End of furlough increased economic inactivity, says IES

This morning’s new Labour Market Statistics show unemployment continuing to fall and employment rise even as furlough ended.

However the Institute for Employment Studies (IES) has said that rather than unemployment rising, the end of furlough seems to have helped to push up economic “inactivity” instead – which is the measure of those who are out of work but not looking or available for work.

Fresh analysis from the IES estimates that overall there are now 1.0 million fewer people in the labour market than there would have been on pre-crisis trends, the largest fall in participation since at least the early 1990s.

Around a quarter to a third of this is explained by lower migration, with the rest due to people leaving the labour market or not entering.

The participation gap for people over 50 is 530,000. The IES says this is in turn fuelling the recruitment problems that firms are reporting, with now just 1.2 unemployed people per vacancy – a figure lower than we have seen in at least fifty years.  A year ago, there were 3.2 unemployed people chasing each job.

Commenting on the figures, IES Director Tony Wilson said:

“On the face of it, today’s figures are some rare good news for the government, with unemployment now dropping fast towards pre-crisis levels, employment rising and more than twice as many vacancies as there were last Christmas.

“But beneath the headlines there is plenty here that will be concerning the government and Bank of England.  Despite record vacancies and the tightest labour market in our lifetimes, the number of people out of work and not looking for work is rising, perhaps pushed up by people leaving the labour market entirely at the end of furlough.

“We estimate that there’s now one million fewer people in the jobs market than there would have been on pre-crisis trends, with more than half of this explained by fewer older people in work.  At the same time, the number of people out of work due to ill health has hit its highest since 2005, at 2.5 million.

“As we said last month, these problems just won’t fix themselves.  And with the prospect of tighter covid restrictions in the new year, the government needs to be planning now for more support to help people get back into work as well as to protect those jobs that may be at risk in a Plan C lockdown.”