state of the labour market survey 2006

8/8/2019 State of the Labour Market Survey 2006

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August 2004

Office for National StatisticsLabour Market Division

Craig Lindsay

State of the Labour Market:

2004 Report


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SUMMARY

Employment

The rate of employment growth slowed during 2003, but new jobs continued to be

created. The number of people in employment increased 151,000 to reach 28.152 millionin October-December 2003, a level which was then the highest level on record. However,the working-age employment rate was fairly flat over the first half of the year and thenfell, ending the year at 74.5 per cent.

Unemployment

Both the level and rate of unemployment fell over the year to October-December 2003.The level was down 57,000 to 1.440 million; the rate fell 0.2 percentage points to 5.0 percent.

Inactivity

The trend in inactivity appears to have turned towards the end of 2002, and it was risingthroughout 2003. The working-age inactivity rate increased from 21.2 to 21.5 per cent.

Earnings

Earnings growth was subdued and slowed slightly over the year on both the including andexcluding bonus measures. Excluding bonuses growth was 3.5 per cent, down 0.4

percentage points on the year; including bonuses, growth was 3.4 per cent, down 0.5

percentage points.

Redundancies

The redundancy rate fell gradually through the year to reach 5.7 per 1000 employees; thiswas the lowest rate since the series began in 1995, and the rate appeared to be on adownward trend.

Overall

The story is one of a resilient labour market during 2003. Though, some softening was

seen towards the end of 2003, the labour market remains strong with ongoingemployment growth, historically high employment rates, low unemployment and no signof inflationary pressure in earnings growth.


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Introduction

This report is the latest in an annual series providing a review of the UK labour market overthe preceding year. (The first covered 2001 and was published in mid 2002; the report on2002 was published in summary form as part of the Focus On series in February 2004).It

looks at the whole breadth of labour market issues, providing an overview of developmentsover the past year, and their context both historically and in terms of recent economicdevelopments. The report also covers the social aspects of the labour market, for example theexperience of women and different age groups. Finally, in analysing both the economic andsocial changes the report looks at different dimensions such as the international context andthe subnational variations.

General economic background

2003 saw a rather mixed global picture economically. There had been a slowdown in growthtowards the end of 2002. Moving into 2003, the US, UK and Japan showed signs of

improving growth, whereas the Eurozone continued to stagnate (Figure 1).

The US economy previously peaked in March 2001i, ending a period of expansion which hadlasted 10 years. The economy then went into recession, hitting a trough in November 2001

before moving back into growth in 2002ii. This recovery continued into 2003 with quarterlygrowth peaking at 2.0 percent in the third quarter. However, while output picked up, the USlabour market remained sluggish. While unemployment fell back from 6.0 to 5.7 per centover the year, the 16+ employment rate was down from 62.4 to 62.2 per cent and theemployment level, as measured by non-farm payrolls, was barely changed.

Figure 1: Growth in Gross Domestic Product for selected countries and regions; first quarter 2002 tofourth quarter 2003

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Japan also showed signs of recovery. Japanese gross domestic product (GDP) increased

throughout 2003, and by the fourth quarter it was up around 3.5 per cent on the year. Indeed,


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in the final quarter of 2003 Japan was the fastest growing member of the G7. Employmentremained flat, but the unemployment rate fell from 5.5 to 4.9 per cent over the year.

Europe remained weak. Following a subdued 2002, Eurozone growth was, if anything,slightly weaker in 2003. There was no growth in the first half of the year, and though there

was a slight pick-up in the second half, at 0.4 and 0.3 per cent quarterly growth remainedsluggish. As a result, overall year-on-year growth was just 0.7 per cent. This fed into theEurozone labour market where unemployment remained high at 8.9 per cent.

By comparison, the United Kingdom fared relatively well. GDP growth in the first quarter of2003 was relatively weak, but output then picked up, with quarterly growth ending the yearabove trend at 0.9 per cent. UK output was up around 2.6 per cent on the year. Within this,there was a marked contrast between services and production. Service sector output sawgrowth of 2.2 per cent over 2003; by comparison, production sector output fell by 0.5 percent over the same period.iii.

UK consumer demand remained strong. Overall, UK household final consumptionexpenditure increased by 4.0 per cent between 2002 and 2003. Meanwhile the volume ofretail sales increased by 3.3 per cent. As Figure 2 shows, quarterly growth in both measureshas been relatively stable, though there was a strong dip in the first quarter of 2003. Thisseems likely to have been due to consumer confidence being affected by uncertainties andconcerns prior to the Iraq War. However, while that quarter was weak, consumer demand hadrecovered by the second quarter.

Figure 2: Growth in household final consumption expenditure and retail sales volume; first quarter

2002 to fourth quarter 2003; seasonally adjusted

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The continuing strength in consumer demand appears to have been largely supported byongoing high borrowing, though the rate of growth continued to slow through the year.Overall Bank of England data show gross consumer credit up over 12 per cent on the year;

this was strong growth but down from over 14 per cent in 2002. Quarterly growth of grossconsumer credit was around 2.0 to 2.5 per cent for the first three quarters of 2003, but there


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was a fall of around 0.5 per cent in the final quarter. Consumer confidence was also probablyfuelled by the housing market, which continued to remain strong during 2003. Arguably thiscan be seen in the figures for lending secured on dwellings, which increased by around 20 percentiv over the year, and of which at least part will have reflected remortgaging.

