All change or no change? The post-pandemic labour market in the UK

Christopher Martin is Professor in the Department of Economics at the University of Bath. Magdalyn Okolo is a Lecturer in the Department of Economics at the University of Bath.

The COVID-19 pandemic was a major shock. As we hopefully move into a post-COVID world, how has the pandemic changed the UK labour market? There is talk of a widespread re-evaluation of career choices and of workers taking advantage of labour shortages by moving jobs to secure higher wages. These forces, it is argued, are fuelling a ‘Great Resignation’. Much of this debate is centred in the US. What does the evidence for the UK show?

The pandemic reduced employment: by the end of 2020, it was down by close to a million workers (a loss of around 3%). Since then, employment has recovered and is now around 600,000 lower than it was two years ago. The recovery has stalled since last summer, but most commentators expect employment to reach pre-pandemic levels within the next 18 months.

Underlying this, there have been interesting changes in the composition of employment. Full-time employment increased by around 600,000 during the pandemic. This was offset by a fall of around 800,00 in the number of self-employed workers and of around 350,000 in the number of part-timers. Part-time employment has increased in recent months. There is no sign yet of any recovery in self-employment, but we expect to begin to see this over the coming months.

The pandemic also impacted on wages. At the height of the pandemic, wages flatlined but did not fall. There was then a rapid rise, by up to 7.5%, in mid-2021. Much of this was due to a ‘composition effect’, whereby average wages rose because job losses were concentrated among lower-paid workers, so average wages rose simply because of a larger share of better-paid workers in employment. That effect is now unwinding: in more recent data, wages have been increasing by around 3.5%. Real wages will fall because of surging inflation but will probably revert to year-on-year growth of around 1% once the inflationary shock has passed.

Overall, the UK labour market has weathered the storm of COVID-19. The outbreak of war in Ukraine may well be a further setback, but the labour market has proved to be more robust and resilient than many analysts were expecting in the early months of the pandemic[1].

Is there a ‘Great Resignation’ in the UK? This is still unclear, but most commentators suspect not. One respected expert, Tony Wilson of the Institute for Employment Studies, detects an increase in the numbers moving from one job to another, and in the numbers who have recently started in a new job. But he argues that these job moves are not being instigated by workers resigning to move on to other jobs.

Other experts, for example Jonathan Wadsworth of Royal Holloway, suggest that increases in job-to-job moves are not out of line with recent history. Lack of clarity on this is not surprising; changes in the labour market are notoriously difficult to detect and only become apparent in retrospect. But evidence in favour of the ‘Great Resignation’ is not (yet?) sticking up[2].

How will things change going forward? The war in Ukraine is a reminder that history never stops and making predictions during periods of turbulence is hazardous. For what it is worth, we feel that much will depend on the behaviour of older workers. Much of the loss of employment during the pandemic was concentrated in this group. They did not move from employment to unemployment; rather they moved out of the labour force, into early retirement, long-term sickness, or other forms of labour market inactivity (there was also a move of younger workers into education at the height of the pandemic; this surge has now largely passed).

The numbers of ‘economically inactive’ are currently around 400,000 higher than at the start of the pandemic. In the past, this group has tended to move back into employment over time, but only slowly. Given widespread labour shortages, this group is again a likely source of employment growth.

The UK economy would benefit from them moving back into employment fairly quickly. There is scope for policymakers to take action to encourage this.

[1] One permanent effect of the pandemic might be a lasting shift towards hybrid working: (Flexible working: Lessons from the pandemic (cipd.co.uk).

[2] Our informal conversations with specialist recruiters tend to bear this out.

All articles posted on this blog give the views of the author(s), and not the position of the IPR, nor of the University of Bath.