Labour Market Economic Commentary: March 2019

19th March 2019

Additional economic analysis of the latest UK labour market headline statistics and long-term trends for March 2019.

The level of employment in the UK increased by 222,000 to a record high of 32.71 million in the three months to January 2019.

The employment rate of 76.1% was the highest since comparable records began in 1971.

The rate of unemployment fell to 3.9%, the lowest rate since the mid-1970s, and the rate of inactivity fell to a record low of 20.7% in the three months to January 2019.

The number of vacancies in the economy has been on an upward trend since mid-2009.

Real total average weekly pay increased by 1.5% on the year in January 2019 and real regular average weekly pay increased by 1.4% on the year over the same period.

The UK labour market continues to perform strongly, as experienced in 2018. Employment continues to increase while unemployment and inactivity rates continue to decrease. However, the general economic outlook is more complex.

The economy grew by 0.2% in the three months to January 2019, which was a 0.1 percentage points decrease from the September to November 2018 growth rate of 0.3%. The weak economic performance is partly explained by the weakening global trading system. In the three months to January 2019, the manufacturing and construction sectors performed poorly, posing risk to employment in those sectors.

There is uncertainty in the economy and this has caused business confidence to decline. The Organisation for Economic Co-operation and Development (OECD) traces the decline in business confidence as having started in 2017. This decline is evidenced by firms announcing plans to shelve investments, or to downsize operations. Some firms have gone into administration, often resulting in job losses. Others have indicated their intentions to shift their operations abroad, for various reasons. These developments have knock-on effects on consumer confidence and expectations.

Consumer confidence has been declining and the decline may cause aggregate demand in the economy to decline too. The OECD shows UK consumer confidence as having been declining since March 2018. Despite the negative outlook, the labour market continues to perform well.

Employment

In the three months to January 2019, the number of people in employment in the UK increased by 222,000 to a record high of 32.71 million. This was the largest rolling quarter-increase since the period September to November 2015. This is in contrast with the recent weakness in gross domestic product (GDP) growth, especially given that real wages growth rates have been rising.

The number of men in employment increased by 77,000 to reach a record high of 17.32 million in the three months to January 2019. The number of women in employment increased by 144,000 to reach a record high of 15.40 million over the same period. This was the largest increase in the number of employed women since the period February to April 2014.

The increase in the number of people in employment was driven mainly by the increase in the number of employed women. There are several reasons that may explain this robust increase. For instance, the increase in the State Pension Age for women from 60 years to 65 years means more older women are remaining in the labour market. This has resulted in growth of the labour market participation rate of women aged 60 years and older. Part-time employment has been expanding over time. More women (6.32 million) than men (2.28 million) worked on a part-time basis in the three months to January 2019. Of the women who worked on a part-time basis, 77% did not want full-time jobs.

The employment rate increased to a record high of 76.1%. The Bank of England's Millennium of Macroeconomic Data for the UK (which are not National Statistics) shows that the last time the employment rate was this high was in 1943 and in 1872 when it reached 76%.

The employment rates for men and women increased by 0.2 percentage points and 0.6 percentage points to reach record-high rates of 80.5% and 71.8% respectively.

The people in employment can be categorised mainly as employees or as self-employed workers1. In the three months to January 2019, the number of employees increased by 152,000 to a record high of 27.7 million. Over the same period, the number of self-employed workers increased by 60,000 to 4.84 million.

Unemployment

The unemployment rate in the economy has been declining over the past year. In the three months to January 2019, the UK's unemployment rate reduced to 3.9%. The last time that the unemployment rate was this low was in the three months to February 1975.

The unemployment rate for women was at a record low of 3.8% and that for men stood at 4% in the three months to January 2019. The last time the unemployment rate for men was at 4% was in the period May to July 2018.

Figure 1 shows the trends of unemployment rates for men and women since 1971. It shows that unemployment rates increased following economic downturns in the 1980s, early 1990s and 2008 to 2009. Since the three months to November 2011, the unemployment rates for both men and women have been on downward trends.

The fall in the number of people who are unemployed in the economy has been reducing under-utilised labour. Under-utilised labour consists of people aged 16 years and older who are unemployed, those aged 16 years and older who are in part-time employment but would want more hours, and those aged 16 to 64 years who are inactive but would like regular jobs. The people who are classified as inactive but who wanted regular jobs did not meet the international definition of unemployment, but had weak attachment to the labour market. They may not have looked for work because they were discouraged, or because they expected to earn higher wages than those obtainable in the labour market. Although they are weakly attached to the labour market, the attachment can strengthen if conditions become more favourable to such people.

Economic inactivity

The number of people who are economically inactive has been declining as more people leave economic inactivity for other labour market statuses. In the period October to December 2018, there was a net outflow of 155,000 from economic inactivity into other statuses. In addition, 63.2% of the outflow from economic inactivity went into employment.

In the three months to January 2019, the number of economically inactive people in the UK declined by 117,000 to 8.55 million. The inactivity rate reduced by 0.3 percentage points to a record low of 20.7% over the same period.

The number of economically inactive men fell by 24,000 to 3.29 million in the three months to January 2019. The number of economically inactive women fell by 92,000 to 5.26 million over the same period.

To read the full report go to - https://www.ons.gov.uk/