Most of today’s headlines surrounding the latest release of labour market statistics will focus on the positives and there are many – falling unemployment and rising employment, an increase in the number of vacancies and a rise in the number of hours worked. All this points towards a welcome recovery in the labour market which is recovering from the worst financial crisis in 100 years. But, if you dig a little deeper it is clear that some of the most persistent challenges associated with the labour market remain.
As anticipated the small spike in wage growth from earlier this year appears to have been a one-off with pay rising by just 0.9% in Q3 (0.8% excluding bonuses) against inflation (CPI) of 2.1% (see Figure 1). This translates into falling real wages adversely impacting household disposable income. A rise in real incomes is critical as the economic recovery takes root – according to the Office for Budget Responsibility’s recent forecasts, increasing private consumption is the only game in town, yet without rising personal incomes this will result in reduced savings and increased household liabilities…sound familiar? Until either incomes rise, or we start to achieve a more balanced recovery, the UK’s savings ratio is likely to continue falling. And as a recent paper published by the ILCUK and PFRC has demonstrated, debt can be persistent – once in it, it’s hard to break free.
NEETS (Young People Not in Employment, Education or Training)
Whilst overall levels of youth unemployment fell in Q3, they remain elevated by historical standards. And perhaps more importantly, there has been little shift in the number of NEETS – falling from 627,000 in Q2 to 625,000 in Q3 (-0.3%) which could just be accounted for by sampling error. The fact that the number of NEETS remains so high is clearly cause for concern – those who are continuously unable to find work, education or training could be left behind and may face a future of long term unemployment and low earnings. This will make it particularly difficult for them to accumulate sufficient savings in order to prepare for later life.
While the unemployment rate for the over 65s has fallen to historically low levels, for those aged 50+ unemployment and long term unemployment in particular remains high. There are currently 191,000 people amongst this cohort who have been out of a job for 12 months or more by comparison to 82,000 before the crisis (Q4 2007). Of those aged 50+ who are unemployed, the proportion of who are in long term unemployment has risen from 35.3-46.5% during this period (see Figure 2). The rise in long term unemployment amongst this group is a concern from a retirement savings perspective because it is in their 50s and early 60s that individuals do most of their retirement saving, typically benefitting from higher earnings and therefore larger contributions. See our paper from earlier this year which tackled this subject from an EU perspective.
Where does this leave us?
In sum, while the broader labour market picture appears to be improving, persistent problems related to earnings and unemployment at the younger and older age ranges remain. If they are the result of structural rather than cyclical factors (and the fact that they have remained so sticky provides some support to this argument), they may require creative policy interventions to overcome (the subject of a future blog).
Ben Franklin has recently joined ILC-UK as a Research Fellow.