Immigration numbers vs vacancies - job market analysis

 

DAVID SMITH | ECONOMIC OUTLOOK

We have record immigration. So why are we so short of workers?

David Smith

Sunday December 03 2023, 12.34am, The Sunday Times

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Readers may know, if they wake early enough, that the Office for National Statistics (ONS) releases some statistics — on topics such as inflation, wages and the public finances — at 7am. This, I have to say, is not universally popular with those who have to instantly analyse and report them.

For some of the most consequential statistics, however, the ONS still sticks to the more leisurely 9.30am release time. This was true of its bombshell revisions to pandemic gross domestic product (GDP) figures a few weeks ago. It was also true of the latest immigration figures, also quite a bombshell.

These showed, you will remember, that net migration to the UK (immigration minus emigration) in the most recent 12 months for which figures are available — up to the end of June this year — was 672,000. The ONS tried to make the best of the situation by pointing out that this was slightly down on the figure for the whole of last year, which was 745,000.

That, however, merely drew attention to the size of that 2022 figure, easily the biggest on record. I am old enough to remember when a net migration figure of 333,000 — for 2015, released during the EU referendum campaign — helped swing the leave vote. That 2015 figure, by the way, has now been revised down to 303,000.

If you are thinking at this point, “Oh no, not another immigration piece”, my aim today is limited to answering a simple question: how come, when net migration is so high, we still have such a tight labour market and so many job vacancies?

To try to answer it, let me start with some statistics, covering last year’s record net migration of 745,000. It consisted of non-EU net immigration of 873,000, offset by a net outflow of 123,000 EU citizens and a 4,000 net emigration of Britons. If that does not get you to exactly 745,000, any difference is due to rounding.

It has become more difficult to assess what is happening to employment among migrant workers because of problems with the official Labour Force Survey, which everybody hopes will be resolved in the next few months.

A good substitute, for now, however, are the PAYE (pay as you earn) figures from HM Revenue & Customs. These show that there has been a rise in the number of non-EU workers in the UK, partly offset by a fall in EU workers. In 2022, the number of non-EU workers rose by 416,000, outstripping a 273,000 increase in employment among UK nationals as the economy recovered from the pandemic. There was a 13,000 drop in the number of EU workers, continuing a trend seen since December 2019, during which time the number of EU workers has dropped by some 160,000, while non-EU worker numbers have risen by about 630,000.

That 630,000, however, has to be set against non-EU migration over the same period of 1.47 million. It confirms that most non-EU net migration to the UK is not for work purposes. This chimes with the ONS’s own figures, covering the slightly later period to June this year.

Non-EU migrants who come to the UK for work purposes bring with them almost as many dependants — and numbers arriving for work are exceeded by those coming to the UK to study. Students also bring dependants, numbers of whom have been swelled by arrivals from Nigeria and India, the ONS says, though not as many as with workers. International students are the lifeblood of many of our universities, though recent evidence suggests that they are staying for longer, on average, than earlier cohorts.

Non-EU migrants also come to the UK for family reasons, or to seek asylum. Those arriving on British national (overseas) passports from Hong Kong, most of whom have not been integrated into the UK labour market, and fleeing the war in Ukraine, which swelled the figures before, between them accounted for only 8 per cent of non-EU immigration in the latest 12 months.

The situation we appear to have, then, is that record levels of migration are co-existing with a tight labour market and — while the total has been falling in recent months — nearly a million job vacancies.

There is a domestic explanation, which is the rise in economic inactivity since the start of the pandemic, with about 1.5 million people economically inactive because of long-term ill health. The increase in working-age inactivity since late 2019 is, however, now only about 300,000 — about 1 per cent of employment. If those people were brought back into the active workforce — as the government, with a series of measures announced around the autumn statement, is trying to do — it would make a difference, though might not be transformative.

There is another explanation, which is the change in the composition of migration to and from the UK. This is a point made by S&P, the ratings agency, in a generally downbeat assessment of the outlook for the UK economy next year.