The Bank of England base rate had been unchanged at 4.0 per cent throughout 2002. Thiswas the longest period of interest rate stability since 1966. Moving into 2003, the Bankresponded to the weaker global economic picture which had been emerging towards the endof 2002, and the slowdown in UK consumer demand seen in the first quarter, by cuttinginterest rates. This pattern continued through the first half of the year with base rates reaching3.5 per cent in July 2003, their lowest level in 48 years. Rates ended the year at 3.75 per cent,having been raised in response to the pick-up in the economy during the year (Figure 3).

Figure 3: Bank of England interest base rate; United Kingdom; January 2002 to December 2003

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Alongside the more general economic background to 2003, there were a number of specificevents or factors which had the potential to have an impact on the labour market during theyear.

The most obvious was the changing geopolitical situation. In particular, the first quarter sawincreasing uncertainty, connected to the possibility of war in the Middle East, culminating inthe Coalition invasion of Iraq in March. Connected to this, oil prices were pushed above$30 a barrel, and though prices eased slightly in the early months of the war, they reboundedto remain above $27 for most of the year.

In addition to this, UK government policy developments need to be borne in mind as theymay have an impact on the labour market.

In October 2003, the main rate for the National Minimum Wage increased from 4.20 per

hour to 4.50 per hour; the development rate (including the youth rate) increased from3.60 per hour to 3.80 per hourv;


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2003 also saw the ongoing roll out of Jobcentre Plus. Jobcentre Plus integrates SocialSecurity Offices and Jobcentres with the aim of fully integrating work and benefitservicesvi. The rollout of 1000 Jobcentre Plus offices started with a Pathfinder exercise in2001 and is due to be completed by 2006. By mid-2004 500 offices should be opened.

More general Government policy on employment and unemployment, such as the goal offull employment and the Employment Action Plan can be found on HM Treasuryswebsitevii.

General social background

Changes in the social and demographic characteristics of those participating in the labourmarket and their willingness and ability to supply their labour are also of great interest to

policy makers and labour market commentators. These changes are driven by, among otherthings, the changing demographic structure of the population, changes in personal and

societal attitudes and behaviours, structural changes to the labour market and government policy. As such, significant social changes in the labour market tend to come about overperiods longer than a year. While the focus of this article is on the developments in the labourmarket over 2003, this section summarises recent, well documented, social developments inthe labour market.

In broad terms, the UK population is growing and ageing. Population growth in very recentyears has been driven by the growth in net inward migration as opposed to by naturallyoccurring change, and this is projected to continue. Alongside this, there has been a markedshift in household composition over recent decades, specifically to smaller and more single

person households. For example, the proportion of one person households in Great Britainincreased from 18 to 29 per cent between 1971 and 2003viii.

Some of the key issues for the labour market with regard to population change lie in the agestructure of this growing population and in the changing behaviours and labour marketchoices of the different age cohorts.

By way of demonstrating the impact of these changes on the labour force, in 2000 there were1.3 million more children aged under 16 than people of state retirement age. By 2007 therewill be more pensioners than children and by 2025 the number of pensioners is projected tooutnumber children by around 2 million. In addition, using current state retirement ages, the

working-age population is projected to increase by only around 6 per cent, from 36.9 millionin 2000 to 39 million in 2011 and to increase in average age as a result of relatively lowfertility, increased life expectancy and the ageing of post war and 1960s 'baby boomers'.Clearly this change has important consequences for, among other things, current and futurelabour supply and dependency ratios. This demographic shift is demonstrated more clearly inthe dynamic population pyramids shown on the National Statistics website

[http://www.statistics.gov.uk/themes/labour_market/economic_activity/pop_pyramid_1

992_2001.asp]

As the size of the population has increased so too have the number of people who areeconomically active, from around 26 million in 1971 to around 30 million in 2003ix.

However, the experience for men and women has been very different. As is well documented,there has been strong growth in the level of female participation in the labour market over the


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last few decades. This growth has outpaced the increase in population such that working-ageactivity rates have increased for women from 56 per cent in 1971 to around 72 per cent from1998 onwards(Figure 4). Over the same period, male economic activity rates fell from 91

per cent to 84 per cent. Recent analysis of changes between 1991 and 2001 showed differingactivity behaviours for women with and without dependent children. The activity rates for

women without dependent children stayed reasonably stable at around 75 per cent over theperiod, while the activity rates of women with pre-school children increased from 48 per centto 57 per cent. This phenomenon demonstrates that the continued rises in female activityrates during the 1990s were driven by the choices and behaviours of women with dependentchildren. As women on maternity leave are classified as being in employment, this risereflects either women returning to the workplace sooner after the birth of children or womennot having left the labour market while having their children.

Figure 4: Working age activity rates by gender; United Kingdom; 1971 to 2003

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The pattern in the level of economically inactive people of working age has been less clearthan for the active population, showing periods of both decline and growth since 1984. Withregard to rates, these are by definition the converse of activity rate and hence male inactivity

rates have generally been growing over this period, while female rates have been falling.When considering the behaviour of different age groups in this respect, the only areas ofgeneral correspondence between males and females is in the younger age groups (those agedunder 24) where inactivity rates for both males and females have increased, in particularsince the beginning of the 1990s, reflecting both increased and longer participation ineducation (Figure 5).


