It’s coming home. And we’re going out. Top of the Charts 2 July 2021 Torsten Bell Afternoon all, It’s coming home. And we’re going out to watch it. It’s not clear what’s causing the bigger psychological shock to the English: finally beat Germans, or all the eye contact opening up has led to. What is clear is that all that beer facilitated cheering is very labour intensive. Furlough rates have fallen sharply as the economy reopened in May. These improvements, and the media focus on staff shortages in hospitality, means some commentators claim to see a red-hot labour market – although they differ in whether that is a new dawn for worker power or a drag on the recovery. This is what you’d politely call nonsense, so it’s time for a TOTCs special digging into what’s really going on, drawing on recent work on what’s happening to workers and living standards in this reopening phase of the crisis. Hope it’s a useful read. Torsten Chief Executive Resolution Foundation There are some big improvements underway jobs wise Our pubs and restaurants properly opened up in May, bringing a million workers off furlough and 200,000 more employees back onto payroll. Further progress is likely with vacancies now exceeding pre-crisis levels.Traditionally people searching for signs of a tight labour market would look to see if unemployment is down and pay up. Those measures (see chart 1) offer some support to those claiming this is a tight jobs market. Unemployment is now 4.7 per cent – exactly what full employment looked like in the mid-2000s. And average weekly earnings rose 5.6 per cent in April (4.4 per cent on the three months rolling average measure), faster than at any time this century. But this is not a normal recession we are recovering from, nor are normal headline labour market indicators the right things to focus on right now. Here’s five reasons why our attitudes to the labour market should be positive, but not aping England fan’s euphoria levels. 1. We’ve got a lot further to go We’re just not doing remotely enough work for this to be a tight labour market. Unemployment stats ignore those that are furloughed but not working, so instead we should focus on total hours worked. This is still down 5 per cent – the levels of a recession not a boom. New data yesterday showed there were still 2.4 million employees on furlough after the 17th May reopening – 50 per cent more than previously thought based on ONS surveys. And, as the chart below shows, there’s still 10 per cent fewer under-25s and 15 per cent fewer hospitality workers on payroll than pre-crisis. Job done this is not. 2. Pay isn’t out of control Headline measures of pay growth are currently huge. And, sadly for our bank balances, hugely misleading. When it comes to deciding how tight the labour market is, what matters more than average wage growth is actual people getting pay rises. And there’s a lot less of that going on than fast average wage growth figures imply. That’s because low-paid workers have been much more likely to stop working during the crisis than higher-paid ones, pushing up average pay without anyone actually earning more. Annual pay growth also appears to be surging because it’s measured in comparison to this time last year, when pay was actually falling. Very low pay back then is not the same thing as bumper pay rises happening right now. Once we correct for these two factors (by focusing on typical pay growth not growth in average pay and looking over two years) pay rises looks very ordinary indeed (see chart). 3. Don’t panic on labour shortages Workforce shortages and recruitment difficulties are very real in sectors such as hospitality and haulage. That shouldn’t be surprising when we’ve seen an exodus of migrant labour both rely on. And with hospitality going from being totally closed to open almost overnight, firms would always find it hard to hire so many staff so fast. As my colleague Greg Thwaites puts it everyone has to queue to get into the office after a fire alarm.But sector specific hiring challenges aren’t the same thing as a national labour shortage. If we look at how long it’s taking firms across the economy to hire (see chart below), there is no sign of a crisis. An improving labour market with more vacancies means a rise compared to the depths of the crisis, but it’s significantly easier to fill a vacancy today than in 2019. 4. Do worry about older workers ‘parked’ on furlough Young workers have overwhelmingly been hardest hit by this crisis (accounting for two thirds of the fall in payrolls). But our latest survey shows a new pattern – older workers being more likely to be parked on furlough.One of the most encouraging signs of recovery has been the halving of furlough rates among the under 25s during May. But not everyone is back working: a quarter of workers aged 55-64 who were fully furloughed during the recent lockdown remained so in May. This is much higher than for other age groups and could indicate a higher risk of unemployment as the Job Retention Scheme is phased out – remember older unemployed workers take longer, on average, to find work than younger cohorts. 5. The economics of this crisis are about more than the labour market The labour market shock over the past 18 months has not been evenly felt. Workers in the poorest fifth of households are 2.5 times more likely to have experienced a negative employment hit than the richest fifth of households.But even if the labour market was now fully recovered and employment gaps closed, there would still be a highly unequal legacy of this crisis: it’s impact on household balance sheets driven by different changes in spending. The closure of restaurants and the (sort of) banning of holidays abroad, has meant lots of ‘enforced saving’ among higher-income households, who are four times more likely to have seen their savings rise than fall. Meanwhile the poorest households are far more likely to have seen their savings run down and debts increase (see chart). This reflects the additional financial pressure lockdowns imposed on them – such as the increased cost of looking after children. The legacy of this crisis is more likely to be one of widening wealth gaps than income divides. We’ll be assessing this issue in much more detail in our annual Wealth Audit, out a week on Monday. A rounded view of the reopening phase of this crisis provides lots of improvements to celebrate, but also warnings about the dangers of complacency. This is not what a tight labour market looks like. Many are not back to work, wages are not booming, and poorer households will not emerge from this crisis with the higher savings that top and middle-income households will enjoy. To mangle a famous phrase: some think it’s all over, it certainly isn’t now.
