New figures show a continued low rate of unemployment in the UK as a whole, but also higher economic inactivity compared with the pre-pandemic period. Some parts of the country are worse affected than others, reflecting the diversity of regional economies and recent economic experiences.
Data out this week shed light on how the UK’s regional labour markets have changed since the start of the pandemic. Looking at three key sources of information – on unemployment, economic inactivity and regional wages – this article highlights differences between regions across the country.
The headline UK data indicate a tight labour market with low numbers of people unemployed and high numbers of vacancies. The unemployment rate sits at 3.8% for the period between March and May 2022, down 1.1 percentage points from the previous year. Similarly, there is around one unemployed person for every vacancy that exists at the moment, compared with 1.9 this time last year.
While we do not have a regional breakdown of data on vacancies, we can see what is happening to unemployment across regions of the UK.
Most regions now have lower unemployment rates than they did in the immediate pre-pandemic period (see Figure 1). Unemployment rates were generally around historic lows at that time (see Figure 2).
Figure 1: Change in the regional unemployment rate (16+) between January-March 2020 and April-June 2022 (latest data)
Source: Office for National Statistics (ONS)
Figure 2: Regional unemployment rates (16+), post 1992 high/low, January-March 2020 and April-June 2022 (latest data)
The headline measure of economic inactivity covers a broad range of situations in which people of working age (16-64) are unable to be economically active. These include some we might think of as ‘good’ reasons for economic inactivity, including being a student, as well as more worrying reasons, such as long-term ill health.
Given the impact of the pandemic on the health of the UK population, there has been a significant amount of attention paid to economic inactivity over the past year, as public health restrictions have all but ended. An additional trend that seemed to emerge during the pandemic has been a rise in retirement, which is another reason why people of working age might be economically inactive.
Figure 3: Change in economic inactivity among people aged 16 to 64 by reason, April 2021 to March 2022 compared to April 2019 to March 2020
Most regions have more people who are economically inactive now than in the year prior to the pandemic (the white squares in Figure 3 indicate the overall change by region in Figure 3).
In most regions, the key drivers of more people being economically inactive are ill health, retirement and because they are students. At the same time, the number of individuals who are economically inactive because they are looking after family or the home is generally declining.
Undoubtedly, the big story in the labour market remains wage growth lagging well behind inflation, which means that many households face a cost of living crisis.
New data also show that inflation has hit 10.1%, while this week’s labour market data highlight that over the past year, average total pay growth was 5.1%. Pay growth was higher for those working in the private sector – at 5.9% – while public sector pay grew by only 1.8%.
The headline monthly measure of earnings does not come with a regional breakdown, but there is a relatively new data source – known as the ‘pay as you earn real time information’ dataset – that does provide this.
The measure is designated as an ‘experimental statistic’, as it is still in the development phase, and so should be used with more caution than ‘national statistics’ publications.
What do these data show?
While median pay growth for the UK as a whole in these data is slightly higher (at 6.6%) than the headline measure (which is only 5.1%), there is variation across regions (see Figure 4). The biggest increase in median pay over the past year has been in the South West and the lowest in Northern Ireland, at 7.6% and 4.7% respectively.
Just as there is variation across regions, there are also differences within regions. Both the East Midlands and Yorkshire and the Humber have a difference of 1.7 percentage points between the areas with the fastest and slowest pay growth.
Median pay in North Yorkshire grew by 8.2% over the past year, but only by 6.6% in West Yorkshire. Meanwhile, in the East Midlands, median pay in Derbyshire and Nottinghamshire grew by 7% over the past year compared with only 5.4% in Lincolnshire.
A number of factors are driving these differences, including the types of businesses and the nature of work in these areas.
Figure 4: Annual growth in median pay of payroll employees by region ITL1 and ITL2
The coming months will be very difficult for households across the UK, with inflation forecast by the Bank of England to rise above 13%, and wage growth struggling to keep pace.
Figure 5: Consumer price index (CPI), percentage change
What these new data highlight is the diversity of economic experience across different parts of the UK over the past couple of years. It is this that should provide the starting point for analysis as we head into exceptionally challenging economic times.
Where can I find out more?
- Labour market in the regions of the UK: This publication from the Office for National Statistics provides a comprehensive overview of all the available data.
- The labour market is making history for the wrong reasons: Resolution Foundation article by Nye Cominetti and Hannah Slaughter.
- Long Covid and the labour market: Report by the Institute for Fiscal Studies.
Who are experts on this question?
- Stuart McIntyre
- Jonathan Wadsworth
- Stephen Machin