He said, "Today’s ONS statistics are, once again, extremely positive, but also pose some serious questions about the state of the UK labour market. The overall employment rate is back to its peak level of 73.1 per cent (a level reached only twice before in 1974 and 2004). Unemployment is down to 6.5 per cent and the numbers unemployed are falling fast towards the 2 million level.

"So far, so good. On the other side of the coin, however, the “productivity paradox” continues to perplex economists. The total number of hours worked in the economy has again grown faster than GDP, so labour productivity falls as the economy recovers (normally it would be increasing fast at this stage of an economic recovery). How much of this is due to under-employment in parts of the economy (including those areas where self-employment has surged), how much reflects the UK’s persistently low levels of investment in both capital and skills, and how much is due to a concentration of the recovery in low productivity sectors, remains unclear. Most likely it’s a mix of all of these and other factors, but as long as productivity stagnates, it’s no surprise that real wages continue to fall. Today’s figures yet again show very weak earnings growth (well below inflation on all the main measures).

"The latest figures also throw up a conundrum about the relationship between unemployment and vacancies. As the economy recovers we’ve seen the usual pattern of unfilled vacancies growing, and unemployment falling. What’s more unusual is that since the upturn started, a given level of unfilled vacancies has been associated with much higher unemployment than before. Today’s figures show 650,000 unfilled vacancies, up from a low of 400,000 in the downturn. The last time vacancies were at 650,000(early 2008), unemployment was 1.6 million, more than half a million less than now.

"What economists call the “Beveridge curve”, the relationship between unemployment and vacancies, has shifted in a way which suggests that the UK’s lauded flexible labour market is not efficiently matching the unemployed to newly available jobs. This chimes with employers increasingly reporting recruitment difficulties and skills shortages. However, the underlying cause remains unclear: are the unemployed in the wrong places with the wrong skills for the new jobs? Are too many of them long-term unemployed who are simply unattractive to companies now hiring? Are government employment programmes failing to prepare or train the unemployed for the new jobs? Again the answer is probably a mix of all these, but if the pattern persists it poses important questions about the appropriate policy response. And, not least, it raises yet another puzzle about how emerging skills shortages sit alongside falling real wages – if labour market mismatches are indeed emerging in the recovery, why are we not seeing more upward pressure on wages, as employers struggle to fill their unfilled vacancies?”

David Rudick, vice president International Markets at Indeed.com, said, “It is heartening to see ONS statistics this morning pointing to UK unemployment at a six year low. These figures certainly tie in with the number of job postings we’re seeing on Indeed. In the three months to March, we saw consistent growth across all sectors compared with the previous quarter. Healthcare led the way, with a 37% increase, followed by hospitality with 28% growth. Postings for jobs in real estate grew by 20%, closely followed by the construction industry, with an 18% increase.

“Our recently released Hiring Lab report indicates that job seekers are responsive to local market conditions, with an increased number of job postings driving incoming job searches from other markets. With the current buoyancy of the UK jobs market in mind, we would expect to see an increase in searches from international jobseekers over coming months, boosting the UK’s profile as an international labour destination.

“However, although the picture is positive, there’s no room for complacency. Search interest cannot and does not translate to realised workforce mobility. With every country across the globe battling to attract and retain the best talent, we need to make sure we have the right policies in place to facilitate and take advantage of the potential of international labour movement.”

Andrew Hunter, co-founder of Adzuna, commented, “The labour market is abuzz with fresh activity as switching jobs becomes an increasingly attractive prospect. More new roles are popping up as businesses recruit for expanding teams. Advertised salaries are showing signs of gradual growth. And our live data shows that competition for roles has fallen to a six year low. Workers can afford to be much pickier about the roles they take on, while employers are slowly increasing salaries to attract the best staff. The unemployment rate has continued to fall, reaching 6.5% for March to May, the lowest since October to December 2008.

“But youth unemployment continues to snap at the heels of the labour market recovery. Entry level salaries took a huge hit during the recession, and they still continue to dwindle. The average graduate salary (&pound24,105) is 3.8% lower than 12 months ago. Faced with higher tuition fees, high rents, and slipping salaries, the jobs market is still a real challenge for new graduates.

“There are still 30 jobseekers fighting it out for every entry level role, as several years’ worth of entry level talent compete for the same jobs. This figure has fallen from 50 a year ago, but still highlights the need to continue encouraging employers to take on more entry level staff – whether through internships, apprenticeships, or permanent placements."

David Spencer-Percival, CEO, Spencer Ogden, said, “It’s great to see that unemployment figures have fallen but, with the economy growing stronger, wage growth still needs to catch up across most sectors.

“Yet, energy has been bucking that trend. The sector has seen pay levels rising faster than any other industry a result of the skills shortages it faces across the UK and Europe.

“With few candidates having the right experience, energy businesses are using increasing pay grades to attract and retain the best talent. Though the energy sector needs to be careful not to make pay unsustainable, other industries must understand the benefit of these increased wages in retaining new recruits.”

Neil Carberry, CBI Director for Employment & Skills, said, “This is another really strong quarter for the UK labour market, with employment growing and the unemployment rate falling to its lowest level since 2008, led by full-time jobs. It’s particularly encouraging to see youth unemployment continuing to come down but there’s still more to do.

“Pay growth is still sluggish – although other surveys suggest a more positive picture. Looking ahead, we expect productivity to pick up, and wages should follow suit.”

 

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