The UK Labour Market is a place where you can get a job but your real wages are falling

by Shaun Richards

The UK economic statistics season continues as we move onto the labour market and we can start with some good news.

Over the latest three-month period, the unemployment rate decreased to the lowest rate since May to July 1974.

So a welcome move and the numbers are below.

The UK unemployment rate was estimated at 3.6%, 0.2 percentage points lower than the previous three-month period, and 0.4 percentage points below pre-coronavirus pandemic levels.

The driver was that short-term unemployment fell which does tally with the past numbers on vacancies.

In the latest three-month period, the number of people unemployed for up to 6 months decreased to a record low, and those unemployed for between 6 and 12 months increased (Figure 5). Meanwhile, the number of people unemployed for over 12 months continued to decrease.

We can continue in positive fashion with this.

The most timely estimate of payrolled employees for August 2022 shows a monthly increase, up 71,000 on the revised July 2022 figures, to a record 29.7 million.

So we have moved forwards a month to August and there was continued growth in this area. Returning to July there was progress in this area.

The total number of Workforce Jobs in the UK in June 2022 rose by 290,000 on the quarter to a record 35.8 million, and for the first time exceeds the pre-coronavirus level of December 2019.

Although the introduction of new phrases like “Workforce Jobs” puts me on alert.

Next up is wage growth which improved this time around.

Growth in average total pay (including bonuses) was 5.5% and growth in regular pay (excluding bonuses) was 5.2% among employees in May to July 2022.

More Problematic

Regular readers will be aware that whilst I welcome the falls in unemployment rates and unemployment there are two nuances. Firstly they have fallen in amounts not reflected in other economic statistics. Also I recall Yes Minister telling us that nobody believes the unemployment figures and that was in the 1980s. This time around there is an issue in the detail.

The UK economic inactivity rate was estimated at 21.7%, 0.4 percentage points higher than the previous three-month period, and 1.5 percentage points higher than before the coronavirus pandemic.

This matters on its own but also flatters the unemployment numbers and if we look at the cause we do see a reason for concern.

Looking at economic inactivity by reason, the increase during the latest three-month period was driven by those inactive because they are students or long-term sick.

The student season so to speak is normal for the time of year but “long-term sick” poses a question? If we look back to the pandemic we had 2.11 million in this category whereas now we have 2.39 million. So there has been a change and this element of the fall in unemployment is not welcome. I think whilst Long Covid will be in play the struggles of the NHS will mean other problems are too.


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There are nuances here too as a record number of workforce jobs is combined with this.

The UK employment rate was estimated at 75.4%, 0.2 percentage points lower than the previous three-month period and 1.1 percentage points lower than before the coronavirus pandemic (December 2019 to February 2020).

The employment situation has improved in the latest numbers ( up 40,000) and is up 337,000 over the past year. But it is also true we are some 327,000 below the previous peak. Whereas we see that workforce jobs have a new peak and it is complete in that it does include the self-employed and the military as well as government supported trainees. So we seem to have more people working more than one job.

Next up is a measure we have been following which is hours worked. These seem to have plateaued below the previous peak.

Compared with the previous three-month period, total actual weekly hours worked decreased by 3.5 million hours to 1.04 billion hours in May to July 2022. This is still 11.1 million hours below pre-coronavirus pandemic levels (December 2019 to February 2020).

If you are an optimist you can see that we look to have improving productivity and a pessimist the fact that for nearly a year now we have looked like regaining the previous peak but not done so. With prospects as they are it does not look likely we will do so this year.

Real Wages

This is the true problem area and has been so since the credit crunch. This phase of high inflation has exacerbated what is by now a long-running issue. Due to the problems created by the pandemic the numbers were distorted heavily which only served to muddy what are troubled waters. Even the official series cannot avoid showing a problem.

Growth in total and regular pay fell in real terms (adjusted for inflation) on the year in May to July 2022, at 2.6% for total pay and 2.8% for regular pay; this is slightly smaller than the record fall we saw last month (3.0%), but still remains among the largest falls in growth since comparable records began in 2001.

This series is handicapped by the use of an inflation measure that is imputed rent driven and thus fails to capture the reality of inflation right now. Let me illustrate by looking specifically at July where single month wage growth was 5.7% and giving you real wage growth with different inflation measures.

CPIH -3.1%

CPI -4.4%

RPI -6.6%

As you can see the new favourite measure of the establishment gives a lower reading for inflation and thus a lower reading for the fall in real wages. It is funny isn’t it how “improvements” lead to more favourable inflation and real wages numbers?! I see nothing to change my view that real wages are falling by around 5% per annum and this matters on two counts. First workers are seeing substantial real declines in their pay. But also that the official numbers which are copy and pasted by the media are misleading as to the true position.


As I have explained earlier we have some numbers with strength but others which are more troubled such as the rise in long-term sickness. Beneath that is the underlying drumbeat for 2022 which is the sustained decline in real wages or if you prefer the labour market version of the cost of living crisis.The latter has sub-plots depending what sector you work in.

Average regular pay growth for the private sector was 6.0% in May to July 2022, and 2.0% for the public sector; outside of the height of the pandemic period, this is the largest difference we have seen between the private sector and public sector.

So a more severe squeeze is being applied to public-sector pay so far at least.

Meanwhile it would appear that according to Sarah O’Connor in the Financial Times work is maybe not enough for some bosses who are trying to redefine it.

This year, a popular video on TikTok about “quiet quitting” has sent employee motivation experts into overdrive. According to Gallup, about half of Americans are “quiet quitters”, which it defines as people who are “not going above and beyond at work and just meeting their job description”. HR specialists and consultants have been quick to jump in with advice on how to fix the problem.

Just meeting their job description…..


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