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Why UK Unemployment Has Hit A Record Low Since 1974

Published: Wednesday 4th December 2019

UK unemployment has hit a record low since 1974, but what does this further mean and what are the possible implications for employers, job seekers and the current employment trends?

UK Stock graphic background on financial market trade chart

The Stats

In fact, according to the Office for National Statistics, Britain’s unemployment rate has decreased to 3.8 per cent in the three months to March, from 3.9 per cent in the three months to February 2019. However, the employment rate has risen up to over 75 per cent. Despite the Brexit turmoil, almost 100,000 more jobs were added in the first quarter of 2019 compared to the previous one. This is a strong indicator of the UK job market fighting and defying the wider, global economic and political uncertainty.

Planning, risk and strategy in business, businessman gambling placing wooden block on a tower, unemployment

Another survey indicates that there is a significant increase of women in work since 1971, despite the overall unemployment rise percentage. Much of the recent jobs’ growth has come from older employees, staying in the workforce for longer. A plausible explanation for this increase would be the changes to the state pension age, resulting in less women retiring before the age of 65. However, this also indicates fewer women are taking leave for family-related reasons. In accordance with the same survey, this number has dropped by more than 250,000 in comparison to 5 years ago.

Concerns for a decrease in capital expenditure

There have been significant and reasonable concerns lately, in regards to recent indicators of UK companies accumulating labour instead of proceeding to much-needed capital expenditure. This could well be the end product of Brexit uncertainty, steering employees towards being a lot more flexible, the ease with which employers can hire and fire, as well as the decrease of the collective bargaining power.

Brexit concept. UK and EU flags on the background.

Another plausible explanation based on the 2019 job market trends could be that UK firms are simply using less capital than labour as a result of the economic uncertainty. The downward pressure on wages throughout the past decade has left employers with the option of employing a workforce a lot cheaper, which further drives increased demand for labour, yet a significant decrease in demand for capital.

Bringing inflation rates into the bigger picture, rising demand for labour would normally result in a pay increase. However, inflation-adjusted earnings are in fact following the weakest decade of wage growth in 200 years.

The effects of unemployment on UK productivity

Hand turning control knob to the maximum to increase productivity speed and unemployment

Although the UK job market has seen growth in its jobs’ figures, this does not necessarily reflect productivity growth. A simple explanation for that would be, that more people are working but they are cashing in longer hours. In fact, the average UK employee is working an extra 65m hours each week compared to 10 years ago.

Moreover, this explains how and why any recent above-inflation increases in the minimum wage have so far been absorbed without any effect on the level of employment. As a result, the demonstrated labour supply growth translates into a slow upward pressure on pay and a muted UK wage pressure throughout the past years.

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