This month’s labour market statistics give an indication of the challenges that lie ahead through 2023.

At first glance, it appears positive that we’re seeing a decreasing number of people who are out of work and not looking for work, and a welcome increase in people in employment. Yet at the same time, we are witnessing a concerning rise in unemployment among young people and an increase in the use of zero-hours contracts, potentially reflecting deep uncertainty among employers.

It is time to take a critical look at the adequacy of current and proposed employment policies to address the issues that the economy is facing.

Young people face challenges in finding work

This month saw a big fall in the number of people who were out of work and not looking for work, termed economic inactivity. This decreased by 113,000 over October-December 2022, driven by a large decrease in the number of students, and a relatively smaller fall in the number of people who were out of work and not looking due to long term sickness or being retired. While this is positive, there are still a larger number of people out of work due to long-term ill health than prior to the pandemic, so Government and employers should think about retention for people who may be at risk.

Many of these people now looking for work have found employment, which rose by 53,000 on the quarter. Yet despite Government’s focus on supporting older people to move into work, the fall in inactivity is concentrated among younger people.

Unfortunately, there are signs that these young people are struggling to find work. Among people aged 18-24, unemployment rose by 60,000 on the quarter, representing a 19.5% increase. One quarter does not a trend make, but it will be important to keep a close eye on further developments, as we know that youth unemployment can have particularly scarring effects on people’s future wages and careers.

Figure 1: Decrease in the number of people who are out of work and not working due to being students, long-term sick, and retirees

Source: Work Foundation calculations based on ONS (14 February 2022) Dataset A01 – Table 11: Economic inactivity for those aged from 16-64 (seasonally adjusted).

Employers are slowing hiring and redundancies are starting to rise

There is evidence that hiring is slowing down as a result of ongoing uncertainty in the economy. Across all sectors of the economy, the number of vacancies fell by 6.3% over November-January. Although this represents yet another decline in a months long trend, the overall number of vacancies remains above pre-pandemic levels.

At the same time, redundancies have gone up from 75,000 people to 99,000 people in October-December, continuing the steady increase from the record lows seen in spring 2022. However, in the context of averages across the last 20 years, the current number of redundancies remains relatively low.

Taken together, the slowdown in hiring and the slight increase in layoffs do not yet appear problematic. However, given the economic forecasts from the Bank of England and the Office for Budget Responsibility suggesting that unemployment will rise over the course of 2023, it is possible that we will see the jobs market become more challenging over the year ahead.

Signs that insecure work is on the rise

The number of zero-hours contracts went up by 89,000 in October-December, rising to a total of 1.13 million. These contracts still only affect a small share (3.4%) of the working population.

However, this builds on a steady increase in the use of zero-hours contracts over the last decade, and particularly during times when the economic landscape is characterised by uncertainty. With many employers acutely affected by rising production costs, and Government support for organisations to meet energy bills set to reduce in the spring, we may see this cautious approach to contracting continue over the months ahead. This is a challenge because although these contracts can offer useful flexibility for employers, they can result in workers being unable to earn enough money to get by. Approximately 23% of people on zero-hours contracts are ‘underemployed’, meaning they want to work more hours. This compares to 6.8% of people with other working arrangements. This uncertainty around hours and the uncertainty about income that comes with it, have been shown to have negative consequences for workers’ mental and physical wellbeing, their financial security, and their progression opportunities over the long term.

Figure 2: The use of zero-hours contracts is rising

Source: Work Foundation calculations based on ONS (14 February 2022) Dataset EMP17– Table 5: People aged 16 and over on zero-hours contracts (total).

Are current policy measures fit to tackle these challenges?

In response to employers facing skill and labour shortages, Government is doubling down on its approach to welfare conditionality, piloting a new scheme whereby those who have been unemployed for over three months are required to attend daily job centre sessions for two weeks, under threat of their financial support through Universal Credit being suspended.

With low income households already under huge cost of living pressures, introducing more requirements and potential sanctions will only serve to heighten jobseekers’ anxiety. Now more than ever, job centres should focus on matching jobseekers to roles that suit them, rather than taking the, ‘any job first, then a better job’ approach, which has proven costly for both workers and employers.

Most importantly, tackling unemployment is not the real issue. At a time when the number of jobseekers has never been smaller a shift in focus is needed to address the distinct barriers to entering and staying in work that different groups are facing, and extending advice and support to people who aren’t getting welfare benefits.

That will likely mean investing in targeted support for individuals who are disabled or have long term health conditions, with work coaches taking a more proactive role in brokering flexible working arrangements, as well as developing a tailored offer of support for young people, building on lessons learned through the Kickstart programme.

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