Today’s statistics show that there are some positive signs, with continuing growth in employment levels. However, there are still hundreds of thousands of workers missing from the labour market since the start of the pandemic and inflation has reduced the real value of wages just as the cost of living crisis is starting to bite.

Government should act now by delivering an Emergency Budget and developing mechanisms to raise benefits in line with inflation to provide important security to those who are most in need.

Record low unemployment but many have left the labour market altogether

Unemployment in the UK is 3.7%, the lowest it has been since 1974. The number of people out of work fell by 118,000 between October- December 2021 and January- March 2022. Over the same period, the employment rate reached 75.7%, marking an increase of 0.1 percentage points (100,000 workers). This increase is mainly due to more and more people moving from unemployment into work, and creates a picture of a very tight labour market.

At the same time, economic inactivity (individuals who are out of work and not looking for work), remains historically high. This includes individuals who aren’t well enough to work and full-time carers as well as home-makers, students and individuals who have retired early. An additional 65,000 people aged 16-64 years old became economically inactive in January-March this year compared with October-December, bringing the overall increase to 220,000 people since 2019.

Over the course of the pandemic, older workers (those aged 50 to 64 years- 280,000 more economically inactive compared to pre-pandemic levels), those with long-term illness and individuals with caring responsibilities have left the labour market. When asked about the reason for economic inactivity, 26.1% stated the main reason was long-term sickness, followed by 19.6% saying they have to look after their family and home.

Figure 1: Employment rate, 16-64, 2019-2022



Source: Work Foundation calculations based on ONS (17 May 2022), Dataset: A01 May – Labour market activity by age group (seasonally adjusted).

Inflation has reduced the real value of wages

Annual pay growth for regular pay (excluding bonuses) was 4.2%. When we account for inflation, this represents a fall in earnings of 1.2%, the biggest fall in pay since 2013.

Facing a tightening labour market, some employers have increased wages to attract and retain workers, but this is not equally distributed. Nominal total pay growth (including bonuses) was 10.7% for the finance and business services sectors, with the public sector lagging at 1.4%. This represents a fall in the real term value of public sector pay.

This is particularly worrying given that the Bank of England Monetary Policy Committee (MPC) reported that the total real household disposable income could fall in 2022 by the second largest amount since records began in 1964. Moreover, the Bank of England has warned that the UK economy will slide into recession this year as higher energy prices push inflation above 10%.

Demand for workers is outstripping supply

This month, for the first time on record, the number of vacancies exceeded the number of people looking for work. The persistently high vacancy rate over the past 12 months has played a role in reducing unemployment to the lowest it has been in many years.

During January-March 2022, 994,000 workers made job-to-job moves. Although some workers might find that increased opportunities allow them to progress into better jobs or optimise their income, this may not be a viable option for others. It also won’t resolve persistent skills mismatches between the workers looking to move and sectors that are hiring.

The number of vacancies remains high in February-April 2022 at nearly 1.3 million, though the initial steep growth we witnessed in the second half of 2021 has plateaued. Researchers from the job vacancy website Indeed associate the slowdown in hiring with the start of the war in Ukraine, which particularly impacted hiring in driving, logistics and manufacturing in energy intensive sectors.

Figure 2: Number of vacancies across all industries in thousands, 2018 to 2022



Source: Work Foundation calculations based on ONS (17 May 2022), Dataset: A01 May – Vacancies by industry (seasonally adjusted).

What should Government do to support workers and employers over the months ahead? For weeks, Government has hinted at extra help to tackle the cost of living crisis, but its response so far has been piecemeal.

Last week, the Department for Business, Energy and Industrial Strategy (BEIS) announced it would prevent employers from using exclusivity clauses in their contracts with workers whose earnings fall below £123 a week, in an extension to an existing ban for those on zero-hour contracts. But our analysis of Labour Force Survey Microdata shows that in April-June 2021, just1.5 million workers would have met this earnings threshold, and among them, only 120,000 held second jobs. It is not known how many workers were subject to exclusivity clauses, but it is clear that this measure does not reflect the scale of the challenge many workers will be facing over the months ahead.

Workers have been advised this week not to ask for pay rises and that if they’re struggling they simply need to work more hours or get a better paid job. This suggestion flies in the face of evidence about the labour market: job-to-job moves are occurring at a greater pace than during Covid-19, but wages in only a few select sectors are keeping pace with inflation.

It is vital that Government acts now to deliver an Emergency Budget, targeting financial support to individuals on low incomes and developing a mechanism to ensure Universal Credit and other welfare benefits are raised in line with inflation. Holding off until the Autumn statement risks exacerbating the financial distress that many workers are experiencing as the effects of inflation are already being felt.

Alongside this, there is a pressing need to address the flow of individuals from employment in to inactivity. We have been calling for a Plan for Participation, facilitating retention with a focus on flexible work across all sectors of the economy, and commissioning specialist employment support services for individuals facing multiple barriers to work.

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