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Figure 5: Inactivity rates by age; United Kingdom; 1984 to 2003

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For all other age groups, female economic inactivity rates have fallen over this period whilemale rates have increased. Consideration of the reasons for inactivity demonstrates that forworking-age males the proportion who are inactive due to long term sickness or disability hasincreased since the late 1980s and by 2001 made up 41 per cent of the total. For working-agewomen, looking after the family and home is still the most common reason given forinactivity, but this has declined from around 64 per cent in the early 1980s to 46 per cent oftotal inactivity in 2001.

Beyond the dimension of age, analysis by HM Treasury and the Department for Work andPensions looking at the period from the late 1970s to the mid 1990s identified inactivityrising among people with low levels of qualifications, those with disabilities and health

problems, the over 50s, lone parents, and those living in certain parts of the country. Thesegroups, along with those from minority ethnic groups, are more generally those viewed as

being disadvantaged within the labour market and are all in various ways targeted by thegovernment's labour market policy. The period also saw a rise in worklessness with the

proportion of working-age households where no-one is employment rising from 16.2 per cent

in 1984 to 18.9 percent in 1996

x

. This had fallen back to 16.0 per cent by Autumn 2003.

Central to current UK labour market policy is the Welfare to Work programme. On thesupply side this programme is developing measures such as reform of the tax and benefitsystem to ensure that it is not a barrier to working and the various New Deal programmeswhich are tailored towards helping specific groups move from benefits into employment. Onthe demand side, there has been activity aimed at building links with employers to ensurecooperation and participation in these measures.


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The UK labour market in 2003: an overview

The overall picture coming from the labour market during 2003 was one of stability with themarket fairly flat. There were signs of a slowdown later in the year as the employment ratefell slightly, and inactivity rose. However, overall the market remained strong.

Employment

Employment levels grew over the year, rising 151,000 from 28.000 million in October-December 2002 to 28.152 million in October-December 2003, the then highest level onrecord. AsFigure 6shows, there was stronger growth over the first half the year, followingon from the acceleration in growth at the end of 2002. There were signs of slowdown by theend of the year as the employment level appeared to flatten offxi. Overall, though, the pictureis of an economy which continues to create jobs.

Figure 6: 16+ employment level; United Kingdom; Oct-Dec 2001 to Oct-Dec 2003

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This slowdown towards the end of 2003 becomes clearer looking at the working-age

employment rate (Figure 7). The rate was increasing at the end of 2002, levelled off over thefirst half of 2003, and appeared to be falling by the end of the year. Overall, the rate wasdown slightly on the year from 74.7 to 74.5 per cent. However, the rate remains highcompared with much of the pre-2000 period.


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Figure 7: Working age employment rate; United Kingdom; Oct-Dec 2001 to Oct-Dec 2003

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Unemployment

Unemployment had been falling for much of the 1990s, before levelling off in 2001. InOctober-December 2002 unemployment stood at 1.497m. Looking at 2003, the level fellslightly, finishing the year at 1.440m. The same story can be seen in the unemployment ratewhich, at 5.0 per cent, was down from 5.2 per cent a year earlier (Figure 8). The rate hadrisen slightly through 2002, but fell strongly at the start of 2003 and was still on a downwardtrend at the end of the year.

Figure 8: 16+ unemployment rate; United Kingdom; Oct-Dec 2001 to Oct-Dec 2003

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Inactivity

Turning to inactivity the picture is slightly different. The working-age inactivity rateincreased over 2003, rising from 21.2 to 21.5 per cent by the end of the year (Figure 9). Sucha change would fit with the fact that the unemployment rate continued to fall throughout

2003, despite the fact that the employment rate was also falling.

Figure 9: Working age inactivity rate; United Kingdom; Oct-Dec 2001 to Oct-Dec 2003

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Earnings

Looking at the returns to work, the headline story for earnings is one of ongoing slowdown ingrowth over 2003. The underlying growth rate, as measured by the Average Earnings Index(AEI) excluding bonus series, weakened slightly in the first half of the year decreasing from3.9 per cent in December 2002, and while it recovered slightly, it ended the year at 3.5 percent having hit a low of 3.4 per cent in June 2002. By comparison, the series including

bonuses also remained subdued; at no point did the growth rate get above 3.6 per cent, and inthe three months to December it was only 3.4 per cent down from 3.9 per cent the year

before (Figure 10).


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Figure 10: Average earnings growth rate; Great Britain; Oct-Dec 2001 to Oct-Dec 2003

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Other measures of labour demand

While the headline figures suggested a slight slowdown in the labour market over the year,there were more positive signals apparent in other indicators of labour demand. Redundancyrates fell from 7.5 per 1000 employees in Winter 2002/3 to 5.7 in Winter 2003/4, the lowestrate since the series began in 1995. More generally the rates appeared to be on a downwardtrend. Alongside this, the figures for re-employment rates in 2003 were marginally up on theyear before. In addition, the level of vacancies, while largely unchanged year-on-year formost of 2003 was showing signs of increasing by the end of the year. The vacancy level inDecember 2003 was up around 12,000 on the year.

There was also improvement in productivity and unit wage costs.

Productivity growth (measured as output per worker) increased, reaching 2.0 per cent in2003Q4 on a year earlier up from 0.7 per cent in 2002Q4. The increase was driven in

part by the recovery in output. Certain sectors also saw productivity rising due to cuts in

manpower; for example, manufacturing output was fairly flat over the year but output per job actually rose by 6.3 per cent between December 2002 and December 2003 asemployment in the sector fell by around 2.5 per cent.

