HRD Summary Notes: Labour Market Challenges and Trends

On 24^th October 2024, CRF hosted an HR Director roundtable discussion on current labour market trends. During the session, Darren Morgan, Engagement Director at the Economic Statistics Centre of Excellence (ESCoE), provided an overview of the latest ONS data and Gareth Vale, Brand Leader of Talent Solutions UK at Manpower Group, shared additional talent insights. This summary shares key insights from the session.

ONS Presentation: Labour Market Trends and Challenges
The labour market has confounded all predictions and did not experience large-scale unemployment during the pandemic, or in the years since. However, several challenges did emerge:

Vacancies. Job vacancies saw an extraordinary increase as the UK emerged from the pandemic, peaking at 1.3 million in 2022 – resulting in a vacancy for each unemployed person for the first time. Whilst job vacancies have started to decline, levels remain historically high.

Inflation. Inflation has rarely surpassed 4%, though surged to 11.2% in 2022 – the highest in 40 years. This spike affected nominal pay, as employers offered increasingly higher pay rises to attract and retain talent, yet these increases were insufficient against inflation. Real pay declined, impacting the cost of living and intensifying financial challenges for everyone.

Economic Inactivity. The rise in vacancies has been driven by a rise in economic inactivity – where individuals are neither working nor actively seeking employment. Inactivity rose during the pandemic due to global shutdowns, and did not immediately subside in the UK, unlike other countries:

• Between 2020 and 2023, 400,000 fewer people were active in the labour market. This is an unprecedented societal shift, with certain age groups – 16-24 and 50-64 – most affected.
• Long-term illness has been the primary driver behind the rise in economic inactivity. Whilst rates had risen pre-pandemic, they accelerated significantly post-2020, with 2.4 million individuals now unable to work due to long-term illness.

The Last Year: Signs of Normalisation
There have been signs of normalisation over the last year:

• Vacancy numbers are stabilising at around 800,000, although specific sectors (e.g. hospitality and care) continue to face high vacancy rates.
• Inflation has sharply decreased, and while wage increases remain relatively high, they are approaching more typical levels. Real pay is starting to improve due to falling inflation.
• The UK’s unemployment rate (4.2%) is currently below the EU average (6.0%).

These trends present the following challenges and opportunities:

• Economic inactivity, primarily driven by long-term illness, remains at near record highs. There are 700,000 fewer people in the labour market now than before the pandemic. Mental health conditions are the cause of economic inactivity for a third of youth.  
• Many of the older (50-64) workers in the UK who have exited the workforce are financially secure. If they were to return to the office, they would require more flexibility rather than higher pay.  
• An aging population means the 60-64 population will increase by around 700k between 2019 and 2026. At the same time a youth bulge of nearly 500,000 will enter the workforce. Whilst this is a significant opportunity, it does not fully counterbalance the numbers likely to age out of the workforce.

Q: What has been the impact of Brexit on these figures?
A: Brexit has exacerbated existing recruitment challenges, particularly in hospitality and agriculture, but skill shortages and uncompetitive packages are even greater barriers than Brexit alone.
Q: What do you predict will be the impact of the new government?
A: There will likely be many measures in the upcoming budget related to improving long-term health and labour supply. However, their effectiveness remains uncertain given past policy outcomes and that these issues are now deeply engrained.
Q: Have you seen a trend amongst 16-25s towards self-employment and engaging in side hustles?
A: This trend has not yet fully emerged in the data. Whilst the numbers are not yet huge in absolute terms, the growth in the number of jobs people have has been extraordinary.
Q: What trends are you witnessing regarding hybrid working?
A: The trend is towards employees being in the office more than that they are home. However, this still represents a large scale shift in working patterns since before Covid. Whether or not hybrid workers are more productive or not is a very divisive issue. Stanford economist Nicholas Bloom has conducted research that indicates hybrid working is more productive overall, but not sufficient to have a significant impact.

Talent and Market Insights from Manpower Group
Gareth Vale, Brand Leader of Talent Solutions UK at Manpower Group, shared the following insights:

• We are currently in a ‘recruitment recession’ with uncertainty on both sides; employers are hesitant to invest or hire, while employees are cautious about changing jobs. Time to hire has increased and there is low circulation of candidates in the market.
• Cancellation rates are rising significantly – one client saw a 35% cancellation rate – and time-to-hire is increasing, indicating a more cautious approach from both sides.
• Share prices are down across recruitment firms; temporary and contingent roles have remained stable whilst permanent roles have been significantly impacted. Large enterprise deals are also scarce.
• Specific regions, such as London, the South East and the Midlands, are seeing relatively positive hiring trends.
• Management consultants are in high demand, with many organisations revisiting their business (and workforce) strategies post Covid. There is a desire for more data and market or workforce intelligence, particularly in relation to competitors.
• Many organisations are exploring AI and HR technology, primarily for content generation and optimising existing HR tech, focusing on getting more out of what they already have.
• Organisations are focusing on upskilling and development to retain existing talent.

Practitioner Discussion
Event attendees shared the following experiences and insight:

• Low Workforce Mobility and Cultural Impact: Attrition rates remain low, with employees reluctant to move roles despite low motivation. This can negatively impact organisational culture, underscoring the need to retain engaged talent. 
• Talent Mismatch: Employers face a persistent challenge in finding suitable talent, highlighting a growing mismatch between available skills and job requirements. Participants expressed concerns over the quality of candidates, with a notable trend of inflated CVs.
• Rising National Insurance Rates: The rise in employee contributions to national insurance will increase costs for businesses and limit their capacity to raise salaries.
• Generational Focus in Talent Strategy: Discussions have predominantly focused on the workplace preferences of younger generations, with less attention to the needs of workers aged 50+.
• Mental Health Challenges Among Youth: Rising mental health issues are creating barriers for young people entering the labour market and companies are responding with initiatives such as mental health first aid, private medical schemes and resilience training. One participant highlighted how they have shifted the way they frame issues towards asking ‘how can we support you to help you stay in work?’, rather than saying ‘take time out and see your doctor.’ Another shared they offer reasonable adjustments during recruitment.
• Socioeconomic Pressures on Wellbeing: External pressures, such as housing insecurity, particularly impact younger employees and renters. Some companies offer support, like rent deposit schemes, yet defining the boundary between employer support and personal responsibility is an ongoing discussion.
• Apprenticeships and Non-traditional Career Pathways: To address the influx of young workers, there’s a growing emphasis on apprenticeships and reducing university prerequisites for early career roles.
• Upskilling Programmes for Older Workers: Initiatives such as associate schemes for those aged 50-64 and the use of the Apprenticeship Levy for retraining provide engagement opportunities for this demographic.

References
Bloom, N. 2024. Hybrid Working from Home Improves Retention Without Damaging Performance. https://www.nature.com/articles/s41586-024-07500-2
CRF. 2024. Reskilling for Sustainable Growth. https://www.crforum.co.uk/research-and-resources/research-reskilling-for-sustainable-growth
ESCoE. 2024. Identifying Drivers of Job Quality in Online Job Adverts. https://www.escoe.ac.uk/identifying-drivers-of-job-quality-in-online-job-adverts

The next HRD community meeting will take place on April 2^nd, with further details to be shared in due course. To register your interest, or if you have any further questions, please contact communities@crforum.co.uk