530,000 ‘hidden unemployed’ workers mean pressure for stronger pay could still be some way off 8 October 2017 Over half a million of Britain’s economically inactive population have a high probability of finding work, suggesting there is far more slack in the labour market than the headline unemployment figures suggest. This is according to the Resolution Foundation’s latest quarterly Earnings Outlook – supported by the Nuffield Foundation – published today (Monday). With Britain is experiencing both the best and worst of the labour market – unemployment has fallen to a 40-year low at the same time as real wage growth has fallen to -0.5 per cent – the outlook considers why such a strong performance on jobs isn’t feeding through into pay packets. It notes that while the focus of the current pay squeeze is on high inflation, nominal wage growth is running at just 2.5 per cent – well below its pre-crisis average of 4.5 per cent. Unless this changes, weak pay growth will continue even as inflation pressures recede. And while Britain’s poor productivity record explains a large part of Britain’s terrible decade on pay, the lack of upward pressure in recent years has puzzled economists, as rapid falls in unemployment are considered to be a key driver of higher pay rises. The report identifies a number of possible sources of ‘slack’ in the labour market that may behind this lack of pressure – in particular the growing number of ‘hidden unemployed’ workers among the UK’s 8.7 million economically inactive population. Economic inactivity is currently the main source of new employment, with 540,000 people moving into work in April to June 2017, compared to 450,000 unemployed people. This is no surprise given the sheer size of the population but, as the report highlights, it also reflects that many ‘inactive’ people actually have a high probability of finding work. It notes, for example, that inactive people with a degree have a high chance of entering work. In contrast, people with a disability are 90 per cent less likely to find work than those without a disability. By breaking down the economically inactive population by their likelihood of finding work, the analysis finds that there are currently 530,000 economically inactive people with a high probability of work, a 43 per cent increase since 2013. This increase in ‘hidden unemployment’ has occurred even while overall levels of economic inactivity have fallen to a record low. The report identifies three other examples of labour market slack, including: Subdued job mobility. The rate at which people are moving between jobs – a key route to bigger pay rises – has plateaued at well below pre-crisis levels, and has started to fall for people aged 18-29 Elevated long-term unemployment. The proportion of people who have been out of work for at least 12 months is currently 20 per cent higher than its pre-crisis low, and 59 per cent higher for 18-24 year olds. Elevated under-employment. While falling consistently over the last 12 months, under employment remains 20 per cent higher than its pre-crisis low. The Foundation says that these areas of labour market slack mean that there is scope for Britain’s impressive jobs growth to go even further, even though the headline rate is already at a record 75.3 per cent. It adds that further jobs growth will be needed to put more pressure on pay rises, and that the government should purse a renewed a full employment drive to get there – backed by new policy support for disabled people in particular, who account for over a third of the economically inactive population. Stephen Clarke, Economic Analyst at the Resolution Foundation, said: “Britain has experienced a truly awful decade of pay growth. And while the recession was the obvious cause of the pay squeeze in the early 2010s, the recent phase of weak pay growth has taken even while unemployment has fallen rapidly to a 40-year low. “Our work shows that there are plenty of areas of hidden slack in the labour market beneath the impressive headline figures. There are over 500,000 ‘inactive’ workers who have a good chance of finding work. For those in work, relatively high under-employment and subdued levels of people moving between jobs also suggest that the jobs market is not quite as healthy as the headline figures suggest. “This means we’ll need to see fresh employment records broken before we start seeing significantly stronger pay growth. And of course the only way to boost pay in the long run will be tackle Britain’s ongoing productivity problems, which the Chancellor will be looking to tackle in his Autumn Budget.”