As S&P put it in a report a few days ago: “Admittedly, net immigration has remained high even though fewer EU workers are now part of the UK labour market. Yet the skill set of the non-EU immigrants is different and their participation in the labour market is lower. Many are students or refugees. Consequently, immigration does not necessarily help fill the gaps in industries where the workforce is lacking.”

That is true. EU migrants came to the UK to work, and some still do, though they are now outweighed by those who are leaving. They were part of a UK labour market that was flexible and responsive, and associated with a long rise in employment, including for UK nationals.

That has now gone, and the danger is that the government makes things worse by tightening the conditions under which migrant workers can come to the UK — by raising the qualifying salary level for worker visas, or changing the rules under which foreign recruits on the shortage occupation list can be paid lower salaries than is the norm for the sector. Organisations already struggling to recruit may find it even harder, damaging the economy and its recovery prospects. It is not a happy prospect.

PS

December has arrived, and it is a bit chilly, so that can mean only two things. The first is that the countdown has begun for my Christmas quiz, which will appear here on Christmas Eve.

I’m giving you advance warning, because last year I introduced an innovation, which was that I would reward the best multiple entries from a school with a talk from me. Before you say it, second prize was not two talks. Anyway, the comfortable winner was Emmanuel College in Gateshead, and I spent a most enjoyable day there last spring.

It would be good, therefore, to see entries from schools, colleges and other organisations. Individual entries will also be encouraged, and for those prizewinners I can’t promise to come to your houses, but I do have books to give away.

The second thing the season brings, by popular request (genuinely), is the return of some jokes. The flood into my inbox during the pandemic has turned into a trickle, but I have a few.

Martin Keenan of Bristol hasn’t given up. He tells me he accidentally passed his wife a glue stick rather than a chapstick, and she’s still not talking to him. An economic one: in the supermarket the other day, he swapped 100 raisins for 50 sultanas, and still can’t believe the currant exchange rate. He is also a bit worried about Christmas: because of a typo, he has sent his wish list to Satan.

Speaking of the devil, the ever-reliable David Lewis takes us back to the rich vein of jokes about the legal profession. A young lawyer is working late one night when Satan appears before him. “How would you like to win every case for the rest of your life?” the devil says. “Your clients will love you, your colleagues envy you, and you’ll make embarrassing sums of money.

“All I want in exchange,” he adds, “is your wife’s soul, your children’s souls, the souls of your parents and grandparents, and the souls of all your friends and law partners.”

The young lawyer listens intently, before saying: “OK — what’s the catch?”
Now I’ve set the hare running, I need more material. So over to you.

Central banks, unemployment and soft landings:

 Finance and economics | The price battle

Why aren’t more people being sacked?

How inflation has fallen without mass job casualties

image: getty images

Sep 17th 2023

If central bankers are to defeat inflation, they must cool the labour market. For two years rich-world wage growth has added to corporate costs, sending prices relentlessly upwards. But as they began raising interest rates to slow the economy, policymakers hoped for an even rosier outcome. They wanted to achieve a “soft landing”, which involves both bringing down inflation, and doing so without mass job losses. It is a lot to ask of a tool as blunt as monetary policy.

Are they succeeding? The question is almost certainly one that officials at the Federal Reserve will be asking when they meet on September 19th and 20th. And so far the evidence suggests that—against widespread expectations—labour markets from San Francisco to Sydney are co-operating.

image: the economist

Central bankers started to raise rates at a time when demand for labour had almost never been so strong (see chart 1). Last year the unemployment rate across the oecd club of mostly rich countries, measuring the share of people in the labour force who would like a job, was a shade under 5%, close to an all-time low. Excess demand for labour showed up in a surge in unfilled vacancies, which reached an all-time high. Workers bargained for higher wages, knowing that they had plenty of options.

The scale of the task central bankers set themselves was illustrated by history. Research by Alex Domash and Larry Summers, both of Harvard University, found that there had never been an instance in which the American vacancy rate had fallen substantially without unemployment rising significantly. Last year Michael Feroli of JPMorgan Chase, a bank, studied the record and noted that “whenever the vacancy rate goes down a little it goes down a lot, and the economy lands in recession.”

