Northern Ireland’s labour market has truly weathered its biggest economic storm to date. Eighteen months ago job losses and a surge in unemployment (above 10%) were viewed as a ‘slam dunk’ outcome. Not so. Fortunately unprecedented actions by the UK government, not least the introduction of the Job Retention Scheme, prevented a pandemic turning into an economic depression. The Job Retention Scheme served the economy well by retaining jobs during the lockdowns and throughout the worst stages of the pandemic. Following a vaccine rollout and a lifting of restrictions, the so-called furlough scheme expired on 30 September. As of the 31 August, the latest data available, there were still 29,700 jobs on furlough with a 50:50 split between full and partial furlough.
For those individuals still on furlough last month, the prospects of finding a job, albeit not necessarily the exact or ideal job sought, couldn’t be better. In 2020 labour market concerns focussed on the potential for massive job losses. Fast forward to autumn 2021 and the unemployment rate, currently 4.1%, isn’t and won’t be a cause for concern. Similarly, Northern Ireland’s payrolls data (excludes self-employed) returned to pre-pandemic levels in June 2021 with record employment levels in each of the last four months to September 2021. Granted this figure is flattered by the 29,700 individuals on furlough. It remains to be seen what proportion of these migrate to employment, unemployment and economic inactivity in due course. Nevertheless, Northern Ireland has experienced the largest payroll growth, relative to pre-pandemic levels, of all the UK regions. However, Northern Ireland has also experienced the steepest fall in self-employment (-31%) within the UK.
For those individuals still on furlough last month, the prospects of finding a job, albeit not necessarily the exact or ideal job sought, couldn’t be better. In 2020 labour market concerns focussed on the potential for massive job losses. Fast forward to autumn 2021 and the unemployment rate, currently 4.1%, isn’t and won’t be a cause for concern. Similarly, Northern Ireland’s payrolls data (excludes self-employed) returned to pre-pandemic levels in June 2021 with record employment levels in each of the last four months to September 2021. Granted this figure is flattered by the 29,700 individuals on furlough. It remains to be seen what proportion of these migrate to employment, unemployment and economic inactivity in due course. Nevertheless, Northern Ireland has experienced the largest payroll growth, relative to pre-pandemic levels, of all the UK regions. However, Northern Ireland has also experienced the steepest fall in self-employment (-31%) within the UK.
You may recall that after the Global Financial Crisis unemployment didn’t rise as high as initially anticipated. That was because pay restraint and falling real wages (i.e. wage increases below the rate of inflation) did the heavy lifting in the labour market adjustment. If pay hadn’t fallen unemployment would have been even higher. There was a sustained period from 2011 – 2014 when UK inflation exceeded average earnings growth which squeezed household incomes. From 2015 onwards the incomes squeeze receded and eventually reversed with real earnings rising again (i.e. wage growth exceeding inflation). Those on the lowest earnings have benefited significantly from the substantial increases in the National Minimum Wage.
We are now back in that same place with the ‘cost of living crisis’ phrase appearing with increasing regularity. Inflation (UK CPI) looks set to exceed 4% in the coming months and could well test the 5.2% peak that occurred September 2008 next Spring. While skills shortages in some sectors (e.g. HGV drivers) are experiencing inflation busting pay rises that is not the norm. With the average pay packet likely to rise by 2-3% over the next 12 months or so that will fail to keep up with inflation. As a result, real incomes and the purchasing power of the pound in your pocket will fall.
As in the last cost of living crisis that started a decade ago, Northern Ireland will be more exposed than other UK regions due to its higher concentration of low paid jobs. Higher inflation is not the only headwind facing households and local businesses. Next April will see the planned hike in National Insurance Contributions come into effect. The combined inflationary and tax squeeze will impact consumer spending and those sectors reliant on it.
Recessions in the 1970s and 1980s focussed on the unemployment rate as the key metric determining how painful economic conditions were. Simply having a job invariably provided a guarantee against poverty. But as we saw in the last cost of living crisis, having a job doesn’t necessarily protect a household from poverty. Despite unemployment remaining at historically low levels, in work poverty is expected to rise in the months ahead. For many, an increasing share of the pandemic savings may now be required for utility bills rather than to assist a consumer led recovery. Rates of pay and inflation will be the most closely watched statistics over the next 6 months or so. Whereas focussing solely on the unemployment rate is so last year.