Trying to get to the bottom of what is happening to Britain’s labour market is a tricky business. There are three different measures for calculating unemployment, not all of which cover the same period.
Even so, some broad themes emerge from the latest blitz of data from the Office for National Statistics. One is that the furlough has done its job in shielding the economy from rising joblessness, with more than 4 million workers taking advantage of wage subsidies at the end of the first quarter.
The impact of the lockdown on the economy was reflected in a fall in the number of hours worked rather than in unemployment. In the three months to March the jobless rate stood at 4.8%, down from 4.9% in the quarter ending in February, with people leaving the labour market because they had given up ever finding a job one factor in the decline.
The chances of finding work have now started to improve as a result of gradual easing of restrictions. More timely indicators of the jobs market – the HMRC figures for the people on payrolls – showed hiring was up strongly in April and concentrated in those sectors that have taken the biggest hit since the UK first started to feel the effects of Covid-19 in February 2020. Payrolls expanded by 97,000 in April, although they remain three-quarters of a million lower than their pre-pandemic peak.
Assuming the government can stick to its plan of removing all restrictions by June, the improvement in the labour market looks likely to continue, with the under-25s – the age group most badly affected by lockdowns – the main beneficiaries.
A cursory glance at the latest data for earnings would suggest that wage inflation is going to provide a headache for the Bank of England as the summer progresses, because even in locked-down March, annual growth in pay packets was running at more than 4%.
The strength of earnings growth is something of a mirage, however, because the makeup of the labour market has changed over the past year, with people in higher-paid jobs continuing to work as normal but those in lower-paid jobs being furloughed or made redundant. The ONS estimates these compositional changes boosted growth by almost three percentage points in March. Private pay settlements are running at about 1% – a much better guide to what is actually going on.