OECD Employment Outlook 2022

United Kingdom

Labour markets have continued to improve in 2022, but the outlook is uncertain

Total employment in the OECD returned to pre‑crisis levels at the end of 2021 and continued to grow in the first months of 2022. The OECD unemployment rate gradually fell from its peak of 8.8% in April 2020 to a level of 4.9% in July 2022, slightly below the 5.3% value recorded in December 2019. However, the labour market recovery has been uneven across countries and sectors and is still incomplete, while its sustainability is challenged by the economic fallout of Russia’s unprovoked, unjustified, and illegal war of aggression against Ukraine.

• The unemployment rate in the United Kingdom has fallen from its peak of 5.2% (November 2020) to 3.8% (May 2022), just below pre‑crisis levels.

• The employment rate has been growing since Q1 2021 but was still below pre‑crisis levels in Q1 2022. In the United Kingdom as in other countries, the sluggish response of employment to the surge in vacancies (see next section) may be in part explained by a contraction in labour supply of low skilled and older workers, and by the weakness of net migration.

• The inactivity rate in the United Kingdom remained above pre‑crisis levels in Q1 2022. Among the low educated, the United Kingdom experienced one of the largest falls in employment and one of the largest increases in inactivity, out of all OECD countries between Q4 2019 and Q4 2021. The United Kingdom was one of just a handful of OECD countries in which employment rates for the 55‑to‑64 and 65‑to‑74 age groups were still below pre‑crisis levels in Q4 2021 and Q1 2022, with inactivity the predominant driver rather than unemployment.

Figure 1. Labour market have continued to improve across the OECD in 2022

Note: Latest month available refers to May 2022 for the United Kingdom and to August 2022 for the United States.

Source: OECD (2022), “Unemployment rate” (indicator), https://doi.org/10.1787/52570002-en (accessed on 2 September 2022).

Despite tight labour markets, real wages are falling

Vacancies surged to record highs in the OECD area, and reports of labour shortages rose significantly in many industries and countries. Despite this, nominal wage growth remains well below the high inflation induced by the commodity price hikes spurred by Russia’s war of aggression against Ukraine. The decline in real wages is expected to continue over the course of 2022, as inflation is projected to remain well above the negotiated nominal wages for 2022.

• The United Kingdom experienced a surge in vacancies, reaching pre‑crisis levels by Q2 2021 (just one year from the onset of the crisis) and then rising steadily for the remainder of 2021. By Q1 2022, vacancies in the United Kingdom were more than 50% higher than before the crisis. Firms in accommodation and food services were most likely to report labour shortages in the first few months of 2022 in the United Kingdom, which may reflect a hesitancy to return to low-paid jobs that typically involve direct contact with customers.

• Despite a tight labour market and rising nominal wages, real wages in the United Kingdom have declined. The decrease in real wages between 2021 and 2022 was larger in the United Kingdom (2.9%) than the OECD average (2.3%), representing an overall decline in workers’ purchasing power. In the first few months of 2022, the wholesaling, retailing, hotels and restaurants sector experienced larger wage growth than the private sector as a whole, which could be linked to staff shortages in this sector.

• The energy plan announced by the new government includes a cap on domestic energy bills and support for businesses, which will help households and businesses cope with the surge in energy prices. This offers important support for lower-income households, whose energy bills generally account for a larger share of total spending, compared to higher-income households.

Figure 2. Despite tight labour markets, real wages are falling

Source: Economic Outlook 111 database; and OECD calculations.

The crisis had a harsh impact on racial/ethnic minorities and their recovery was often slower

Few OECD countries collect data, which allow the impact of the crisis on racial/ethnic minorities to be monitored. In most of those which do, the crisis affected racial/ethnic minorities disproportionally and, where information is available, the recovery of these groups has been slower. However, there are countries that fare better in this respect, showing that a worse impact for minorities is not a fatality: in New Zealand, racial/ethnic minorities have benefited from the recovery more than the majority group, reducing their employment gap in Q4 2021 relative to Q4 2019.

• In the United Kingdom, racial/ethnic minorities have recovered some, but not all, of the ground lost at the beginning of the crisis when their unemployment rate increased more than for the rest of the population. The unemployment rate of minorities peaked at 9.8% in Q4 2020, 4 percentage points higher than one year before (compared to a 1.1 percentage point increase for white people). After the peak, the unemployment rate for white people declined slowly but steadily, while the unemployment rate for minorities plateaued in the second half of 2021. By Q1 2022, the unemployment rate for minorities stood at 7.1% and for white people at 3.1%, with a differential 0.5 percentage points larger than in Q1 2019.