What happened to wages in Great Britain during each stage of the pandemic and what is the outlook for real wages in 2022?
As coronavirus restrictions come to an end, industries in the UK are experiencing the effects of the pandemic in different ways. While employment has fallen in some sectors, such as accommodation and food, in others, like public administration, new jobs have been created.
Common to all industries, however, is an increase in job vacancies, causing a tight labour market.
Employment has fallen in most industries
Although the furlough scheme helped prevent redundancies, in many industries employment levels fell over the pandemic. Data from the Office for National Statistics (ONS) shows that in October to December 2021, employment in the accommodation and food sector was still 11% below pre-pandemic levels and it was down 9% in the manufacturing sector.
Conversely, employment in the public administration and defence sector has increased by 15%. This is because of an increase of 74,000 jobs in public administration during the pandemic, many of which were created to help manage and oversee the response to Covid-19.
The chart below tracks employment levels in selected industries from March 2020 to October-December 2021.
Job vacancies have reached a record high
At the start of the pandemic there was a huge fall in the number of job vacancies. Total vacancies in April 2020 were down 54% on their pre-pandemic average level for April (PDF).
According to the Institute for Fiscal Studies, vacancies in almost every occupation fell by at least 20%.They fell the most in accommodation and food services, (93%), because of coronavirus restrictions. Only vacancies in sectors related to health, social care and education remained steady.
However, since April-June 2020, the ONS shows vacancies have been rising, reaching a record high of 1.3 million in November 2021-January 2022. This is an increase of 65.5% from pre-pandemic levels.
Despite some industries having higher levels of employment than in January to March 2020, every sector now has vacancies above pre-pandemic levels, with accommodation and food services having the biggest increase of 112%.
The chart below shows the percentage change in vacancies from before the pandemic to January 2022 in each industry.
The current level of high vacancies is accompanied by relatively low unemployment. This has led to a very tight labour market, where there is high demand for workers and recruitment becomes difficult, causing labour shortages in certain sectors. In January 2022, there were 1.1 unemployed people per every job vacancy, according to ONS data. This compares to 1.8 unemployed people per vacancy pre-pandemic.
The Institute for Employment Studies has said the demand for workers is holding back growth and may also push up inflation.
Why has there been an increase in vacancies?
The Institute for Employment Studies says labour shortages are largely due to the growing number of people who are economically inactive (not in work and not looking for work). They also reflect a decline in foreign workers in the UK who, because of a combination of Covid-19 and Brexit, have returned to their countries of origin.
The Institute for Fiscal Studies said the increase in vacancies has “been driven entirely by low-paying occupations,” with unappealing pay packages contributing to high vacancies.
Different industries also have specific circumstances which are contributing to labour shortages. For example:
- The hospitality sector was the hardest hit by coronavirus restrictions, leading to the end of many part-time jobs. LSE reported that part-time jobs went from making up 34% of the sector in 2019, to 31.3% in 2021. Institute for Employment Studies data shows that as the economy is recovering from Covid-19, demand for workers is growing and the reduction in part-time workers may be a contributing factor to labour shortages.
- The accommodation and food sector is under pressure to increase wages but was unable to replenish cash reserves over the festive season because of restrictions related to the Omicron variant. This has caused problems with retention and recruitment.
- The health and social work sector currently faces the highest number of vacancies at 206,000. Across England, over 10% of NHS nursing posts and nearly 6% of NHS doctors’ posts are empty. As reported in the Guardian, staff groups say NHS staff are becoming “demoralised”, with low pay, heavy workloads and constant pressure, compounded by the pandemic, leading workers to quit.
- The 2021 shortage of HGV drivers led to incentives such as providing sign-up bonuses and increasing salaries to recruit drivers. This attracted workers from sectors such as fork-lift truck drivers or warehouse workers, leaving shortages in these areas. Kate Shoesmith, CEO of the Recruitment and Employment Confederation, told the BBC, “You have to look at the supply chain as a whole. There’s a sense that we’re robbing Peter to pay Paul”.
How to get more people into work?
The Government has put in place schemes to support people back into work, and most recently introduced a “Way to Work” scheme in which those receiving Universal Credit will be expected to search for jobs that go beyond their former occupation after four weeks of claiming. The Government says this is to get 500,000 benefit claimants into jobs by the end of June 2022 and address high level of vacancy levels across all sectors.
However, critics state the rise in job vacancies is not due to unemployed people failing to find suitable jobs, as unemployment is back to pre-pandemic levels.
Instead, some suggest the answer to labour shortages lies in persuading the economically inactive to enter the labour market. To do this, employers across industries may need to find a way to make jobs more attractive, whether through more inclusive recruitment, improved working conditions, increased flexibility, or better pay.
- UK labour market statistics, House of Commons Library
- Coronavirus: impact on the labour market, House of Commons Library
- Vacancies and unemployment, ONS
- Employment by industry, ONS
About the author: Harriet Clark is a researcher at the House of Commons Library, specialising in labour market statistics.
Economic inactivity has increased over the pandemic, due mainly to illness and people staying in or entering education.
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