This month’s labour market figures are relatively unchanged from that of the previous year – with employment slightly up to 75%, unemployment slightly down to 4% and economic inactivity slightly down to 21.8%. Due to ongoing data quality issues in the Labour Force Survey, this article will not compare employment figures from quarter to quarter. Rather, we examine a longer time to ensure that the trends we are seeing in the data reflect real changes in the labour market.

Although these headline figures appear very stable, there remain areas for concern. Some young workers are struggling to integrate into the labour market and, despite wage growth remaining above inflation, workers’ wages are still stagnating with average weekly earnings a paltry £20 more than they were at the onset of the global financial crisis in 2008.

Youth unemployment has risen – but it is too early to tell if this is a reason for concern

Youth employment figures are a bellwether for the rest of the labour market. In times when unemployment starts to rise, it rises fastest among those aged 18-24 years old. This can be alarming, as there tend to be strong scarring effects of periods of unemployment for young people, impacting their physical and mental wellbeing and their ability to obtain future secure work and good wages. We saw a rise in youth unemployment during the global financial crisis as well as during the Covid-19 pandemic.

Currently, we are witnessing slightly higher than normal unemployment among this young age group of 12.8% (although this remains well below highs of 14.1% during the pandemic). This rise in unemployment is not necessarily a concern, as over the year we see employment increasing (+73,000) and inactivity (-52,000) falling among this group, which suggests that a modest increase in unemployment may actually be due to the fact that some young people have left education – and have started to actively search for a job opportunity. The increase in employment for this group shows that many are successful. Monitoring this over the coming quarters will provide a clearer picture on whether there is reason for concern.

Wage rises are outpacing inflation, but workers are hardly better off than they were two decades ago

The past two years have seen strong wage increases with above 5% rises. This has now fallen below that 5% to 4.9% for the first time in 25 months. This remains above inflation, which means that workers are seeing a real term rise in their wage packet on average of 1.9%.

However, due to high inflationary pressures and long periods of wage stagnation, there is much catching up to do as workers today, in real terms, still only earn on average £20 more per week than they did almost two decades ago at the onset of the global financial crisis. Wage stagnation affects workers across the board but is hardest to shoulder for the 6.8 million workers in severely insecure work, with often unpredictable and low wages.

New research from the Living Wage Foundation shows that in London, one of the regions in which low pay remains a persistent problem, 41% of low paid workers have less than £10 left over after paying for essentials each week. Worryingly, one in three of these low paid workers (28%) use a foodbank at least monthly.

Figure 1: Change in average weekly earnings in 2015 prices

Source: Work Foundation calculations of ONS (Office of National Statistics) data (15 October 2024) using Dataset A01, table 16: Real average weekly earnings – (seasonally adjusted)

Welcome expansion of the remit of the Low Pay Commission – but needs to be backed by stronger enforcement

In this context it is welcome that Government has set out a commitment in its Make Work Pay agenda to expand the remit of the Low Pay Commission (LPC) to factor in the cost of living when recommending minimum wage rates. The LPC has been asked to report back to Government this month – with new minimum and new living wage rates to be announced in the Budget of 30 October and to come into effect in April 2025. This could be a potentially big moment for low paid workers, because whilst national minimum wage growth has contributed to the uptick in real wages over the past years, rates need to reflect the actual cost of living to avoid people falling into poverty.

In 2023, an estimated 1.6 million workers earned the national minimum wage, or below it. The majority of these jobs are concentrated in retail, hospitality and cleaning.

However, a particularly pernicious challenge is underpayment of the minimum rate, which affected an estimated 23.6% of minimum wage jobs and which tends to be highest around the time of the annual rate increases in April. The Resolution Foundation has estimated that in total, these workers are underpaid by £255 million per year.

The Department for Business and Trade (DBT) publishes an annual ‘name and shame’ list, which in February 2024 listed 524 businesses who had failed to pay the minimum wage. However, despite efforts of the HMRC National Minimum Wage team and the DBT’s name and shame list, still nearly one in four workers in minimum wage jobs are underpaid. This undermines the ability of workers to afford the essentials, and also allows rogue employers to survive by giving them an edge over compliant businesses.

For wage increases to be impactful, and actually land in the pockets of those who need it the most, we need more effective, better resourced labour market enforcement.

The new Fair Work Agency addresses the fragmentation of the enforcement landscape – but it needs resourcing

The new Government has committed to set up a Fair Work Agency that sits across the various enforcement bodies and will provide a more comprehensive approach to labour market enforcement in the UK. It has the potential to be better able to deal with the often multifaceted nature of non-compliance. For instance, many low paid workers may experience underpayment of the national minimum wage, as well as losing out on holiday pay, or pension contributions. However, it remains to be seen whether this increasing coordination between the bodies will also be matched by increased funding. Total funding for labour market enforcement has fallen over time, although it has increased specifically for the HMRC National Minimum Wage team.

Alongside improved coordination, there is a need for more reach and monitoring, which comes at a cost, particularly in a context where employment rights are being strengthened and a level playing field for employers is required.

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