Week in Business: Is the jobs market in crisis?
The chief of one of the UK’s biggest recruitment platforms says the jobs market is about as bad as he’s ever seen – official data paints a complicated picture – so what’s going on?
First up, let’s look at the numbers, and the headline unemployment figure – 4.6 per cent – the highest it’s been for three years.
Before the pandemic it was around 3.8 per cent – spiking during Covid before falling to around 3.5 per cent by the middle of 2022.
Since then, with plenty of peaks and troughs, the rate of unemployment has been trending higher and we know that the start of this year was pretty fragile, culminating in a loss of more than 100,000 payrolled employees in May. There are now around 270,000 fewer payrolled employees than this time last year.
Meanwhile the official employment rate has remained steady – this seems contradictory, and it is, but it can be explained by a rise in economic inactivity – people who are not actively looking for work – that includes the retired, students and those on sickness benefits. These people don’t count as unemployed.
It’s also the case that many of the people who have recently lost a job and are now looking for another one are not yet counted as unemployed.
Writing in City PM this week, James Reed – CEO of Reed recruitment, pointed out that the number of vacancies is falling, and falling fast.
If the unemployment rate rises – that’s the number of people looking for work – while the number of vacancies in the jobs market falls – well, I don’t have to spell that out.
As Reed wrote, “official statistics show 35 consecutive periods of decline. Next month, it will be three years, with vacancies falling from a peak of around 1.3m then to 761,000 now.”
He says his own business has seen a 25 per cent fall in advertised vacancies year on year. He says that in all his decades working in recruitment he has never seen anything like this.
The UK is now the only developed country to have job postings remain below pre-pandemic levels.
After the 2008 financial crisis, vacancies declined for 16 months then they started to return. Employment was actually a rare bright spot in the UK economy during the following years of ‘austerity’ and belt-tightening. We’ll come back to that.
Graduate jobs bloodbath
Let’s look at some particular parts of the labour market. Let’s look at graduate jobs.
Jobs website Indeed revealed this week that graduate jobs are at their weakest level since at least 2018 – down 12 per cent compared to a year ago.
There’s a big debate about the value of a degree and the kind of graduates we’re producing but that’s a wider issue – I want to focus on the numbers, and they’re not pretty.
Not only are there fewer graduate jobs on offer but there are also more graduates chasing them – the number of university leavers climbed from 830,000 in the 2018/19 academic year to just over 1m in 2023/24.
Competition for graduate jobs has never been tougher as employers ease off taking on new recruits.
Consider the likes of the Big Four accountancy and consulting giants – Deloitte, EY, KPMG and PwC – traditionally these firms would hoover up graduates but not any more. They’re cutting jobs and pulling back sharply on graduate recruitment. And guess what?
They’re expanding their use of AI, as James O’Dowd of executive search firm Patrick Morgan explains: “The Big Four are looking at AI very seriously to replicate junior work more cost-effectively.”
They’re also expanding their offshoring efforts – creating cheaper jobs in places like India and the Philippines. And they’re not alone in this.
City PM reported recently on the growing number of businesses recruiting remote workers in cheaper countries such as South Africa in a direct bid to avoid the increased cost of employing people in the UK.
And here we get to the nub of the problem.
National Insurance hike
Why is this happening? Why is unemployment increasing? Why is the number of vacancies falling? Why are firms putting off headcount expansion and shunning graduates?
Well, lots of reasons – one of which is that government tax changes have made it more expensive to hire people, and incoming changes to employment law will make it more complicated and higher risk.
If you increase the cost of something – in this case, jobs – you will get less of it.
I mentioned earlier that employment was a surprising bright spot of the Cameron/Osborne era – and it was – largely thanks to the UK’s flexible labour market. Employers could hire with relative confidence.
That confidence doesn’t exist any longer.
The economy is bruised – from Trump’s tariffs and global headwinds yes, of course, but the increase to national insurance added insult to injury and the looming Employment Rights Act with its pages and pages of employment red tape – is enough to make any employer think again before recruiting.
AI, automation, cost-cutting, these are the logical responses to a situation where employers do not have the confidence to create jobs.
AI is coming for professional roles
But technological change is the undercurrent here.
Entry level jobs have fallen 32 per cent since ChatGPT’s commercial breakthrough in 2022.
James Reed says he’s deeply concerned about it, warning that we may be “going into a period of very substantial disruption in the UK jobs market over the next five years, not dissimilar to what occurred in the 1980s for a lot of blue collar workers, except this time it’s white collar jobs that are being affected.”
That is a challenge for everyone – from schools and universities to employers and government – but it’s a challenge made harder and more urgent by policy decisions that have hit the jobs market hard even as it tries to adapt to the structural changes.
Not all crises come with an explosion – some are slow, drawn out, they can creep up on you – and that’s the kind of crisis that many now fear is gripping the jobs market.