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Work Foundation - New year, new pressures for workers, employers and government

On Tuesday 15 February 2022, the Work Foundation hosted the inaugural event of its Work Matters series, featuring leaders from business, policy and the charity sector. The event reviewed the latest UK labour market statistics released by the Office for National Statistics that day. Ben Harrison, Director of the Work Foundation, moderated the event and gave an overview of the current labour market: Record levels of payrolled employees: 29.5 million employees in the UK. High employment levels: Rise of 0.1 percentage points on the quarter to 75.5%, with unemployment rate decreasing by 0.2 percentage points on the quarter to 4.1%.

Job vacancies set new record: In November 2021 to January 2022 rose to a new record of 1,298,400, an increase of 513,700 from its pre-coronavirus January to March 2020 level.

High levels of economic inactivity grow: increase by 0.1 percentage points to 21.2%, with long-term sickness and "other" reasons cited for rise in the last quarter.

Inflation outpaces wage growth: Growth in average total pay was 4.3%, compared to inflation at 5.4%.

Each panellist highlighted the key challenges facing workers, employers and society as the labour market continues to tighten and people are put under financial pressure from the cost of living squeeze as energy and fuel prices soar.

The labour market during the pandemic has been quite impressive and labour demand should stay elevated

Sonali Punhani, the Chief UK Economist at Credit Suisse, focussed on how the labour market has responded to pandemic:

“The labour markets are quite tight in the UK and I think we need to take a stock of the fact at how impressive and what the good news has been behind these labour market statistics.

“Unemployment, for example, has fallen to 4.1% which is close to the pre-pandemic levels of unemployment. And just putting this in perspective, during the global financial crisis, UK unemployment almost took almost six years to fall back to pre-crisis levels. The fact that we’ve seen such a big drop over and the recovery during the pandemic has been quite impressive where we are almost back to pre-COVID levels in about a year and a half.

“Labour demand continues to be strong as been mentioned, vacancies are at record highs. Even forward-looking indicators of labour demand from different surveys are at record highs. The fact that we are forecasting above trend growth in this year for the UK, that means that labour demand should stay elevated.”

The challenges facing the Government are record job vacancies, the Great Retirement, the impact of Brexit and the return to the office

Lord Gavin Barwell, the former Chief of Staff to the Prime Minister and former Government Minister, gave an insight into the challenges facing the current Government.

“There are probably three or four things that I would be thinking about if I was doing my old job in Number Ten. The first is the record number of job vacancies in the labour market. We are facing an almost unprecedented situation, essentially where supply of labour simply cannot keep up with demand. If you unpick the data and look behind it, there are two main things that are contributing to that.

“One is the Brexit deal that the Government negotiated and that clearly has restricted access to the UK labour market. The second is what people referred to as the Great Retirement. There is something like 1.15 million fewer people in the UK labour market today than there would have been if pre-pandemic trends had continued.

“You have to assume that the government isn't going to undergo some massive U-turn on migration and change its mind on free movement of labour. So, it seems to me that the first policy challenge is how do you try and find ways of luring some of those people who have left the labour market back into it?

“I think the third issue that is worth looking at is what impact this tightness in the labour market this war for talent that we've got going on at the moment is going to have on return to work policies because many of the clients that I speak to are very nervous. They're worried about not getting enough of their staff back into the office regularly enough in terms of mentoring learning, particularly for new employees and collaboration. But they are very nervous at the moment about pushing too hard because they're conscious that if people chose to leave, they squeezed too hard on that issue, they would find it incredibly difficult to replace people given the overall conditions in the labour market.”

We need policy to tackle economic activity, but the policies we have our designed to combat the old problems

Helen Barnard, the Director of Policy and Research at Pro Bono Economics and Associate Director at Joseph Rowntree Foundation, focussed her remarks on the new policies Government need to introduce:

“Economic inactivity - it's about 400,000 people higher than it was pre-pandemic.

“That growth is now being driven primarily by rising ill health. Now we need to dig in a bit more to see what kind of ill health but some of the emerging analysis suggests that mental ill health is likely to be the key thing that's driving this. What I think the danger we're seeing at the moment, is policies that are designed to combat the old problems we used to have in previous recessions.

“I don't think we've yet seen policy catch up to what you need to do to tackle inactivity. To older workers dropping out and ill health driving people out. There are really two sides to this. So, first is what kind of support services do people need to be enabled and supported and encouraged back into the labour market. The employment support that is there, is too focused on jobs and work coach meetings and hassling people and that kind of pressure.

“There is far, far too little of the kind of tailored personalised support which is what really helps people who have difficulties with ill health, who have caring responsibilities, who have these kinds of issues to get back into the labour market or to get the right job for them.

“The other side of this, though, is actually the jobs themselves. We need to look at how attractive some of these jobs are, and particularly at the bottom end of the labour market. You've got an awful lot of jobs which are low paid, which are very insecure, which are very inflexible from an employee point of view. The one thing we need to do is improve the quality of work at the bottom end of the labour market. We need to be taking this chance to redesign that labour market so it's actually fit for the next 20, 30, 40 years and will also help us get out of this looming cost of living crisis plus labour shortage crisis.”

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