Economic and Labour Market Review - August 2007

The Office for National Statistics (ONS) published Economic and Labour Market Review (ELMR) on Monday the 13th of August 2007. The ELMR replaces Labour Market Trends and draws together expert research and analysis to build an up-to-date, comprehensive and unique statistical picture of the UK economy and labour market.

ELMR includes impartial commentary and analysis from its specialist ONS authors, illustrated with tables, charts and diagrams. It provides an independent, cohesive view of the state of the economy and the labour market, and gives an insight into how the statistics behind the analysis are produced and interpreted.

In brief and Labour Market Review

Labour market activity buoyant

The Labour market in the latest reference period showed a relatively strong picture – continuing the trend of fairly high levels of employment and low levels of unemployment seen throughout 2006 and in 2007. The robust labour market picture continues to be a reflection of fairly strong demand conditions in the UK economy.

The latest figure from the Labour Force Survey (LFS) pertains to the three-month period up to May 2007 and showed positive picture. The number of people in employment as well as the employment rate increased. The number of unemployed people and the unemployment rate fell. The claimant count decreased. The number of vacancies increased. Average earnings, excluding and including bonuses fell. Overall, average earnings remain subdued with weak real wage growth.

Looking at a detailed level, the increase in the employment level appears to be mainly driven by a rise in employees, particularly full time employees, offset by a decrease in the number of people in self-employment, reversing the trend somewhat of the previous months where employment was driven by self employment.

The current working age employment rate was 74.5 per cent, in the three months to May 2007, up 0.1 percentage points from the three months to February 2007 and down 0.1 percentage points from a year earlier. The number of people in employment rose by 93, 000 over the quarter, and up 180,000 over the year, to leave the employment level standing at 29.08 million in the three months to May 2007. The unemployment rate was 5.4 per cent, in the three months to May 2007, down 0.1 percentage from the three months to February 2007 but unchanged from a year earlier (Figure 16). The number of unemployed people fell by 35,000, from the three months to February, but was up 2,000 from a year earlier, leaving the unemployment level currently standing at 1.66 million.

According to the LFS, in the period March to May 2007, the number of people in employment rose by 93,000. The increase was led by a rise in employees of 93,000, offset by a decrease in self-employment of 6,000. From another perspective, the number of people in full-time employment rose by 117,000, whilst people in part-time employment fell by 25,000.

Workforce jobs falls

According to employer surveys, there was a decrease of 22,000 jobs in the three months to March 2007. Most sectors showed decreases in jobs over the quarter. The largest quarterly contribution came from falls in agriculture, forestry & fishing (down 22,000), followed by transport & communication (down 21,000) and manufacturing (down 16,000). This was offset by increases in finance and business services (up 32,000) followed by distribution hotels & restaurants (up 11,000). Over the year, total workforce jobs increased by 265,000. Of the total, the largest contribution to the increase came from finance and business services (up 126,000) followed by construction (up 75,000) and education, health and public administration (up 63,000). The manufacturing sector in contrast lost the largest number of jobs on the year (down 43,000 jobs), followed by transport and communication (down 24,000).

Claimant count falls

The claimant count measures the number of people claiming the Jobseekers Allowance. The latest figures for June showed the claimant count level at 864, 100 down 13,800 on the month and down 91,100 on a year earlier. The claimant count rate in June 2007 was 2.7 per cent, unchanged from the previous month but down 0.3 percentage points from a year earlier.

Vacancies rise

The number of vacancies created in the UK continued to show a healthy demand position for the economy. There were 641,900 job vacancies in the three months to June 2007, up 5,100 from the previous three months and up 52,500 from the same period a year earlier.

Inactivity level falls slightly

The working age inactivity rate was 21.2 per cent in the three months to May 2007, unchanged from the three months to February 2007, but up 0.1 percentage points from a year earlier. In level terms, the number of economically inactive people of working age was down 1,000 over the quarter to leave the level standing at 7.93 million in the three months to May 2007.

There were inactivity decreases amongst most categories over the quarter. The largest decrease in inactivity level occurred amongst those categorised as ‘Long-term sick’ (down 45,000), followed by those categorised as ‘Temp sick’ (down 7,000) and the ‘Discouraged’ (down 7,000). On an annual basis, inactivity rose by 85,000, with the largest rises being amongst those categorised as ‘Student’ (up 34,000), followed by the ‘Looking after family/home’ category (up 31,000) and ‘Retired’ (up 23,000).

Average earnings remain subdued

Average earnings growth showed a weakening picture in May 2007. Average earnings (including bonuses) decreased in the latest reference period. It fell by 0.6 percentage points from the previous month to 3.5 per cent. Average earnings growth (excluding bonuses) was 3.5 per cent, down 0.1 percentage point from the previous month. In terms of the public and private sector split, the gap in wages narrowed slightly. Average earnings (excluding bonuses) grew by 3.1 in the public sector, unchanged from the previous month, and grew by 3.6 per cent in the private sector, down 0.1 percentage points from the previous month.

Overall, the numbers still point to a fairly buoyant labour market, although it is still loose compared to previous years, with employment levels at relatively high levels and unemployment at a fairly stable level. This is consistent with higher workforce participation rates, underpinned by robust GDP growth. Average earnings show stable but fairly modest growth, consistent with increased supply in the labour force.

Features

Introduction of automatic occupation coding in ASHE

The automatic coding tool, automatic coding by text recognition (ACTR), is being introduced for the Annual Survey of Hours and Earnings (ASHE). ACTR has been shown to improve the quality of occupation coding. However, it also brings a moderate discontinuity in the ASHE results. The improvement in the quality of the coding, and the savings obtained from using ACTR, mean that the benefits of its adoption are significant. For continuity, a revised 2006 data set will also be created on an ACTR-coded basis.

International comparisons of productivity: the current and constant PPP approach

The purpose of this article is to explain the differences between the current and constant purchasing power parity (PPP) approaches to producing estimates of international comparisons of productivity. This aims to outline and explain the context in which the respective approaches should be used. The Office for National Statistics (ONS) recommends that, for assessing differences in productivity levels, the current PPP approach should be used. For comparing differences in productivity growth across countries, the constant PPP approach should be used. This article marks the first time that ONS has produced volume growth rates for these productivity data using the constant PPP approach. These are presented towards the end of this article.

Regional economic indicators

This quarter, regional economic indicators (REI) focuses on explaining the differences in sub-regional Gross Value Added per head from the UK average, decomposing the differences into four explanatory factors; productivity, employment rate, commuting rate and activity rate. The headline indicators cover the nine English Government Office regions, Northern Ireland, Scotland and Wales: the European Nomenclature of Units for Territorial Statistics (NUTS) level 1 regions of the UK. The term ‘region’ is used for convenience. They present an underlying picture of regional economic performance, productivity (including an update to 2005 of the productivity analysis published in the February article) and welfare. Labour market data and indicators of the factors that drive productivity are also included.

Recent Releases

18 July
Average earnings
Underlying pay growth steady for May 2007

Employment
Rate rises to 74.5% in three months to May 2007

31 July
Local employment

Local inactivity

Forthcoming Releases

15 August
Labour market statistics – August 2007

16 August
Public and private sector breakdown of labour disputes

22 August
Average weekly earnings – June 2007
Index of labour costs per hour – Q2 2007

29 August
Work and worklessness among households