The improving labour market figures in the UK may be misleading

The latest news on the UK’s labour market looks positive: vacancies and employment are up, redundancies and unemployment are down. Indeed, after a tumultuous year, when output (GDP) fell by almost 10%, it is rather remarkable that the UK’s unemployment rate is only around 5%. In the last 50 years, joblessness has been this low less than a quarter of the time.

However, looking at the headline figures can be misleading, for at least three reasons. First, they tend to report short term movements, from month to month. Yet, such data is inherently volatile. For example, the reduction in unemployment to 4.8% — from 4.9% in the previous period — was hailed by some as a great sign. Yet, it is only after a couple of months, or with many more data sources, that it is possible to distinguish any trends from noise.

Second, aggregate figures hide an enormous amount of variability. Average claimant count (a more timely, but not completely comparable, measure of unemployment) in April 2021 was around 8% (of the economically active, 16+ population), but ranged from 2.4% in Sheffield Hallam to 33.3% in Bradford West. (For more detail about differences between local areas, see for example the blog here or chart here.)

Third, the unemployment figures do not, by definition, include people who are furloughed. The latter are workers who are still on their employer’s books, but are currently not working. Instead, they are being supported through the government’s “Coronavirus Job Retention Scheme”. At the end of March, there still were around 4.2 million people on this scheme — out of a total workforce of around 34 million.

The chart above (and also copied below) puts all this into context, by showing the labour market status of everyone in the economially active population — whether in work, furloughed, or unemployed (i.e., actively looking for a job). [Note that when these figures are quoted separately, the denominator is frequently different, but I prefer to base everything relative to the 16+ economically active population.]

It’s clear that, while unemployment remains low, focusing on that metric alone gives a misleading picture. Yes, only 5% of people (wanting to work in the first place) are unemployed, but another 13% of people are furloughed. It remains to be seen how the labour market shakes out when the support scheme comes to an end.

On one hand, some of these workers will probably be made redundant; on the other, if they have the right skills, and are in the right place geographically, they may be able to find a new job among the increasing number of vacancies. Most likely there will be some mismatches — at least temporarily.

Note: This blog is part of my #dataisbeautiful series, showcasing interesting data in hopefully beautiful charts. If you like it, please “like”, share or comment!