By comparison unit wage cost growth was fairly flat. Unit wage costs grew by 2.1 percent in the year to 2002Q4. This rose marginally to 2.3 per cent in 2003Q4. Within this,year-on-year manufacturing unit wage costs fell by 2.6 per cent in December 2003.

Overall, the labour market was largely flat during 2003. However, there were signs,particularly towards the end of the year, that employment growth was levelling off. That said,the labour market remains healthy with ongoing employment growth and a historically high

employment rate, low unemployment, and underlying earnings growth of around 3.5 per cent.


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Within this, there have been variations across the nation. The North East, East and Wales allhad a good 2003 with employment rising, inactivity and unemployment both falling. Bycomparison, the West Midlands, London and Northern Ireland experienced the opposite, withemployment falling, while inactivity and unemployment rose. The picture was less clear inother regions. For example, both the East Midlands and South East saw their levels of

employment increase, but, for both, the rate of employment decreased, while unemploymentdecreased and the inactivity rate increased.

The UK labour market in 2003: detail

(I) EmploymentEmployment levels grew throughout the year rising 151,000 from 28.000 million in October-December 2002 to 28.152 million in October-December 2003, the then highest level onrecord. However, this growth in employment was no more than in line with populationgrowth. As a result, looking at the working-age employment rate, the picture looks rather

more flat and indeed, the working-age employment fell slightly on the year dropping to 74.5per cent compared to 74.7 per cent at the start of the year. That said, the rate remained high,and above that seen for most of 2002.

Figure 11: 16+ employment: employees & self-employed; United Kingdom; Oct-Dec 2001 to Oct-Dec

2003

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Within those in employment, 2003 saw a decrease in employees of 157,000 and an increaseof 293,000 in the self-employed ( Figure 11). In the case of the self-employed, thisrepresented an acceleration of the growth seen since 2001; prior to 2001 the numbers of self-employed had been declining and had gone from around 3.500 million in 1996 to 3.243million in October-December 2000. However, following three years of increases the levelstood at 3.659 million at the end of 2003.

The number of unpaid family workers was up marginally from around 92,000 to 96,000,though the level remains low compared to a decade ago when it was nearer 150,000.


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Meanwhile there was also a rise of around 11,000 in the number of government-supportedtrainees, also following a decade of decline which has seen the number of government-supported trainees fall from around 375,000 to just 105,000.

The number of part-time workers has been increasing for some time, reflecting changing

working patterns and moves to more flexible working. In 2003 the number of part-timeworkers increased by 162,000 to stand at 7.310 million at the end of the year. By comparison,the number of full-time workers decreased by 10,000 to stand at 20.842m.

The change in the employment level was markedly different for men and women. Male 16+employment was largely unchanged (up 9,000 on the year) while female employment was up142,000. The effect on rates was similar, with the male working-age employment rate down0.5 percentage points while the rate for women was up 0.2 percentage points.

Looking at the different age groups, its noticeable that the big gainers have been olderworkers. Although, the overall employment rate decreased slightly over the year, there were

rises in the employment rates for the 50-retirement and post-retirement age groups (up 0.5and 0.6 percentage points respectively). By comparison, the 16-17, 18-24, and 25-34 year oldgroups all saw falls in the employment rate.

The industry picture is also revealing. Figure 12 shows the quarterly growth patterns for theindustries with the largest annual level changes. The big growth areas in workforce jobs are

public administration, education & health, construction, and finance & business servicesxii.The former has seen jobs increasing by 191,000 on the year and while this sector is not

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wholly public sector, this big expansion can be seen as fitting with the Governments policyof recruitment in education and health.

By comparison, the largest decrease came in manufacturing where the level of jobs fell92,000 during the year, continuing the long-term decline of the sector, though at a slower rate

than in 2002, and asFigure 12 shows, the rate of decline appeared to slow during 2003.

Looking at this industrial split, there were gender differences with male employmentsuffering more from the decline in manufacturing (of the 92,000 fall in employment in thesector, 85,000 was male). Similarly, while the growth in the public administration sector has

benefited both sexes, the growth has been significantly greater in female employment(137,000 increase in female employment compared to 54,000 male). By comparison, thegrowth in construction has largely benefited men (male employment up 99,000 compared to18,000 female).

From a subnational perspective, the employment level increased in all countries and regions

except for the West Midlands, London and Northern Ireland. Looking at the employmentrates, which allow for population changes, the picture was more mixed with 7 areas seeingfalls, and 4 rises (there was no change in the employment rate for the South West). The areaswith the biggest fall were West Midlands and Northern Ireland, where the working-ageemployment rates fell by 1.2 and 1.8 percentage points respectively. The North West, EastMidlands, London, the South East and Scotland also saw falls (of 0.1, 0.2, 1.0, 0.6 and 0.5

percentage points respectively). By comparison, the biggest increases in employment wereexperienced in the North East and East where the working-age employment rates increased

by 1.9 and 1.3 percentage points driven mainly by public administration, health andeducation, and to a lesser extent by distribution, hotels and restaurants.

