4. Unemployment

The unemployment rate in the economy has been declining over the past year. In the three months to January 2019, the UK’s unemployment rate reduced to 3.9%. The last time that the unemployment rate was this low was in the three months to February 1975.

The unemployment rate for women was at a record low of 3.8% and that for men stood at 4% in the three months to January 2019. The last time the unemployment rate for men was at 4% was in the period May to July 2018.

Figure 1 shows the trends of unemployment rates for men and women since 1971. It shows that unemployment rates increased following economic downturns in the 1980s, early 1990s and 2008 to 2009. Since the three months to November 2011, the unemployment rates for both men and women have been on downward trends.

Figure 1: Unemployment rates for men and women UK, seasonally adjusted, January to March 1971 to November 2018 to January 2019 Source: Office for National Statistics – Labour Force Survey Download this chart Figure 1: Unemployment rates for men and women Image .csv .xls

Figure 1 shows that from 1980 onwards, men had a higher unemployment rate than women. Over time, the unemployment rate for men has decreased at a faster rate than that for women such that in the period November 2018 to January 2019, the gap between the two rates had reduced to 0.2 percentage points.

The fall in the number of people who are unemployed in the economy has been reducing under-utilised labour. Under-utilised labour consists of people aged 16 years and older who are unemployed, those aged 16 years and older who are in part-time employment but would want more hours, and those aged 16 to 64 years who are inactive but would like regular jobs. We can plot their trends as illustrated in Figure 2. The people who are classified as inactive but who wanted regular jobs did not meet the international definition of unemployment, but had weak attachment to the labour market. They may not have looked for work because they were discouraged, or because they expected to earn higher wages than those obtainable in the labour market. Although they are weakly attached to the labour market, the attachment can strengthen if conditions become more favourable to such people.

Figure 2: Under-utilised labour UK, seasonally adjusted, January to March 2006 to November 2018 to January 2019 Source: Office for National Statistics – Labour Force Survey Download this chart Figure 2: Under-utilised labour Image .csv .xls

Figure 2 shows that the number of people who worked part-time because they could not find full-time work has been decreasing since 2013. The number of unemployed people has also been decreasing, but at a faster rate than that of part-timers wanting full-time jobs. The number of people with weak attachment to the labour market has also been on a downward trend, especially from 2016 onwards. The overall picture from these indicators is that the under-utilisation of labour in the economy is on a downward trend.

Decreasing under-utilised labour has implications for hiring decisions. Employers may find it increasingly difficult to hire workers and this will likely put pressure on wages. In the three months to January 2019, there were 863,000 unfilled vacancies and 1.34 million unemployed people. The number of unemployed people per vacancy reduced from 5.8 in the three-month period to December 2011, to 1.6 in the three months to January 2019. This indicates a tightening labour market, which may cause recruitment problems for employers due to a shortage of new recruits.

Economic theory predicts that when the demand for labour grows faster than the supply, pressure builds up for wages to increase. Higher wages may entice more people to leave economic inactivity for the labour force.