Labour Market Overview, UK: July 2020

16th July 2020

Extracts from the Report from the Office for National Statistics published today 16 July 2020.

As the coronavirus (COVID-19) pandemic took hold, the labour market weakened markedly, but that rate of decline slowed into June, though this is before recent job losses were reported.

Early indicators for June 2020 suggest that the number of employees in the UK on payrolls is down around 650,000 compared with March 2020. The largest falls were seen at the start of the pandemic and while the number of payroll employees is still falling the decline is slowing. Flows analysis suggests that the falls in May and June are mainly because of fewer people moving into payrolled employment.

In June 2020, the Claimant Count has fallen and experimental monthly data show vacancies have increased slightly.

Employment is weakening and unemployment is largely unchanged, but there are some signs of economic inactivity rising, with people out of work not currently looking for work. Hours worked has continued to fall reaching record lows both on the year and on the quarter.

There are still a large number of people temporarily away from work, including furloughed workers, although this is falling through May. New analysis shows that there were around half a million people away from work because of the pandemic and receiving no pay.

Pay fell for most measures in May 2020, declining more in industries where furloughing was most prominent, many of these being the lowest-paying industries, in particular accommodation and food service activities.

March to May figures show weakening employment rates, with self-employed and part-time workers seeing reductions; despite these falls, unemployment is not rising, because of increases in people out of work, but not currently looking for work; the reduction in total hours worked is a record both on the year and the quarter despite a third of the period covered being prior to the implementation of coronavirus (COVID-19) measures.

Early estimates for June 2020 from Pay As You Earn Real Time Information (PAYE RTI) indicate that the number of payroll employees fell by 2.2% (649,000) compared with March 2020.

The Claimant Count fell slightly in June 2020 reaching 2.6 million; this includes both those working with low income or hours and those who are not working.

Vacancies in the UK in April to June 2020 are at the lowest level since the Vacancy Survey began in April to June 2001, at an estimated 333,000; this is 23% lower than the previous record low in April to June 2009.

The three months to May 2020 saw strong falls in pay; total pay fell by 0.3% on the year, this equates to a fall of 1.3% when taking into account inflation.

Employment

Employment measures the number of people aged 16 years and over in paid work and those who had a job that they were temporarily away from (which they are expecting to return to). The employment rate is the proportion of people aged between 16 and 64 years who are in employment.

Estimates for March to May 2020 show 32.95 million people aged 16 years and over in employment, 199,000 more than a year earlier but 126,000 fewer than the previous quarter.

For March to May 2020:

the estimated employment rate for all people was 76.4%; this is 0.3 percentage points up on the year but 0.2 percentage points down on the quarter

the estimated employment rate for men was 80.1%; this is 0.1 percentage points down on the year and 0.4 percentage points down on the quarter

the estimated employment rate for women was 72.7%; this is 0.7 percentage points up on the year but largely unchanged on the quarter.

Despite the estimated fall in employment of 126,000 on the quarter, the estimated number of redundancies has not increased significantly over the period. Instead, experimental estimates based on returns for individual weeks suggest the number of respondents starting a new job declined greatly through the March to May period compared with the same period in previous years, see Figure 3. Further details of the experimental weekly figures can be found in the Single month article.

Experimental weekly LFS estimates suggest that during May 2020 around 450,000 to 500,000 employees, who identified themselves as being temporarily away from their jobs because of the coronavirus (COVID-19) pandemic, were receiving no pay. While these people would still be considered employed under the ILO definition, it is likely that they would not be reported in Real Time Information (RTI) data (which showed a fall of approximately 575,000 between March and May 2020) based on payroll information.

Unemployment

Unemployment measures people without a job who have been actively seeking work within the last four weeks and are available to start work within the next two weeks. The unemployment rate is not the proportion of the total population who are unemployed. It is the proportion of the economically active population (those in work plus those seeking and available to work) who are unemployed.

Estimates for March to May 2020 show an estimated 1.35 million people were unemployed, 55,000 more than a year earlier but 17,000 fewer than the previous quarter.