The area with the lowest employment rate is Northern Ireland (66.9 per cent), while thehighest is the East (79.6 per cent). That said, one has to remember that differences within thecountries and regions can be greater than those between them. For example, within the Eastthe range is from 68.2 per cent in Norwich to 87.1 per cent in Babergh in Suffolk.

(II) Hours WorkedTotal hours worked may be seen as a better measure of labour input than the simple numberof people employed. By looking at hours, one can attempt to get past the issue of changingworking patterns, such as changes in trends in part-time and full-time working, and pick up

on the fact that changes in labour market activity tend to affect hours before employment. Forexample firms may increase overtime before recruiting new staff in case a pick-up istemporary, or cut hours before laying off staff in case a slowdown passes swiftly.

Looking at total weekly hours in 2003, the economy and the labour market looks rather flat.The total level of hours worked had been on the increase throughout most of the 1990s,reflecting the growth cycle in the economy. The trend peaked around the middle of 2001, andthen levelled off. As Figure 13 shows, the level has been fairly constant at around 900million over 2003. There does appear to have been a slight pick up around the middle of theyear, when hours rose to around 906 million but the level has since fallen back, and ifanything appeared to be on a downward path at the end of the year.


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Figure 13: Total weekly hours worked; United Kingdom; Oct-Dec 2001 to Oct-Dec 2003

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The fall in total weekly hours was driven by a fall in average hours worked per week whichfell from 32.2 to 31.9 hours per week between October-December 2002 and October-December 2003. This appears to be the continuation of a longer term trend. This latestdecrease was driven by falls in the average hours worked by both sexes: mens hours fellfrom 37.0 to 36.9 per week. Womens average hours declined from 26.5 to 26.2 per week.

(III) UnemploymentUnemployment in October-December 2002 stood at 1.517m. The level fell slightly in the firsthalf of 2003 to stand around 1.499 million in May-July, at which point the rate of decline

picked up and the level finished the year at 1.462m. The same story can be seen in theunemployment rate which started the year at 5.1 per cent but ended it down marginally at 4.9

per cent.

Within this, both sexes saw unemployment fall but the decline was mainly driven by women.Male unemployment fell from 894,000 to 883,000. By comparison, female unemployment

fell 45,000 on the year to stand at 578,000 (Figure 14).

Looking at the age breakdown, there have been some small shifts in the pattern ofunemployment. Rates for both the younger groups, ie 16-17 year-olds and the 18-24 group,fell. The unemployment rate among 16-17 year olds decreased by 0.4 percentage points tostand at 20.8 per cent; among 18-24 year olds, it was 10 per cent, down 0.3 percentage points.By comparison, the falls in the older age groups were smaller: 0.1 percentage points and 0.2

percentage points for the 25-49 and 50 plus groups respectively. However, these shifts aresmall and the general pattern remains unchanged with unemployment rates being higher forthe younger age groups.


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Figure 14: Unemployment by sex; United Kingdom; Oct-Dec 2001 to Oct-Dec 2003

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Similarly, there were small shifts in the duration of unemployment with the numbers of long-term unemployed both increasing slightly, while short and medium-term unemployment fell.Overall, the numbers unemployed for over 6 months fell 8,000, driven entirely by a 13,000fall in the numbers unemployed for 6-12 months. Alongside this, short-term (ie less than 6months duration) unemployment fell by around 48,000.

Figure 15: Unemployment rates by age group; United Kingdom; Oct-Dec 2001 to Oct-Dec 2003

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Looking at the subnational picture, eight areas saw a fall in unemployment, with the biggestdeclines occurring in the North East and the South West (both down 1.0 percentage points).


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The East also saw a fall of 0.6 percentage points. The falls in unemployment in the NorthEast and East mirror the employment growth in these regions, though in the case of the SouthWest the employment rate was unchanged. The other areas which saw falls in unemploymentwere the East Midlands (down 0.4 percentage points), Scotland and Wales (both down 0.3

percentage points), the North West (down 0.2 percentage points) and the South East (down

0.1 percentage points). That said, there were increases in some areas, and the largest were inNorthern Ireland and London, up 0.8 and 0.4 percentage points respectively. The North Easthad the highest unemployment rate at 7.6 per cent, while the lowest, 3.1 per cent, was in theSouth West. Though as noted earlier, there are wide variations within areas: for example, inLondon, among the boroughs for which a rate is available, the rate varies from 4.7 per cent inBarnet to 14.3 per cent in Southwark.

Figure 16: Number of people claiming unemployment-related benefits; United Kingdom; December

2001 to December 2003

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In addition to the official LFS measure of unemployment, the claimant count measures thenumber of people claiming unemployment-related benefit. The level had been falling formuch of the 1990s and in December 2002 stood at 935,500. The count rose slightly duringthe first half of 2003, before falling relatively sharply from July onwards, reaching 905,500 in

December 2003 (Figure 16). This was the lowest figure recorded since September 1975.


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Figure 17: Flows into and out of the claimant count; United Kingdom; December 2001 to December

2003

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Flows on to and off the claimant count are also of interest. There is a tendency for both theinflows and the outflows to reduce as the total count reduces, as there are fewer claimantsmoving into and out of short-term spells of unemployment. There is a reverse effect when thecount increases. One would expect that any increase in the count would be preceded by anincrease in inflows, as the economy slows and new claimants start to move onto benefit. Overrecent years, the levels of both the inflows and outflows have been declining, and though

both flattened off in 2001-2002, they have resumed their downward path. The inflow fellfrom 228,400 in December 2002 to around 211,600 at the end of 2003. The outflow declinedmarginally from 227,700 in December 2002 to 219,300 in December 2003.

