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The current employment market in the UK is experiencing an unprecedented trend: there are now more vacancies than workers, which has never been recorded before.
Although this might seem a positive factor for unemployment rates, it is highly likely to significantly impact Britain’s economic recovery and the position of the pound sterling on the global market.
Labour Market Concerns
Besides the shortage of workers in specific geographical areas, there are other concerns about the current labour market and its inevitable impact on the economy.
That’s why, to get a deeper understanding of the issue, we have teamed up with experts from job aggregator Jooble, to take a closer look at the current labour market situation and concerns in the UK.
Since 2016, the low hourly wage problem has been improving. However, it is not the case for all spheres.
According to the LSE Business Report, the areas with high incidents of low hourly wages include sales, childcare, and bar and kitchen work.
There is also an issue of low-paying self-employment that has to do with the gig economy growth.
It is important to address these problems along with the shortage of workers with combined effort.
Some people might choose to relocate or opt for flexible work, while others may prefer to apply for crisis helpline jobs or remote sales.
Surely, not every industry can ensure efficient remote work, but it is a good opportunity to consider.
Current Employment Market in the UK
On October 11, the ONS published a report on the state of employment in Britain.
The trend of worker shortage remains prominent.
Since the summer of 2020, around 1.3 million vacancies have been open offline and online on sites like Jooble due to the resume after the first COVID-19 lockdown.
The key findings in this report are below:
● There is a decrease in the unemployment rate by 0.3 percentage points in June-August compared to March to May period (the overall rate is 3.5%);
● There is also a decrease of 0.3 percentage points in the employment rate for the same period. It is still 1.0 percentage points lower than before the COVID-19 surge (the overall rate is 75.5%);
● The economic inactivity has increased in these months by 0.6 percentage points and is now 21.7%;
● Total hours worked are still below the pre-pandemic levels.
One of the interesting factors is that both employment and unemployment rates are decreasing despite the surge of vacancies all over the country. Economic inactivity is another major factor that impacts the recovery after the COVID-19 pandemic.
Another trend is the growing number of self-employed workers, which might be one of the factors that contribute to many businesses and organisations struggling to fill in the open vacancies.
It is important to note that this situation is not caused by the surge of new opportunities for labour but by the decrease in the labour force. This has to do with several reasons, such as long-term sickness (during the height of the pandemic), early retirement, temporary sickness, and the shortage of EU workers that went back to their home countries during the lockdown.
Some of these social groups have come back to workplaces. But the offset in the non-EU labour force continues after the pandemic. The two main factors that contribute to that are Brexit and COVID-19.
It is also worth noting that there is a geographical factor in the shortage of workers throughout the UK.
Some areas are more affected than others based on the main industries and employment specifics. The geographical imbalance in open vacancies is prominent in rural areas in the southwest and the northwest of England. Many of these areas depend on foreign workers, which is why they are more affected by COVID-19 and Brexit impact. This relates to the agriculture and hospitality sectors.
The main impact of labour shortage on the economy comes in the lower profits for many businesses. This also leads to lower productivity, supply chain issues, a slowdown in wage growth, growing economic inactivity, and lower GDP. According to the Overcoming Shortages report, if this issue is not addressed, it will cost Britain from 30 to 36 billion pounds a year.
What Can Be Done?
As for now, there is a lack of governmental response to the labour shortage. There is a strong need for a comprehensive action plan to target the geographical areas that struggle the most.
Surely, some employers might come up with individual creative solutions like relocation options, provided training, flexible working opportunities, or better employee benefits packages.
However, there is also a necessity to regulate affordable housing for those who decide to relocate, which can be managed by local and national authorities.
The Impact on the Pound Sterling
The workforce shortage directly impacts the economy and slows down the recovery after the pandemic. It is one of the contributing factors to projected economic stagnation along with external circumstances, such as the Russian invasion of Ukraine.
The pound has already fallen to its lowest point since June 2020. The Bank of England has recently risen the interest rates, which are now at the highest level in the last 13 years.
And the inflation rate rose to 10.1% in July. The Bank of England projects that by the end of the year, inflation will hit 13.3%.
One of the main reasons behind it is the energy crisis caused by Russia’s war in Ukraine and increasing energy prices.
However, the shortage of workers is also contributing to the overall economic slowdown. It is now expected that the UK economy will shrink in 2023, which raises the risk of stagnation even more.
GBP suffered a 4.5% drop against the USD and 3% against the EUR in September; the largest monthly decline since Brexit. And according to analysts, the political and economic circumstances will keep Britain’s currency pressured on the global market.
This is undoubtedly bad, especially in the face of the cost-of-living crisis the country enters. All of these factors are going to slow down the economic recovery even more. It might be even paralysed if no rapid changes are made in fiscal policies.