Upbeat UK labor market data belies rise in long-term illnesses | Economic policy | Trending Viral hub

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At first glance, the British labor market is in poor health. Employment increased in the last three months of 2023 and unemployment fell to 3.8%. Profits, adjusted for inflation, rose for the sixth consecutive month. All are traditionally signs of strength, not of an economy that may well have been in recession in the second half of last year.

Scratch beneath the surface and things look less rosy. The last bulletin from the Office for National Statistics (ONS) reveals that one of the reasons why the labor market is so hot is a lack of workers caused by long-term health problems. The number of people inactive for health reasons was 2.8 million at the end of 2023, an increase of more than 200,000 on the year and 700,000 since before the Covid pandemic. In a literal sense, this is a sick economy.

The absence of so many potential workers from the labor market has consequences. There are still a large number of vacant positions, even though the economy has been stagnant for the better part of two years. While vacancies have followed a downward trend over this period, at 932,000 they are still above pre-Covid levels.

Employers are also trying to close the gap by employing more people from abroad. The number of UK-born workers decreased by 312,000 between Q4 2022 and Q4 2023, while the number of foreign-born workers increased by 405,000.

Still, the labor market remains tight and that is reflected in wages. As with vacancies, the earnings growth rate is declining, but not as quickly as Bank of England and the financial markets have waited.

Regular private sector wage growth, which is closely watched by Threadneedle Street’s monetary policy committee (MPC), was 6.2% higher in the three months to December than in the same period of the year former. That was down from 6.6% in the three months to November, but above the Bank’s forecast of 6%.

There are a number of obvious conclusions from the ONS data. One is that employers will oppose measures that would drastically reduce flows of migrant workers to the UK.

The second is that there will be pressure on Jeremy Hunt to use next month’s budget to announce measures to tackle long-term illnesses. The chancellor may be tempted to tighten benefit rules, but the Work Foundation warned him against doing so, saying cuts to welfare risked pushing those who relied on universal credit into insecure, low-paid jobs that would make them worse off. their underlying health conditions. More carrot, less stick was the advice of Ben Harrison, director of the think tank.

Finally, with private sector earnings growth still above 6%, the rate-setting MPC will be more cautious about cutting interest rates. Wages won’t be the only factor in deciding when and by how much borrowing costs will fall this year, but they are an important part of the mix.

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