(IV) Inactivity

The inactivity rate increased over 2003, rising from 21.2 to 21.5 per cent by the end of theyear.

Looking at the age breakdown, the increase in inactivity was driven by the younger age

groups. In particular, there has been an increase in inactivity among 16-17 year olds in recentyears (which is partly due to more people staying on in school until they are 18), and thattrend continued in 2003 with the 16-17 age group inactivity rate rising from 44.4 to 47.0 percent. Similarly the 18-24 year old group also saw a rise in inactivity of 0.9 percentage points.Inactivity among the 25-34 and 35-49 groups also rose but more marginally (by 0.2 and 0.3

percentage points respectively). By comparison, inactivity among older workers fell.


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Figure 18: Working age economic inactivity rates by sex; United Kingdom; Oct-Dec 2001 to Oct-Dec

2003

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Looking at the breakdown by sex, working-age inactivity levels rose for both men andwomen during 2003, though the rise was greater for men. The increases were 122,000 and36,000 respectively. Looking at inactivity rates, which take population changes into account,male inactivity rose 0.6 percentage points to 16.4 per cent, while female inactivity rose 0.1

percentage point to 27.0 per cent.

Information on the overall reasons for inactivity is currently only available seasonallyunadjusted from the seasonal quarter datasets. As such, comparisons cannot easily be madefrom one December to the next. To see the change over 2003, the best option is to look atchange between Spring (March-May) 2003 and Spring 2004. Over this period, most of theincrease in inactivity is accounted for by a rise in the number of inactive students (+37,000),long-term sick (+37,000), and retired (+27,000) offset by a strong fall in those looking afterthe family or home (-60,000).

Looking across the countries and regions, there were large falls in working-age inactivityrates in the North East (down 1.3 percentage points), the East (down 0.9 percentage points),

and Yorkshire and the Humber (down 0.6 percentage points) with a smaller fall in Wales(down 0.2 percentage points). The falls in inactivity seen in the North East and East fit inwith the falls in unemployment and rises in employment also seen in these areas. All otherregions saw increases with the largest being in the West Midlands and Northern Ireland (both1.2 percentage points), Scotland (0.9 percentage points) and the South West of England (0.8

percentage points). Northern Ireland had the highest working-age rate of inactivity of the UKsubnational areas (28.4 per cent); the East had the lowest (17.4 per cent).


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(V) Earnings

Earnings summary

Whole economy average earnings growth, including bonuses, in the year to December 2003,

as measured by the Average Earnings Index (AEI), was 3.4 per cent. This was lower than2002, when the growth rate was 3.9 per cent, and considerably down on the sort of growthseen in 1999 and 2000 (5.5 and 4.5 per cent respectively). This appears to reflect the fact thatthough the labour market remains strong, there does appear to have been a slowdown in2003.

Figure 19: AEI whole economy growth rate (inc bonuses) and year-on-year growth of the RPI (all

items); December 2001 to December 2003

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Looking at the monthly changes in the AEI, the including bonus series is influenced by thepayment of bonuses, especially in the financial sector. Bonuses are the most flexible part ofthe pay packet and are closely related with the past economic performance of companies andthe economy. During 2003, bonus payments were a little down on the year before, aswitnessed by the lower including bonus growth rates seen around February. A betterindicator of underlying wage pressures is the excluding bonus series. This too shows a

slowing in earnings growth with annual growth falling from 3.9 per cent in the three monthsto December 2002 to 3.5 per cent in the three months to December 2003.

To put this in context, the Bank of England has suggested in its Inflation Report that, subjectto certain assumptions such as productivity growth being around 2 per cent, earnings growthof up to 4.5 per cent is compatible with the inflation target. Growth in earnings remains

below this and is unlikely to have added inflationary pressure to the economy in 2003.Indeed, during 2003 earnings growth has remained subdued despite inflation havingincreased at the end of 2002 (Figure 19).


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The annual growth in earnings across industries varies considerably. Two industries showannual earnings growth of over 6 per cent: mining and quarrying (C) and other community,social and personal service activities (O). By comparison, to these higher growth industries,four industry groupings displayed negative annual earnings growth: agriculture, hunting andforestry (A,B), financial intermediation (J) and real estate, renting and business activities (K).

Results by subnational area

A subnational breakdown of earnings shows that London tops the list in terms of averagefull-time gross weekly earnings, with 637 in April 2002. This is over 131 higher than itsnearest rival, the South East, where average gross weekly earnings were 506. Londons highlevels of pay are largely due to the fact that a high proportion of London's labour force isemployed in higher-paying industries and occupations and also because many employees areentitled to allowances for working in the capital due to the higher costs of living.

The subnational pattern in the levels of weekly earnings in 2002 for Great Britain was similar

to that displayed in 2001. There was no change in the order of the top three areas, London,South East, East and West Midlands, or for the three regions showing the lowest weeklyearnings, the North East, Yorkshire and the Humber and the East Midlands.

The East and South West experienced the strongest growth (both 4.2 per cent) of all theregions. Three other regions also experienced growth of over 5 per cent (North East, EastMidlands and the South East). By comparison, the West Midlands and the South Westdisplayed the lowest growth (2.4 and 3.3 per cent respectively).

