UK employers may be struggling to fill jobs, but this isn’t a new era of worker power

Although the labour market is starting to recover, the effects of the pandemic will be felt for a very long time

Last modified on Wed 30 Jun 2021 06.02 EDT

Commentators have decided that the labour market is booming, reporting that firms are finding it hard to hire people. Some have predicted the dawn of a new era of worker power that will push up wages, while others worry labour shortages will hold our recovery back. The bigger danger, however, is that we’re losing sight of what’s really happening.

While some firms, especially in hospitality, are facing difficulties recruiting, the current situation is not what a rip-roaring jobs market looks like. Those who think it is are repeating a common mistake: treating this as a normal recession rather than a pandemic, with its hugely unequal impact on different sectors and the swift closing down and opening up of economic activities.

There are lots of positive headlines about jobs. Last month, 197,000 more employees joined payrolls while vacancies now exceed pre-crisis levels. Reportedly, 80% of workers furloughed during lockdown have returned to work. Headline unemployment and pay data shows a strong labour market with the unemployment rate falling to 4.7%, far lower than expected, with average earnings up 5.6%, the fastest increase this millennium.

But dig beneath these news stories and it’s clear the labour market is very far from tight. Total hours worked are still down 5% on normal levels – a statistic we’d normally see in a recession, not a boom. The “Covid employment gap” – of furloughed staff, plus the fall in the number of employees and self-employed people during the pandemic – stands at about 2 million people. And 10% of those who were self-employed before the crisis are not working now.

When it comes to pay, headline wage surges are very misleading. While average wage growth is strong, what matters is people getting pay rises, and the data hugely overstates how much that is happening. That’s because low-paid workers have been much more likely to stop working during the crisis than higher-paid ones, which pushes up average pay without anyone actually earning any more. On paper, annual pay growth appears to be surging because it’s measured in comparison to this time last year, when pay was falling in the worst part of the crisis. But people aren’t getting bumper pay rises – and once we correct for these two factors, pay growth looks very ordinary indeed.

Workforce shortages and recruitment difficulties are very real in sectors such as hospitality and haulage. But if we look at how long it’s taking firms across the economy to hire, there is no sign of a crisis. In an improving labour market we would expect to see more vacancies and delays in filling them. This is happening now, but the numbers are only notable when you compare them to the same time last year during the peak of the crisis. It still remains significantly easier to fill a vacancy today than it was in 2019.

It’s clear that although our labour market is recovering, it’s still far from recovered. How then do we explain the challenges some firms are facing recruiting? By remembering there’s a pandemic on.

We should expect to see hiring challenges in sectors that have been closed and then suddenly reopened. Finding workers is not the same thing as switching the electricity back on. Think of a fire alarm test in an office: everyone exits the building and mills around outside, until the decision is made to restart work. People head back in and a queue forms at the entrance. That queue occurs not because there’s a shortage of workers, but because it takes time to get through the door and back into work. The same pattern occurs when lots of hospitality businesses all try to hire at once: it takes time to find workers in the right location with the right skills who want the job. That may be frustrating for employers, but it does not show that an economy-wide labour shortage exists.

These difficulties have been compounded by the pandemic, which has sped up a change in our labour market that Brexit was already leading to: fewer migrant workers. The best estimate is that hundreds of thousands of migrants have left the UK during the pandemic. Because those workers were concentrated in areas such as hospitality, agriculture and haulage, it has added to the challenges already facing these sectors.

Some have argued that the existence of the furlough scheme is the real problem, with workers not taking new jobs because they can earn 80% of their previous wages while doing no work. Yet the number of people on the scheme is falling fast, and the majority of furloughed workers are now doing some work. And it’s worth remembering that the scheme puts employers very much in charge: they, not the employee, decide when someone should return to work. Focusing on furlough also ignores another big factor that may be limiting workers’ desire to return to restaurant and hospitality jobs: because of the virus many people will be less keen on taking a job behind a bar right now, and the young people who are most likely to work in these sectors are also those least likely to be vaccinated.

The labour market is improving fast, but it is doing so from an exceptionally weak starting point. Labour shortages in hospitality are neither a total disaster for our economy, nor evidence of a new dawn of bargaining power for low-paid workers. And they certainly mustn’t breed complacency about the task ahead of us: getting millions of people back to work, winding down pandemic support without undermining the recovery and undoing the damage to a generation whose formative years in the labour market have been hugely disrupted. We are slowly emerging from this pandemic, but its effects will still be felt in the world of work for some time to come.

Torsten Bell is chief executive of the Resolution Foundation.

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