ILC-UK Economic Briefing

New analysis into weaknesses in UK labour market

Headline findings Real weekly pay amongst 16-21 year olds has fallen by nearly 40% since 2007, which is likely to have contributed to the rise in the number of young people living at home. The over 50s have made the largest net contribution (+1.1 million) to the numbers of people in employment since 2007. Despite this positive contribution, weaknesses remain especially regarding the numbers of people aged 50-64 in unemployment, which is at historically high levels. The recent rise in the number of unemployed women aged 50-64 can be partly explained by population change and rising economic activity perhaps in response to household income pressures and changes to the state pension age. While male unemployment has been falling since 2010, it has remained persistently high after rising sharply in response to the 2008 recession. For individuals that have been out work for a considerable period of time, government and employers must invest in the retraining necessary to reintegrate them into the workforce.

While todays headline unemployment figures show evidence of a continued recovery in the labour market persistent weaknesses remain, including amongst the younger age groups and to a certain extent those aged 50-64. Real earnings squeeze: young people hit hard While the figures on youth (and NEET) unemployment are often quoted, the impact on weekly pay is less well documented. After adjusting for inflation, we have calculated that real pay amongst those aged 16-21 has fallen by almost 40% since 2007. This compares with a fall of 9.6% across the whole of the labour market. The falls in real wages become less pronounced the older the age group, with those over 60 experiencing a 6.6% fall in real weekly pay (see Figure 1). Bad news all round, but particularly so for younger people as well as their parents who are increasingly having to support them (the number of young people living at home has risen from 2.4 million in 2003 to 3.35 million in 2013i). The labour market and older workers a sizable contribution Without the impact of older people in the labour market, the overall employment figures would look far worse. According to our analysis of latest ONS data, the 50+ age group has seen the most significant increase in numbers of people in employment since Q1 2007 (+1.1 million) of

any age group (see Figure 2). And the 65+ age group has experienced the largest percentage rise in the number of people in employment over this period (+65%). weaknesses remain but the reasons are complicated Despite the positive contribution made by older workers to the labour market recovery, unemployment amongst the 50-64 age group remains high (4.8%) in historic terms and a large proportion of those who are unemployed (46.7%) have been without work for 12 months or moreii. While the number of unemployed women has risen sharply in recent times (a rise of 48% from Q1 2010 to Q3 2013), the female unemployment rate has not risen so significantly (from 3.1% to 4.2%). Therefore, some of the rise in the numbers of unemployed women aged 50-64 since 2010 can be explained by population change. It can also be explained by the fact that an increasing number of women are looking for work and re-entering the labour force and this has accelerated since 2010. Economic activity rates have increased at a much faster rate for women than men over this period (see Figure 3). As a consequence female employment rates have risen at the same time as female unemployment rates. In part, the increase in female participation is likely to have been driven by changes to state pension age as well as household income pressures. The latter will have been exacerbated by youth unemployment as well as falls in employment amongst men aged 50-64 following the 2008 recession. While the number (and rate) of men in unemployment in the 50-64 bracket has fallen somewhat since 2010, it still remains elevated it rose sharply during the financial crisis and has yet to return to pre-crisis levels (see Figure 4). In this regard, the stickiness of male unemployment amongst this age group is concerning because it is perhaps less reflective of population change or increasing participation in the labour force, and more a function of changes to the structure of the workforce itself. For individuals that have been out work for a considerable period of time, government and employers must invest in the retraining necessary to reintegrate them into the workforce. Unemployment amongst the 50-64 age group is a concern from a retirement savings perspective because it is during this period that individuals do most of their retirement saving, typically benefitting from higher earnings and therefore larger contributions.
i

http://www.ons.gov.uk/ons/rel/family-demography/young-adults-living-with-parents/2013/index.html ii See our blog on this here: http://blog.ilcuk.org.uk/2013/12/18/persistent-challenges-in-uk-labour-market-to-impactretirement-readiness/