Will the UK labour market thaw after months in deep freeze?
Official data on unemployment and furloughs unfortunately lags real time, so it is hard to get a handle on what’s actually going on in the labour market. Of course, we know that the furlough scheme came to an end at the end of September; and there is fairly up-to-date information on vacancies, based on online adverts. The latter increased sharply in October, after a bit of a lull over the summer, and was around its pre-pandemic levels — on avearge across all industries — in mid-October. For some sectors, such as transport and construction, vacancy levels were significantly above historical averages.
Contrast that with the fact that the number of people unemployed or not actively seeking work is likely to have been significantly higher in October than it was pre-COVID. For the last 18 months or so, the Google “Workplace mobility” index has been a decent proxy for the sum of number furloughed workers, unemployed people and people not actively seeking work; for October, it indicates a slight increase in the number of people working (compared to August and September).
Nevertheless, my best guess is that when the official statistics eventually come out, unemployment (and, possibly the number of people not actively seeking work) will have increased. [It’s a pretty safe guess, given that at the end of August, around 1.3 million people were still furloughed. It’s hard to see how they could all have found work by mid-October. But if I turn out to have been wrong, then I will come back and amend this blog.] It is therefore possible that the economy is stuck, at least temporarily, in a situation with both higher unemployment and higher vacancy rates.
Such imbalances reflect the lack of substitutability of labour, not just between sectors, but also within sectors. An Uber driver can’t easily convert into a heavy goods vehicle driver overnight; nor can a waiter become a chef without additional training. (I can’t wait to see the occupational data on some of this — for now, the sectoral data is much more up to date.) The chart above illustrates this lack of flexibility in the short term.
Within specific sectors, such as hospitality, manufacturing, retail and transport, in August 2021, there were both large numbers of vacancies (left panel) and large numbers of people not working (right panel). This indicates a further reason for imbalances: while some businesses within each of these sectors may be growing (and may already have “released” all their labour from furlough and be advertising for new jobs), others are probably still operating at low levels of activity and hence keeping their workers furloughed.
The chart also indicates the sectors that are more unquestionably short of labour: health and social care, and ICT. These sectors have not just high vacancy rates but also low furlough (and low unemployment) rates. Indeed, in a report in 2019 we already pointed out the skills shortages in these areas, as well as the likelihood that various developments — not least automation — would create further pressures for recruiters in these sectors. I wouldn’t be surprised if training and reskilling activity has picked up significantly: after all, it can be the best way to build up a business’s human resources.
It will be truly fascinating to see how all of this unwinds— both at the individual worker, occupation, firm, sector, and regional level — in the coming months.