Pay differences by sex

The ONS preferred method in measuring the earnings of women relative to men, is to usehourly earnings excluding overtime, as overtime can distort the picture with men workingrelatively more overtime than their female counterparts. Average hourly earnings excludingovertime for women, at 10.56, were 82.0 per cent of those for men (12.88). In 2002 hourlyearnings excluding overtime for women were 81.0 per cent of those for men. This representsa narrowing of the pay gap, which is now at its narrowest since the NES started in 1970.Within Great Britain, the sex pay gap is largest in London and narrowest in Wales.

Although average hourly pay excluding overtime provides a useful comparison of mens andwomens earnings, it does not reveal differences in rates of pay for comparable jobs. This is

because such averages do not highlight the different employment characteristics of men andwomen, such as the differing proportions in higher or lower-paid occupations and their lengthof time in jobs.

Full-time male employees saw on average an increase in weekly earnings of 2.2 per centcompared with 3.3 per cent for female employees. At 396, average gross weekly earnings offull-time women were approximately 129 less than for men who had average gross weeklyearnings of 525. Average weekly part-time men's earnings decreased by 0.9 per cent overthe year to 164, while those of part-time women rose by 4.2 per cent to stand at 150.


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The distribution of earnings

There were noticeable differences in the rate of earnings growth at different points in thedistribution. According to the 2003 NES, weekly earnings of full-time employees in the

bottom 10 per cent of the distribution grew faster than those in the top 10 per cent (3.2 per

cent and 2.2 per cent respectively).

In Spring 2003 it is estimated that 260,000 jobs (1.0 per cent of all employee jobs) were paidbelow the National Minimum Wagexiv (NMW). For employees of the ages of 18 to 21 it isestimated that 40,000 jobs (2.2 per cent of total employee jobs for that age group) were paid

below the NMW. For employees aged 22 and over 220,000 (1.0 per cent of total employeejobs) were estimated to be paid below the NMW.

(VI) Other measures of labour demandThe rate of redundancies has been relatively flat in recent years. However the rate declinedover 2003 to reach its lowest level since the series began in 1995. The rate fell from 7.5 per

1,000 employees in Winter 2002/3 to 5.7 in Winter 2003/4. This fits with the more generalsigns of a recovery seen in the economy.

Figure 21: Redundancy rate; United Kingdom; Winter 2001/02 to Winter 2003/04; not seasonally

adjusted

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Looking at redundancies by industry, the service sector accounted for most redundancies(around 54 per cent of the total in Winter 2003/4); however, this is not entirely surprisinggiven that it accounts for the bulk of employment. Looking at redundancy rates xv gives a

better reflection of the sectoral picture. These show that there have been falls in most sectors.In particular, manufacturing redundancy rates have fallen from 16.1 per 1000 in Winter2002/3 to 11.1 in Winter 2003/4, Construction was the one sector to see a rise, with the rateincreasing from 12.2 to 12.7, which is now the highest rate among the broad industrygroupings. By comparison, the service sector redundancy rate fell from 5.6 to 5.4; within this,

the lowest rate was in public administration, education & health (below 2.0 in the twoquarters for which the sample was large enough).


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Figure 22: Redundancy rates by broad industry category; United Kingdom; Winter 2001/02 to Winter

2003/04, not seasonally adjusted

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Looked at by sex, males accounted for most redundancies, though redundancy rates fell forboth men and women: from 9.7 to 7.0 for men and from 5.2 to 4.2 for women. Looking at thebreakdown by age, there were decreases for most age groups; the biggest falls in redundancyrates came for the 16-24 age group (down from 10.1 to 5.2) and the 25-34 age group (downfrom 8.6 to 5.3). As a result, redundancy rates are now very similar across age groups, withthe rate for the 50+ group also at 5.2. The one exception to this is the 35-49 year old group,where the rate was 6.4 in Winter 2003/4 and which was also the only age group not to see afall in redundancy rates (up 0.3 on the year).

Looking at the proportion of people made redundant who get back into work, re-employmentrates tend to be fairly erratic. However, there are signs that re-employment became slightlyeasier over 2003. The data are not seasonally adjusted, which can make interpretation of there-employment rates more difficult as there does appear to be a definite seasonal pattern, forexample rates are lower in Winter. That said, with the exception of the Spring quarter,throughout 2003, re-employment rates were higher than in the corresponding periods in 2002.Turning to vacancies, while largely unchanged year-on-year for most of 2003, this series was

showing signs of increasing towards the end of the year. The vacancy level in December2003 was up around 12,000 and on the year. The biggest increases had come within thefinance and business services industry and construction. The largest fall was in transport andcommunication.

(VI) Productivity & Unit Wage Costs

Looking at whole economy productivity and unit wage cost growth, wage cost growth waslargely flat and productivity up over 2003. Unit wage costs grew by 2.3 per cent in the year to2003Q4. This was up from 2.1 per cent in 2002Q4. Meanwhile, year-on-year growth inoutput per worker, while flat for much of the year, picked up towards the end and was up

from 0.7 per cent in 2002Q4 to 2.0 per cent in 2003Q4.