For March to May 2020:

the estimated UK unemployment rate for all people was 3.9%; 0.1 percentage points higher than a year earlier but largely unchanged on the quarter

the estimated UK unemployment rate for men was 4.0%; this is 0.1 percentage points higher than a year earlier but 0.2 percentage points down on the quarter

the estimated UK unemployment rate for women was 3.8%; this is 0.2 percentage points higher than a year earlier and 0.1 percentage points higher on the quarter

Despite the lack of overall increase in the number of unemployed, the estimated number of people unemployed aged 16 to 24 years increased by 47,000 on the year while other age groups remained steady.

The relative flatness of the unemployment figures may seem surprising, given that there are notable decreases in the number in employment. However, some initial exploratory analysis has suggested that a larger than usual proportion of those leaving employment are not currently looking for a new job and therefore becoming economically inactive, rather than unemployed. In addition, an increased number of respondents who were previously unemployed have moved to economic inactivity in March to May 2020, suggesting that some who were previously unemployed are no longer looking for work.

Economic inactivity

Economic inactivity measures people without a job but who are not classed as unemployed because they have not been actively seeking work within the last four weeks and/or they are unable to start work within the next two weeks. Our headline measure of economic inactivity is for those aged between 16 and 64 years.

Estimates for March to May 2020 show 8.46 million people aged between 16 and 64 years not in the labour force (economically inactive), 157,000 fewer than a year earlier.

For March to May 2020:

the estimated economic inactivity rate for all people was 20.4%; this is down by 0.4 percentage points on the year but up 0.2 percentage points on the quarter

the estimated economic inactivity rate for men was 16.5%; this is up by 0.1 percentage points on the year and up a joint record high of 0.5 percentage points on the quarter

the estimated economic inactivity rate for women was 24.3%; this is down by 0.9 percentage points on the year and down by 0.1 percentage points on the quarter

Those who are economically inactive and who want a job increased by a record 257,000 on the year and a record 253,000 on the quarter, while those who do not want a job decreased by a record 414,000 on the year and 161,000 on the quarter. This suggests that people who want employment are not currently looking for work, and further explains why we are not seeing a large rise in unemployment.

Estimates for March to May 2020 show a quarterly increase of 92,000 in the number of people who are economically inactive in the UK. This was mainly driven by people who were economically inactive because of other reasons (up a record 274,000 on the quarter to a record high of 1,228,000).

PAYE DATA

Latest figures show a fall in payroll employees in recent months. Early estimates for June 2020 from PAYE RTI indicate that the number of payroll employees fell by 2.2% compared with March 2020. In June, 649,000 fewer people were in paid employment when compared with March 2020 and 74,000 fewer when compared with May 2020.

Declines in the number of paid employees in recent months can be explained by examining inflows and outflows from payroll employment, included in the PAYE RTI bulletin for the first time this month (see Figure 7). For most of the periods prior to the coronavirus (COVID-19) pandemic, outflows and inflows were broadly equal - with inflows being slightly higher, resulting in a net increase in paid employment.

In recent periods, the changes in inflows and outflows driving the fall in payroll employees have differed. The fall in paid employment in April 2020 was because of, in (broadly) equal part, an increase in outflows and a fall in inflows compared with their pre-coronavirus trends. However, in May and June outflows fell below their pre-coronavirus level while inflows have continued to decrease. As a result, the fall in paid employment in the latest two months can be explained primarily through lower than usual inflows, rather than higher than usual outflows.

Early estimates for June 2020 indicate that median monthly pay increased to £1,827, an increase of 1.0% when compared with the same period of the previous year.

Vacancies

Figure 9: April to June 2020 saw the lowest level of vacancies since the current data time series started in April to June 2001

For April to June 2020, there were an estimated 333,000 vacancies in the UK, the lowest level since the Vacancy Survey began in April to June 2001. This is 497,000 (59.9%) fewer than a year earlier and 463,000 (58.1%) fewer than the three months to March 2020. These are the largest annual and quarterly falls in the history of the data time series.

