By Gavin Mochan
Falling consumer sentiment and a record decline in real pay, yet the demand for workers continues to flourish – this is the paradox of the Scottish labour market.
The employment landscape has changed little in the most recent quarter. Unemployment in Scotland remained at 3.2 percent during the three months to June 2022. The employment rate decreased slightly, while the rate of economic activity rose marginally.
Data from s1jobs shows that hiring demand – the number of vacancies advertised online across Scotland – stood at 45,000 in July, the same as in June. According to the Office for National Statistics there were almost 1.3 million jobs advertised across the UK, 53% more than the average in 2019.
However, near-record levels of vacancies don’t accurately portray the underlying reality for businesses and employees. When adjusted for inflation, growth in regular pay fell from April to June by 3% compared to the same period a year earlier, the steepest decline since records began.
Average total pay growth, which includes bonuses, showed the stark difference in reward between the private and public sector. The latter had growth of 1.8% in total pay compared to 5.9% in the private sector, meaning those in public sector will feel a tighter squeeze from the cost-of-living crisis.
Sectors with the most acute labour shortages performed better. Wholesaling, retailing, hotels and restaurants had the largest growth rate at 7.7%, which seems encouraging but you only have to visit a restaurant to see that most eateries are struggling to lay on a full complement of waiting staff.
It is also notable that pay levels in this industry tend to be lower, with many on living or minimum wages, so that percentage increase is coming from a low base.
Most worryingly of course is that inflation is speeding up, not down, indicating the Bank of England’s decision to increase interest rates is not having the desired effect.
Consumer price inflation including housing costs, known as CPIH, hit 8.2% in June. That figure stood at just 0.7% when we went into the pandemic in March 2020. The sharp increase in inflation in recent months is what is pushing real pay growth rates into decline.
Unsurprisingly, consumer sentiment has taken a nosedive in the second quarter of the year. This indicator is at its lowest point since the lockdown in the first quarter of 2021. On the plus side those who want a job can have one, but with less money in our pockets we certainly won’t be spending our way out of this economic crisis.
Furthermore, the Bank of England has said it expects UK’s hot labour market to start cooling off from the middle of next year, with the current unemployment rate of 3.8% predicted to reach 6.3% in three years’ time.
Hiring demand remains near record highs for the moment, but the outlook is far less confident than such numbers suggest.
Gavin Mochan is managing director of s1jobs.
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