Next week will mark the first UK labour market report of 2023 from the Office for National Statistics - so what do we expect to see? 2022 was marked by a record-hot job market that finally showed its first signs of slowing, a decades-high inflation rate that wiped out strong wage rises, and labour disputes that sparked comparison to 1978’s winter of discontent.
In 2023, we anticipate more of the same: a job market slowly returning to earth, high levels of remote and hybrid work, and salaries that struggle to stay above inflation. In addition,the headwinds causing a potential economic recession look unlikely to go away anytime soon.
Here are the trends we’re expecting to see in next week’s report:
- Job vacancies will fall, following their pattern from the last several months.
- Growth in economic activity will continue to falter except amongst early retirees. The historic cost of living crisis may force early retirees to return to the labour market.
- Redundancies will rise – but it’s unclear what influence recent mass layoffs will have on the increase. Are these layoffs a sign of a much steeper rise in redundancies to come?
- The unemployment rate will increase but remain low on the back of higher redundancies.
Economic inactivity: is it changing anytime soon?
Economic inactivity has surged to the forefront of discussion in the UK. Even the Prime Minister mentioned the high number of workers out of the labour force in his first speech of 2023, promising that his government will help get people back into the workforce.
The task won’t be easy, as evidenced by a recent House of Lords report on high levels of economic inactivity in the UK. It cited four factors as the primary causes: early retirement amongst those aged 50-64, increasing chronic illness, changes in the structure of migration, and the impact of an ageing UK population.
As none of these factors are likely to turn around overnight, economic inactivity is expected to remain high in January’s report. But one possible difference to look out for is the potential return of many who retired early and are not yet eligible for State Pension. With wages unlikely to rise in real terms as long as inflation remains so high, this group may have little choice but to return to work.
Will redundancies rise sharply thanks to mass layoffs?
2022’s reports showed a robust job market where involuntary redundancies stayed below the pre-pandemic norm, despite news reports of mass layoffs. Though the redundancy rate has risen since its lowest point in mid-2022, it’s done so very slowly.
Similarly, 2023’s labour market gives employers options; thanks to high levels of economic inactivity, job vacancies are still so high that companies can cut back on hiring rather than lay their employees off.
Given the global scope of the layoffs that made the headlines (such as Meta, Twitter and Amazon), their impact on the UK market alone remains to be seen. We’ll be watching the report to see.
Most notable layoffs came from large tech firms, many of whom increased hiring during the pandemic thanks to a shift towards e-commerce and online interaction, then saw profits fall last year as people returned to pre-pandemic habits.
Glassdoor’s data shows the share of tech employees reporting a negative six-month business outlook for their employer fell throughout the latter half of 2020 and 2021, followed by a small but steady increase. In contrast, in November and December 2022, negative business outlook amongst tech workers’ Glassdoor reviews spiked to levels not seen since the start of the pandemic, rising 76 percent from its lowest point in late 2020.
Conclusion
2022 was a tumultuous year, marked by falling real wages and a white-hot job market that faded to red by the end of the year. The first labour market report of 2023 will set the tone for the turbulent economic year ahead: high economic inactivity, low but rising redundancies and a notable decline in tech employee confidence we expect to see are all signs of a labour market that’s starting to chill – but is far from frozen.