Winter Wonderland is soon to meet a cold, harsh spring

Given what has happened to the economy over the last two years, Northern Ireland’s headline labour market statistics are a veritable winter wonderland. Unemployment is at 3.1% – one of its lowest readings on record. Meanwhile the number of employees on Northern Ireland’s payrolls hit another record high in December and almost 20,000 above March 2020’s pre-pandemic high. Indeed, no other UK region has witnessed a stronger rebound in payrolls growth. It is a similar story with median earnings growth over the last two years. 

As far as signs of stress in the labour market are concerned, the most visible are those are of the positive variety, namely skills shortages, rather than job losses. Redundancies in 2021 were a fraction of what they were in 2020 and the recruitment market is characterised by record numbers of job vacancies.

But while the current state of the labour market is better than it was before the pandemic took hold (e.g. number of employees on HMRC payrolls), the post-pandemic labour market recovery is far from complete. For example, the total number of hours worked is over 6% below where it was two years ago. This is largely due to the slump in self-employment. Self-employment may have turned a corner during the summer and increasing by almost 11% in the latest quarter, but the numbers in this category are still just over three-quarters of what they were before the pandemic.  Interestingly, the Labour Force Survey signals an easing of employee numbers alongside this self-employment growth.  This suggests that some of the flight to safety (self-employment > employee status) that occurred during the first 18-mths of the pandemic is being reversed.  We can expect this trend to continue during 2022. Rising inactivity and a falling employment rate are two key undesirable underlying trends occurring alongside the generally positive labour market headlines.

The local labour market has weathered the pandemic storm well and much better than economists and policymakers predicted. But it remains exposed to the cost of living crisis. 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. Mass unemployment has been avoided, thanks to the furlough scheme, but having a job won’t fully protect households against the cost of living crisis.  

With inflation set to hit a 30-yr high, rates of pay relative to this inflation will be the most closely watched statistics over the next 12 months.  Just as Rishi Sunak surprised us all with the Job Retention Scheme, expectations are being raised for him to do ‘something big’ to insulate households from the savage energy cost increases that are still to be felt. We can expect the Chancellor to at least take some of the rough edges off the evolving cost of living pressures in the coming weeks. It should be remembered that households and businesses also face a major hike in National Insurance Contributions in April. Hopes of a ‘U-turn’ or deferral on this front in the forthcoming 23rd March budget is perhaps wishful thinking. The combined inflationary and tax squeeze will impact consumer spending and those sectors and jobs reliant on it. The Winter Wonderland is soon to meet a cold, harsh spring.

So what is the latest data telling us?

The number of people claiming unemployment related benefits fell for the tenth month running and stood at 42.6k in December.  This is one third below the recent peak in May 2020 but still 39% (+12,100) above the pre-pandemic count of almost 30.5k in March 2020. Alongside a falling claimant count is a fall in the wider ILO unemployment rate. The latter decreased to 3.1% during the three months to November 2021 and compares favourably with the UK rate of 4.1%.  This represented a fall of 1 percentage point on the previous quarter’s figure and compares with a pre-pandemic record low of 2.3% during Sep-Nov 2019. Northern Ireland’s unemployment rate is falling for the wrong reasons. Namely, the number of people in employment is falling according to the Labour Force Survey while the number of economically inactive (those neither in work or looking for work) continues to rise. Northern Ireland’s economic inactivity rate jumped to a 3-year high of 27.6% (UK =21.3% ) while the employment rate threatens to dip below 70% (UK =75.5% ) and compares with its record high of 72.6% in Sep-Nov 2019. 

Employees on Northern Ireland’s payrolls hit a record high of 773,400, which marked the sixth consecutive monthly record high. This represented an increase of 5.0% y/y (UK = +4.8%) with the total number of employees on local payrolls +2.6% (+19,755) above pre-pandemic levels. Alongside the North East of England, that represents the strongest employment performance of any UK region and is well above the increase for the UK as a whole (+1.4%). It is a similar story with median pay growth. According to the HMRC payrolls data, Northern Ireland has seen the largest increase (+12.7%) in median earnings of any UK region over the two-years to December 2021 (UK = +10.6%).  

Recovery in hours worked remains a work in progress

The total number of weekly hours worked in NI continues to recover from the lockdown low in Mar-May 2020. Given that self-employment remains well below pre-pandemic levels largely explains the fact that total hours worked in Northern Ireland is still 6.3% below the pre-pandemic high of 30.2 million hours in Sep – Nov 2019. Ultimately for a full labour market recovery to be declared the total number of hours worked will need to return to pre-pandemic levels.   

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