There are quarterly decreases in all sectors. Contributing most strongly to the quarterly movement were the "wholesale, retail trade and repair of motor vehicles" industrial sector, down 92,000 (70.0%) and the "accommodation and food service activities" industrial sector, down by 78,000 (91.1%), both record quarterly falls. These industries have been impacted heavily by social distancing measures, with hotels, restaurants and retail stores being closed as a result.

Economic commentary

The impact of the coronavirus (COVID-19) pandemic on the UK economy continues to evolve. Monthly gross domestic product (GDP) grew by 1.8% in May 2020 following April's record fall of 20.4%. However, retail sales volume rebounded in May 2020 with an increase of 12.0% compared with the previous month, although sales were still down by 13.1% on February.

External indicators also show some improvement in economic activity, with businesses being able to reopen following the easing of the lockdown restrictions and staff returning to work. The IHS Markit/CIPS PMI indices show that manufacturing (PDF, 168KB) and construction (PDF, 147MB) output increased in June, while the services (DOCX, 30KB) sector reported that new orders fell at a slower pace compared with May. Nonetheless, all three PMI indices reported that employment levels in each sector continued to fall.

The results from the external indicators are reflected in the Business Impact of Coronavirus (COVID-19) Survey (BICS) (Wave 7) for the period 1 June to 14 June 2020. The results showed that, of the responding businesses, 23% of the workforce were furloughed. Of the businesses that were trading, 6% of the total workforce had returned from furlough in the two weeks prior to completing the questionnaire. The results of the Insights of the Business Impact of Coronavirus (COVID-19) Survey show that the proportion of businesses' workforce that had been furloughed dropped slightly from 27% to 23% over the period 23 March 2020 to 14 June 2020.

The Labour Force Survey for the period March to May 2020 showed further impacts of the coronavirus on the labour market. Compared with the period December 2019 to February 2020, the employment rate fell marginally, and the unemployment rate remained unchanged, while the inactivity rate increased slightly. Early estimates for June 2020 from Pay As You Earn (PAYE) Real Time Information (RTI) data indicate that the number of paid employees fell by 1.9% compared with June 2019.

The muted movement in the unemployment rate is likely to reflect the fact that the official definition of unemployment only includes those who have searched for work in the past month. As also commented by the Office for Budget Responsibility (OBR), in their Fiscal Sustainability Report, it is therefore possible that, at least in the short-term, falls in employment will be associated with a rise in measured inactivity among those who do not meet the official definition.

Similarly, changes in the employment rate do not reflect the proportion of workforce being furloughed, which is still counted as employed. Hours worked by the UK workforce therefore usefully complements the official figures; average actual weekly hours continued to decrease in the three months to May 2020, reaching a record low.

Redundancies remain within normal fluctuations; however, external indicators show that redundancies might be increasing. For example the Bank of England's Agents' summary of business conditions for the second quarter of 2020 highlights that redundancies have been announced or have been considered in sectors such as travel and tourism, automotive, aerospace and construction.

The ONS Vacancy Survey for the period April to June 2020 shows that demand for labour continued to weaken, reaching a record low. Vacancies remained at a high level until the start of the coronavirus social distancing measures introduced in March, where they have since fallen more sharply than during the 2008 to 2009 recession.

Analysis of Adzuna adverts data shows that between 26 June and 3 July 2020, total online job adverts stood at around half of their 2019 average. The volume of online job adverts in retail, and catering and hospitality increased in this period, reflecting a growing expectation for shops and bars to reopen. The July KPMG REC UK Report on Jobs survey also reported a further drop in hiring activity, with redundancies and furloughed workers leading to the steepest increase in labour supply since January 2009.

In real terms, total average weekly earnings growth continued to decline in the three months to May 2020, while regular average weekly earnings contracted (negative 0.2%) for the first time since the three months to January 2018. The RTI flash earnings estimate for June 2020 show that earnings have increased by 1.0% compared with the same period of the previous year. The KPMG and REC report on Jobs (PDF, 258KB) survey also reported that starting pay for both permanent and short-term staff fell further in June as demand for workers remained weak..

To read the full report with many more graphs and links to other date go HERE