Questions and answers about coronavirus and the UK economy
Questions and answers about coronavirus and the UK economy

What do payroll employment data reveal about UK job losses?

The latest UK labour market data may not reflect the full impact of the pandemic, as the furlough scheme continues to protect jobs. A closer look at payroll employment reveals uneven effects, with young workers and certain localised areas particularly badly affected.

New labour market data for the UK were released yesterday – and as has been the case throughout the pandemic, headline measures such as the unemployment and employment rates do not reflect the full scale of the economic crisis that we are seeing elsewhere (for example, in GDP data).

The main reason for this is that the Coronavirus Job Retention Scheme (CJRS) means that many people who might otherwise have become unemployed have instead been furloughed. They are recorded in the employment statistics as ‘in employment but temporarily away from work’.

As a result, there has been more focus on other wider measures of what’s happening in the labour market, such as the number of hours worked. This measure has more closely tracked changes in GDP.

New data showing the number of people registered for pay as you earn (PAYE) tax each month have also drawn attention. These data, which essentially show ‘payroll employment’, are experimental statistics rather than ‘National Statistics’, but they are proving to be useful in tracking what is happening with jobs in the UK.

The data have become more detailed over the past few months. Yesterday, we received new breakdowns by age groups and NUTS regions (NUTS1 being the nine broad regions of England, plus Scotland, Wales and Northern Ireland; and NUTS2 being the 40 smaller geographical areas into which NUTS1 regions are divided).

What do the data tell us?

Looking at the change in the number of people of each age registered for PAYE, we can see very clearly how the pandemic has greatly reduced employment among the young (see Figure 1). That age group includes not just those under 18, but also those between 18 and 24. Indeed, 60% of the decline in overall payroll employment since January 2020 is comprised of those under 25.

Figure 1: Payroll employment by age

Source: Office for National Statistics

A key reason is that sectors with some of the largest declines in payroll employment are those where many young people ordinarily work, for example, accommodation and food services (see Figure 2).

Figure 2 in this Economics Observatory article also highlights how exposed younger workers have been as a result of their employment in sectors required to shutdown for much of the past year.

While new employment opportunities have been scarce in general, public health restrictions have disproportionately affected the sectors in which younger people tend to work.

Figure 2: Changes in payroll employment January 2020 to January 2021 by sector

Source: Office for National Statistics

We can also use these data to explore regional changes in payroll employment and show that there are significant differences across the UK (see Figure 3).

Figure 3: Change in payroll employment January 2020 to January 2021 by NUTS2 region

The dark blue line in Figure 3 shows the change in payroll employment for the broader (NUTS1) regions. This serves to highlight two things. First, there are differences across the NUTS1 regions themselves (with London seeing the largest drop and Northern Ireland the smallest). And second, there are significant differences within the NUTS1 regions.

In Scotland, for example, the overall decline in payroll employment between January 2020 and January 2021 was 2.8% (which translates into 68,000 fewer employees on payroll). Yet within Scotland, there are big differences.

This is most notable for North Eastern Scotland, which has seen payroll employment dip by 5.3% over the same period, as a result of the additional economic shock being experienced there following the downturn in the oil and gas sector.

A similar picture of local differences within a region emerges when comparing inner and outer London: inner London has seen larger declines in payroll employment than outer London.

Conclusions

Tracking payroll employment provides new insights into what is going on in the labour market. Taken alongside other indicators, it is helping us to understand the way in which Covid-19 is reshaping our economy.

We can see very clearly the differential impact of the pandemic on younger workers.

These data are also highlighting the parts of the country that are seeing the biggest hit to local employment – but crucially there are bigger variations within regions than there are between them. This is important to recognise, because it suggests that policy responses should be more carefully targeted at local priorities than regional priorities.

Author: Stuart McIntyre
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