Labour market

2021 Emerging themes


2021 Report

The 2021 Report considered how the eight drivers were combining to disrupt the labour market, with profound consequences for the world of work. As countries emerged from the worst of the pandemic a year ago, the state of the labour market remained uncertain. Would growing skills shortages lead to higher pay rates in those sectors, or to increasing automation? How would minimum wage laws or social and governance concerns impact on pay? How should (and could) government and employers respond? A year ago, the view on unemployment levels was relatively optimistic but with high levels of under-employment being reported alongside a growing skills shortage. These changes were impacting on the what, who, when and where of work.

Read extract from 2021 Report

2022 and beyond

With acute skills shortages posing an ongoing challenge for employers, will the parlous state of economies across the globe combined with the cost of living crisis cause the shortage to ease?

Over the last twelve months skills shortages have become even more pronounced. The UK government maintains a shortage occupation list for skilled worker visas which illustrates the jobs that are in demand. The HGV drivers, hospitality staff, agricultural and abattoir workers that were significantly impacted during the pandemic have been joined by other workers that are now similarly affected, such as airport workers, airline staff, chefs, engineers and port workers. The impact of skills shortages has been apparent outside of the UK too. The US, for example, has experienced job shortages across a range of sectors, with the hospitality industry most affected.

Each of the eight drivers of change have played a part in exacerbating the continuing skills shortage over the last 12 months.

  • Demographic changes mean too few workers are entering the labour market.
  • Brexit has contributed to skills shortages in the UK, though it can be argued that the real reason behind this is not Brexit so much as the UK government’s restrictive approach to work migration post-Brexit.
  • Covid alongside shifting societal trends have played their part, with many businesses finding it difficult to replace workers who left during the pandemic. The “Great Resignation” has seen many people leave the labour market having reassessed life choices during the pandemic restrictions. Latest data from the Office of National Statistics shows that the long-term sick have become a significant contributor to labour market shortages in the UK, with 2.5 million now economically inactive for this reason. This is a significant jump from under 2.1 million before the pandemic and accounts for much of the increase in the economically inactive. Long Covid and NHS delays are contributing to these high numbers.
  • The rapid pace of technological change and the drive for a sustainable green economy both mean that an increasing number of people have the wrong skills and experience for the jobs of today, never mind tomorrow.
  • Increased globalisation of knowledge jobs has resulted in competition across frontiers for the best people with in-demand skills.

In response to the skills shortage, employers have been forced to expand their traditional recruitment pools, devote more resources to training and developing people to acquire the required skills and experience, and increase their reliance on automation. In the longer-term, views differ on the extent that technological developments will result in there being too few jobs for the available labour force or too few people for the available jobs.

However, the first signs of a loosening of the labour market are emerging. With the cost of living crisis and predictions of a  lengthy recession or very low growth, job losses are bound to follow. Recent data from the US shows levels of job vacancies in decline as the economic downturn begins to bite. The Bank of England’s November Monetary Policy Report set out the Bank’s view that signs were emerging of a softening of the labour market and the November Economic and Fiscal Outlook published by the Office for Budget Responsibility predicts that unemployment will increase from the current level of 3.6% to a peak of 4.9% in Q4 2024, although still low by historic standards.

The ramifications of the skills crisis on the world of work are considered in depth in the “Spotlight on… skills shortages” below.

In the fourth quarter of 2022, the UK labour market is characterised by

  • record high levels of employment and low levels of unemployment
  • a skills shortage with record high numbers of job vacancies 
  • the highest inflation for more than 40 years resulting in record falls in real pay
  • the highest level of industrial action for more than 40 years 
  • increased hybrid working 
  • lower levels of work migration than before Brexit 
  • increased pay inequality 
  • increased diversity

The cost of living crisis, together with other drivers of change, will mean a labour market featuring

  • a higher level of unemployment with increased labour supply resulting, in some areas, in reduced skills shortages
  • moves towards greater energy self-sufficiency creating new jobs
  • redundancies caused by consumers with less money to spend and by increased business costs (energy, labour, commodities, borrowing costs) will impact on the labour market
  • inflation resulting in pressure to raise pay and rising levels of industrial action
  • more geographic fragmentation of the workforce
  • increased work migration from overseas, particularly in the health and care sectors
  • an increasing number of people looking to supplement income through working overtime or taking second jobs
  • increased pressure on public sector resources and public sector employment

Labour market #1


Employment rates were at record levels going into the pandemic and, with the support of the government’s furlough scheme, remained high throughout. In Q3 2022, the UK employment rate remained unchanged from Q2 at 75.5% of those aged 16 to 64. These numbers are likely to decline with the current economic downturn leading to redundancies and insolvencies. Since the early days of the pandemic the numbers in full-time employment have increased, whereas the number of part-time employees and the self-employed have fallen.


Going into the pandemic, unemployment rates were at historically low levels. These rates increased during the pandemic but not by as much as many feared. They have now returned to the low pre-Covid levels. In Q3 2022, unemployment rates declined still further to 3.6% of 16 to 64 year olds. This number is likely to increase with the impending recession and September 2022 figures showed the first indication of this increase.

Economically inactive

Whether the Great Resignation, the Great Reset, the Great Realisation, the Great Reshuffle, the Great Reimagination, or the Great Rethink, Covid saw an increase in those not working or seeking work, particularly among the over 50s. In Q3 2022, the proportion of working age adults economically inactive had increased to 21.6% with the increase largely driven by those aged 16 to 24 and those aged 35 to 49. The economic downturn shows signs of a Great Return and economic inactivity has declined each month from July to September.


The number of employees wanting to increase their working hours is far lower than those wanting to reduce them. The number wanting more hours went up slightly during the pandemic but has now declined to below pandemic levels. The number looking to reduce their hours declined during the pandemic and has since returned to pre-pandemic levels. The number wanting to work more hours is likely to increase as a result of the cost of living crisis, with Q3 data showing a slight increase both in those wanting more hours and those wanting fewer hours. 

Labour market #2


The second half of 2021 saw job vacancies in the UK rocket to record levels, precipitated by skills shortages reaching a peak of 1.3 million in Q2 2022. There are signs that the number of vacancies has now peaked and is beginning to fall with the latest ONS data showing a decline each month through Q3.

Real pay

Regular pay adjusted for inflation had been increasing in the UK in the months leading up to the pandemic. Falling slightly at first, real pay increased significantly as the UK began to remove Covid restrictions, fuelled by economic optimism and an emerging skills shortage. However, this trend had begun to cool even before the war in Ukraine and, with rapidly rising inflation rates, real pay is now declining at record levels (declining by a further 2.7% in Q3 2022), contributing to the cost of living crisis.


Redundancies in the UK (as reported on HR1 forms) rose during the pandemic but not to the levels which might have been expected without the government furlough scheme. In 2019, redundancy numbers were slightly below the norm for much of the preceding twelve years and by Q2 of 2022 numbers were at their lowest for 15 years (although starting to show some signs of an increase as Q3 numbers had risen from 1,908 to 2,657).

Unemployment G7

Unemployment rates across the G7 have come down slightly over the last 12 months. France and Italy have the highest levels of unemployment with Germany and Japan having the lowest. The economic impact of rising energy and other prices had not fed through into unemployment rates by autumn 2022.

Spotlight on... the impact of skills shortages on the world of work

Spotlight on... the impact of skills shortages on the world of work

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