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Figure 23: Whole economy productivity and unit wage cost growth; fourth quarter 2001 to fourth

quarter 2003

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The picture for the manufacturing sector was somewhat different. During most of 2002,manufacturing unit wage costs had been rising slightly. During the second quarter of 2003though, unit wage cost growth turned negative and this persisted throughout the rest 2003with unit wage costs down 2.6 per cent year-on-year in December 2003. Similarly, growth inmanufacturing output per job has strengthened, rising from 3.1 per cent at the end of 2002 to6.3 per cent at the end of 2003. This improvement in the manufacturing figures reflects thefact that manufacturing output has stayed fairly constant whilst employment in the sector hasfallen.

Figure 24: Manufacturing productivity and unit wage cost growth; fourth quarter 2001 to fourth

quarter 2003

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Glossary

AEIAverage Earnings Index: official measure of earnings growth published monthly by ONS.http://www.statistics.gov.uk/themes/labour_market/pay_and_earnings/default.asp

CIPSChartered Institute of Purchasing and Supplyhttp://www.cips.org

Claimant countAn administrative measure of the number of people claiming unemployment-related benefit.http://www.statistics.gov.uk/themes/labour_market/unemployment_claimant_count/claimant_count.asp

Economically ActiveThe employed and unemployed, ie those who are actively in work or seeking work (and are

available to work). See:http://www.statistics.gov.uk/themes/labour_market/economic_activity/default.asp

Economically InactiveNeither employed nor unemployed: either do not want to work or do want work but are notseeking work or are unavailable to start. See:http://www.statistics.gov.uk/themes/labour_market/economic_activity/default.asp

EU12 or EurozoneEuropean Union member states which have adopted the Euro currency: Austria, Belgium,Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, Netherlands, Portugal, Spain.

EU15The European Union member states prior to the expansion of the Union in May 2004:Austria, Belgium, Denmark, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg,

Netherlands, Portugal, Spain, Sweden, United Kingdom

FMDFoot & Mouth Disease. See:http://www.defra.gov.uk/footandmouth/

GDPGross Domestic Product. See:http://www.statistics.gov.uk/themes/economy/Articles/NationalAccounts/Articles/GDP.asp

G7Major 7 economies: Canada, France, Germany, Italy, Japan, United Kingdom, USA

ILO UnemploymentThe official UK measure of unemployment, taken from the LFS and measured usingInternational Labour Organisation guidelines. For further information, see:http://www.statistics.gov.uk/themes/labour_market/unemployment_claimant_count/unemployment.asp

Working-age Inactivity Rate

Economically inactive as a percentage of the working-age population


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Jobcentre PlusIntegrated job centre and benefit service. For further information: www.jobcentreplus.gov.uk

LFS

Labour Force Survey. Seehttp://www.statistics.gov.uk/downloads/theme_labour/What_exactly_is_LFS1.pdf

LFS EmploymentThe official UK measure of employment, taken from the LFS and measured usingInternational Labour Organisation guidelines. For further information, see:http://www.statistics.gov.uk/themes/labour_market/other_features/downloads/employment.pdf

NBERNational Bureau of Economic Research an American economics research organisation.

New DealGovernment policy aimed at returning the unemployed to work. For more information see:http://www.newdeal.gov.uk/homesub1.asp

Redundancy RatesThe ratio of redundancies in one quarter to employees in the previous quarter

RPIRetail Prices Index: official measure of price inflation. For more information, see:http://www.statistics.gov.uk/themes/economy/Articles/PricesAndInflation/rpi.asp

Returns to WorkThe rewards to work, including both standard financial returns such as wages and salaries,

but also non-standard remuneration such as share options, company cars, etc.

SIC92Standard Industrial Classification 1992. For details see:http://www.statistics.gov.uk/methods_quality/sic/contents.asp

Unit Wage CostsTotal wage costs divided by output

Welfare to WorkGovernment programme aimed at increasing the labour supply by moving as manyunemployed people and inactive welfare recipients who can work into jobs and activecompetition for jobs.

iPeak as dated by NBER, see http://www.nber.org/cycles/november2001/

ii Trough as dated by NBER, see http://www.nber.org/cycles/july2003.htmliii

Quarterly National Accounts: 4th

Quarter and Year 2003. (published 26 March 2004)iv

Bank of Englandv http://www.dti.gov.uk/er/nmw/vi

http://www.jobcentreplus.gov.uk/cms.asp?Page=/Home/AboutUsvii

http://www.hm-treasury.gov.uk/Documents/Taxation_Work_and_Welfare/Work_and_Welfare/tax_workwel_index.cfmviii

Social Trends 34 at http://www.statistics.gov.uk/downloads/theme_social/Social_Trends34/Social_Trends34.pdf


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ixhttp://www.statistics.gov.uk/downloads/theme_social/Social_Trends32/Social_Trends32.pdf

xSocial Trends 31 at http://www.statistics.gov.uk/downloads/theme_social/social_trends31/ST31(final).pdf

xi Employment, unemployment and inactivity figures from Labour Force Surveyxii

All industry figures taken from ONS workforce jobsxiiiThe levels here correspond to data for April 2002 the survey reference date, changes refer to the change

between April 2001 and April 2002.

xivNational Minimum Wage rates refer to rates in the period October 2001 to September 2002 (3.50 for 18 21

year olds, 4.10 for those 22 years and over). It should be noted that the estimates cannot necessarily be used asa measure of non-compliance with the legislation because it is not possible to discern from either the LabourForce Survey (LFS) or the New Earnings Survey (NES) whether an individual is eligible for minimum wagerates.