To assess progress in rich-world labour markets, we have assembled data from the oecd and Indeed, a listings website, covering 16 countries. In this group, employers have reduced open vacancies by more than 20% on average from their peak—a historically rapid decline. Some countries, such as France, have seen relatively modest falls of 10% or so. In others, such as Canada, Japan and Switzerland, unfilled job postings are down by a quarter or more.

image: the economist

Declining vacancies are helping trim wage growth. In America the annual rate of pay rises has slipped from 6% in late 2022 to below 5% today (see chart 2). Canadian wage growth is also falling fast. The story is less clear elsewhere, not least because the quality of the earnings data is worse. In Germany and Italy wage growth has probably stopped rising, though there remain pockets of concern, including in Britain—which might explain why the Bank of England, which also meets this week, is expected to raise rates again.

For policymakers, this success would feel a little soiled if it came with a sharp rise in joblessness. According to rules of thumb for America discussed by Messrs Domash and Summers, in normal times you would expect a 20%-plus fall in vacancies to come alongside a rise in unemployment of three or so percentage points within a year.

In reality, a year or so after vacancies started heading down, something else appears to be happening. Recently the unemployment rate in the oecd has held steady. Job growth, at 500,000 a month across the rich world, is about as fast as it was in the second half of last year. The working-age employment rate—the share of people aged 16-64 who are actually in a job—has risen to an all-time high in around half of oecd countries. Even places known for high unemployment, such as Italy and Portugal, have found jobs for an unprecedented share of their working-age population.

Why are labour markets breaking the historical rule? One possibility relates to “the great resignation” during covid-19. In 2021, spooked by stories of employees quitting to start crypto firms and write novels, some employers may have put up job vacancies as an insurance policy. Now, as fewer folk quit their jobs, they are taking them down again.

A second possibility relates to “labour hoarding”. During lockdowns in 2020 many companies let workers go, only to struggle to rehire them when the economy opened up. Bosses do not want to make the same mistake twice. So today, even as the economy slows and firms cut job adverts, they are trying to hang on to existing workers.

Central bankers still have a task on their hands, as inflation in many places remains uncomfortably elevated. Even in America and Canada, demand for labour is high relative to supply. Across the rich world wage growth exceeds productivity growth, adding to the pressure. And Messrs Domash and Summers could still be proved right if unemployment jumps in the coming months. But after two years of bad inflation data, and warning after warning that their strategy was sure to fail, policymakers nevertheless have reason to be hopeful. ■

Skills shortages - key material May 2017

Skills shortage bites as fall in unemployment leaves Britain short of engineers to fill new jobs 

• Tim Wallace Daily Telegraph  9 May 2017 • 12:01am

Britain has a shortage of workers across scores of different jobs, from engineering and accounting to hospitality and caring, recruiters have warned.

The shortage is most intense in the engineering sector which has warned for years that too few trainees are coming through the education system.

Now that unemployment has fallen to levels not seen in more than a decade, there are fewer people available to take new jobs, according to the Recruitment and Employment Confederation.
“We have the lowest unemployment rate since 2005, and people already in work are becoming more hesitant about moving jobs amid Brexit uncertainty,” said the group’s chief executive, Kevin Green, indicating that there is a smaller domestic pool of potential employees from which companies can find workers.

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Vacancies are rising as employers seek more workers. Source: ONS

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EU migrants are also increasingly reluctant to apply for jobs in the UK, the REC said, as the weaker pound has reduced the euro-value of their British earnings, and they are uncertain as to their future right to remain in the UK.

The shortage affects a swathe of different jobs across the economy with varying skill levels.
“Candidate availability is at a 16-month low and recruiters are flagging a shortage of suitable applicants for more than 60 different roles from cleaner to accountant,” said Mr Green.
Competition for new workers is driving salaries up, the recruiters said, though official data does indicate that wages are rising at only a modest pace.

Figures from the Office of National Statistics indicate there are currently 767,000 job vacancies across the UK, a number which has risen by 1.7pc over the past year.