UK unemployment rises above 7% and towards 10%

by Shaun Richards

There are many different ways of gaining an insight into an economy and the labour market is one of the most significant. The credit crunch posed a challenge for earnings numbers in particular and we have seen that the pandemic and in particular the official response of the government via the furlough scheme has heavily affected the unemployment numbers. This is in many ways a good thing as it has helped prevent an unemployment surge but at the cost of making the number below useless as much of a guide to anything. However nobody seems to have told the BBC economics editor Faisal Islam.

While the main rate of unemployment has reached 5% for the first time in nearly five years, and this morning’s numbers saw the largest increase in the numbers unemployed since the financial crisis, the chancellor must now be tempted to extend the furlough scheme to co-ordinate with the rollout of the post-vaccination reopening of the economy.

He is in such a rush to make his point he forgets something which does appear later.

Though a significant rise over the past few pandemic-afflicted months, unemployment at 5% is still low by international standards and is being kept in check by the government’s job retention furlough scheme.

If we now switch to the actual numbers we are told this.

The UK unemployment rate, in the three months to November 2020, was estimated at 5.0%, 1.2 percentage points higher than a year earlier and 0.6 percentage points higher than the previous quarter.

But we see if we go through the numbers that some 1.6 million or so are being kept in employment by the furlough scheme.

Prior to the coronavirus (COVID-19) pandemic there were on average 2 to 2.5 million people temporarily away from work. Experimental estimates based on returns for individual weeks show that the number of people temporarily away from work rose to around 7.9 million people in April 2020 but has fallen to around 4.1 million people in November 2020.

This is a very broad brush measure but it compares to this.

For September to November 2020, an estimated 1.72 million people were unemployed, up 418,000 on the same period the previous year and up 202,000 on the quarter.

So nearly double and if I was being harsh I would add in 400,000 from the number below too.

There were also around 278,000 people away from work because of the pandemic and receiving no pay in November 2020; this has fallen from around 658,000 in April 2020.

That is how the unemployment rate could be as high as 10%.

Hours Worked

This gives a much better guide to what is going on and let me open with the good part.

Between June to August 2020 and September to November 2020, total actual weekly hours worked in the UK saw an increase of 89.0 million, or 10.0%, to 979.9 million hours.

Average actual weekly hours worked saw an increase of 2.8 hours on the quarter to 30.1 hours.

We are not given a direct comparison so let me help out. At the start of the year we were at just over 1,052 million hours so there has been a fall of around 7%. This confirms our view about the unreliability of the unemployment rate.

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Employment

Here the situation is a little simpler.

Since February 2020, the number of payroll employees has fallen by 828,000; however, the larger falls were seen at the start of the coronavirus (COVID-19) pandemic.

The next number provides some perspective on the overall situation.

The UK employment rate, in the three months to November 2020, was estimated at 75.2%, 1.1 percentage points lower than a year earlier and 0.4 percentage points lower than the previous quarter.

If we get a little more up to date and look at December we see that in fact it is pretty similar to November.

Early estimates for December 2020 indicate that the number of payrolled employees fell by 2.7% compared with December 2019, which is a fall of 793,000 employees; since February 2020, 828,000 fewer people were in payrolled employment.

If we look back we see that previously the UK was creating jobs and so we have come to the end for now at least to something which was a ray of sunshine in difficult times.

Estimates for September to November 2020 show 32.50 million people aged 16 years and over in employment, 398,000 fewer than a year earlier. This was the largest annual decrease since December 2009 to February 2010. Employment decreased by 88,000 on the quarter.

Care is needed because the furlough scheme will impact here too.Also the obvious changes in the economy are muddying the waters. According to our Deputy National Statistician Jonathan Athow a couple of things have changed.

Some people report being in work, but away from work for Covid reasons and not being paid. They count as employment for LFS but don’t show up on payrolls. There are about 250k of them in recent months……….the employee-s/e split in LFS seems to be a little odd at the moment, and we think this is a change in how people report themselves. So likely 500k fall overstates things at moment, and shouldn’t be added to 800k payrolls.

This was in response to calculations which showed that in fact the number of jobs lost was 1.3 million. So in reality it is a bit more than the 800,000 or so officially reported but we do not know how much.

Average Earnings

This is from Kate Andrews who is economics correspondent of the Spectator.

Earnings growth is back to pre-pandemic levels. But it’s a selective recovery: ‘impacted upwards’ says the ONS ‘by a fall in the number and proportion of lower-paid jobs compared with before the coronavirus pandemic’ i.e. people in low-paid work have lost their jobs.

Is earnings growth back to pre-pandemic levels no?! In fact if you believe them they are above such levels.

Growth in average total pay (including bonuses) among employees for the three months September to November 2020 increased to 3.6%, and growth in regular pay (excluding bonuses) also increased to 3.6%.

Feel free to have a good laugh at that. The explanation is something of a generic as the same themes are in play in the United States for example.

Current average pay growth rates are being impacted upwards by a fall in the number and proportion of lower-paid jobs compared with before the coronavirus (Covid-19) pandemic; it is estimated that underlying wage growth – if the effect of this change in profile of jobs is removed – is likely to be under 2%.

Actually I do not believe that either as we see a series that is collapsing under the strain of the pandemic. We can look at the different sectors via the numbers below.

 The finance and business services sector saw the highest estimated growth in total pay, at 5.4%. Negative growth was seen in the construction sector, estimated at negative 1.1%. The wholesaling, retailing, hotels and restaurants sector, estimated at 3.1%, and manufacturing, estimated at 0.8%, were positive.

Perhaps there has been a good bonus season but does a 5.4% growth in finance pay pass the sense check? I do not think so. Frankly reporting 3.1% pay growth in the hospitality sector is a joke. Is anyone still there for a start? Looking at the numbers there have been some bigger bonus payments reported in the finance sector which may be skewing the numbers. As to the hospitality numbers I can only suspect that the wholesale sector includes things like Amazon which have been booming. It is a low pay sector at £376 per week in November so even a minor shift can skew the numbers.

I am leaving out real pay as frankly they are beyond a joke.

Comment

We have seen over the past 24 hours how a loose understanding of statistics can lead to trouble as 8% of the people being over 65 in the AstraZeneca covid vaccine sample got reported as an 8% efficacy rate. I am being polite saying loose understanding as darker forces look to be at play. This in another form is what is happening with the reporting of a 5% unemployment rate which is clearly wrong but gets reported anyway. It looks to be somewhere north of 7% and up to around 10% but we cannot say with any precision.

The situation is even worse when we shift to earnings. Regular readers will be aware that I have been a frequent critic of the way the numbers omit important sectors such as the self-employed and in fact any business with less than ten employees. But right now the structure of it ( approved back in the day by a familiar figure Dr.Martin Weale) means the numbers are worse than useless in my opinion.

In fact things are so bad that a number criticised in 1983 by Yes Prime Minister “nobody believes the unemployment numbers” is in fact more on the mark. I am referring here to the claimant count.

The Claimant Count increased slightly in December 2020, to 2.6 million; this includes both those working with low income or hours and those who are not working.

It would give us an unemployment rate of the order of 7.6%.

As to wages well the actual numbers seem to be showing a fall.

This is particularly important to consider at present because both of the two main sources of information about number of employee paid through payroll (HM Revenue and Custom’s Pay As You Earn Real Time Information, and Office for National Statistics’ Monthly Wages and Salaries Survey) identify a year-on-year fall of close to 3%.

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