The jobs market is getting tougher for those looking for work

More workers are entering the labour market as vacancies fall and unemployment rises. How will that affect pay growth, which is still undershooting inflation, asks James Moore

Commuters in Canary Wharf in London (PA)

There was a certain synchronicity in Vodafone announcing plans to axe 11,000 jobs from the group’s workforce on the day the Office for National Statistics (ONS) unveiled its latest look at Britain’s noticeably tightening jobs market.

The good news, from the perspective of the UK economy as a whole, is that many of the negative changes wrought by the pandemic are being unwound.

The bad? Labour shortages are still a bigger problem than unemployment – but the jobs market is getting tougher for those trying to navigate it as vacancies fall.

The overall employment rate improved to 75.9 per cent for January to March 2023, 0.2 per cent higher than in the previous quarter. But the increase, said the ONS, was “driven by part-time employees and self-employed workers”.

The most recent figures for the number of patrolled employees, for April, meanwhile showed a decline of 136,000 on the revised March figure.

The ONS stressed this was a “provisional estimate” so take it with a small pinch of salt. But if confirmed, that would be the first such fall in payrolled employment since February 2021, more than two years ago.

More evidence of a tightening market comes in the form of unemployment, which increased to 3.9 per cent from 3.8 per cent. The rate of “economic inactivity” – including everyone from students to full-time carers to early retirees – declined (to 24 per cent) with a record-high number moving into employment. They were chasing fewer opportunities. The number of vacancies fell by 55,000 to 1.08 million, the 10th consecutive decline.

I mentioned Vodafone at the outset. But Vodafone is a bloated and unwieldy giant with an energetic new CEO in the form of Margherita Della Valle. Her job cutting is a corporate move, part of her attempt to revive this lumbering beast of British business. What’s happening in the wider economy isn’t so much about cuts and corporate activity. Firms mostly aren’t cutting like this. But they are reining in hiring, and quite significantly.

Employers are under pressure from higher interest rates, higher costs and a spluttering economy (even if it’s doing better than feared) so they’re increasingly inclined to sit on their hands rather than replacing workers who leave. They are wary of embarking on expansion plans, plans which the recent cycle of rate rises has made much more expensive.

Another sign of a tougher job market: the number of workers moving jobs is falling – something an announcement like Vodafone’s does play into. It affects workers’ confidence, which is falling. The 322,000 switchers recorded in the three months to March was still high by historic standards. But it was down by 16 per cent on the previous quarter.

There are still an awful lot of sick workers on the books and the over-55s, in particular, continue to sit on the sidelines in large numbers. The new workers coming in from “economic inactivity” are largely younger.

In general, the labour market is nonetheless starting to resemble its pre-pandemic self, which is probably a good thing. The tightening it is showing – which is much less welcome from the perspective of workers trying to navigate the jobs market – was at least expected.

The one part of the data I’ve not touched upon yet is wages. They rose, and quickly. By 7 per cent in the private sector on average, excluding bonuses, when compared to a year earlier. The public sector, which had been lagging badly, started to join in with a 5.6 per cent rise, the highest for 20 years.

Overall, that meant wages fell by 3 per cent in real terms because of Britain’s sky-high inflation. But it is entirely possible that we may soon see a return to real terms growth in pay.

That should be welcomed, but productivity was down. And the wage growth is the sort of thing that may make the Bank of England twitchy when it next looks at interest rates. It has already expressed concerns. Not always in the most diplomatic way, it should be said.

Wages are still below where they were (in real terms) on the eve of the financial crisis in 2008. There is an awful lot of catching up to be done when it comes to living standards. But how much will we see in practice?

Whether real wage growth can survive for long in a tighter labour market, with the Bank pushing rates up (or keeping them high) is an open question.