Jobs market normalises as men return to work but impact on still abnormally high pay growth will take time

The jobs market continued to return back to its pre-pandemic health, with men driving another recent rise in employment. But with private sector wage growth rising by 7.7 per cent it will take time pay growth to normalise, the Resolution Foundation said today (Thursday) in response to the latest ONS labour market statistics.

The main movement in the jobs market came from falling economic inactivity – which has now fallen by 350,000 since 2022.

Men have driven the recent rise in employment, up 83,000 on the quarter, though their employment rate is still down 0.8 percentage points on pre-pandemic levels (compared to 0.3 for women). Over the past three months, falling inactivity has fed equally into higher employment and higher unemployment, so there are more people in jobs but also a looser labour market.

There were further signs of labour market signs of labour market loosening with vacancies down for the 12th consecutive month to 1.03 million.

However, this loosening has not yet resulted in a weakening of nominal wage growth. Private sector nominal pay grew by 7.7 per cent in the three months to May, its highest on record outside the pandemic, though real pay is still down 0.8 per cent (across the whole economy) over the past 12 months. Public sector wages grew by 5.8 per cent over the same period.

Shorter-term measures of private sector pay point to accelerating growth, suggesting that the labour-market loosening we have seen has not yet had its desired effect.

Charlie McCurdy, Economist at the Resolution Foundation, said:

“The latest labour market stats are likely to start further head-scratching for policy makers.

“Further falls in economic inactivity as the jobs market returns to its pre-pandemic state is unambiguously good news, with men in particular returning to work.

“But while there are signs that the jobs market is cooling, notably the continued fall in vacancies, it is yet to show up in the pay data – with private sector wages growing by an astonishing 7.7 per cent in May. It will take time for wages to normalise.”