Understanding the labour market context behind the current strikes

The backdrop to this morning’s labour market statistics is recent strikes: around 40,000 rail workers are striking today and later in the week, and nurses and Royal Mail staff (among others) are set to strike later this month. Today’s data helps us understand the labour market context behind these strikes – workers are feeling the pain with real pay falling (especially in the public sector), and sense a rise in their bargaining power with a tight labour market. 

Highest number of days lost to strikes in ten years

Today’s data shows that recent industrial action has led to the highest number of days lost to strike action in over a decade, with 417,000 working days lost to industrial action in October 2022. Unsurprisingly, the vast majority of recent working days lost to industrial action have been in the transport industry, with 328,000 days lost in October 2022 (88 per cent of the total).

In October, the number of days lost to strike action was still less than half as high as the previous peak, with 997,000 days lost to strike action in November 2011. However, this number is likely to increase soon, since workers across multiple industries are striking in the run up to Christmas. 

Meanwhile, real wages are falling, particularly in the public sector

The context behind current strike action is falling real wages: high inflation means that real earnings have fallen by 2.7 per cent in the year to October. And this is even more pronounced in the public sector, where real pay has fallen by 5.8 per cent since last year, compared to a 2.0 per cent drop in the private sector. This gap between public and private sector pay growth, at 3.8 percentage points, is down slightly from last month but remains close to a record high.

And while current high inflation, largely driven by global pressures including the invasion of Ukraine, is pushing down real wages at the moment, the public sector pay squeeze goes back further. For example, since the eve of the pandemic, public sector pay has grown by the equivalent of just 3.8 per cent a year in cash terms, compared to 5.2 per cent in the private sector.

As well as feeding into industrial action, the public versus private sector gap in pay growth is also contributing to high vacancy rates in the public sector.  While overall vacancies are down from their peak earlier in 2022, vacancies in the education, health and public administration industries (those with a high degree of public sector workers) are well above those in other sectors. In October 2022, the vacancy rate in these public sector industries was 4.5 per cent, compared to a rate of 3.3 per cent in other sectors. This high level of vacancies in the public sector will exacerbate the pressure on the Government to increase pay as it struggles to recruit workers.

There are also wide differences in pay growth when we compare between industries. The logistics industry (which includes rail workers) saw real pay fall by 3.7 per cent in the year to October 2022, higher than the average fall of 2.7 per cent. Notably, many industries with a high share of public sector workers (such as education and health and social work) saw large falls in real pay: workers in the education industry saw their real pay fall by 5.2 per cent, almost double the overall rate. 

There are some small signs that the labour market is cooling

In the most recent data, there are some small signs that the labour market might be cooling. As mentioned above, vacancy rates have fallen back from their peak earlier in the year, but still remain well above their pre-pandemic levels. When we look at the ONS Vacancies Survey, vacancies were 65 per cent higher than their 2019 rate in April this year, but have fallen down to 36 per cent above their 2019 rate by November this year.  

There is a similar story when we look at the redundancy data. The number of people who were made redundant in the last three months rose to 89,000 in September 2022, up from 56,000 six months ago in March. 

Finally, when we look at short-term unemployment, there has been a small increase, with the number of people who are in short-term unemployment rising by 92,000 on the previous quarter, albeit from a low starting point. (Despite this increase, by August-October 2022 there were 813,000 people unemployed for six months or less – less than the 842,000 people who were short-term unemployed on the eve of the pandemic.)

But we should not overstate things – labour market quantities remain broadly flat

While the Bank of England and OBR are both forecasting a significant rise in unemployment in the months ahead as the UK enters a recession, we have not yet seen any significant changes. Although the 16+ unemployment rate also increased slightly on the quarter (up from 3.6 per cent in May-July to 3.7 per cent in August-October), this is still incredibly low in historic terms. This is also true when we look at young people, who typically have above-average rates of unemployment: in July-September 2022, the proportion of young people aged 18-24 who were not in employment, education or training (NEET) and unemployed reached a record low of just 4.1 per cent. 

And while the employment rate rose slightly on the quarter, it still remains below pre-pandemic levels: the 16-64 employment rate was 75.6 per cent in August-October 2022, down from 76.6 per cent on the eve of the pandemic in December-February 202

Overall then, there are no signs yet of a big loosening in the labour market. Unemployment remains low, and vacancies are still above their pre-pandemic level. Instead, the big story in today’s data is the continued impact of high inflation, which is pushing down on workers’ take-home pay, and the related uptick in strike action that is set to continue over the winter months.