Tight labour market shows need to continue fighting inflation

Responding to Office for National Statistics employment figures, IEA Editorial and Research Fellow Professor Len Shackleton said:

“Employment continues to creep up and employment has reached 75.8 per cent of the working-age population, not far off its pre-pandemic level. Inactivity has fallen, which has contributed to a slight increase in the unemployment rate, as people re-enter the workforce and look for jobs. Nevertheless, at 3.8 per cent, unemployment remains at a historically low level and significantly below that in countries such as France, Spain and Italy. And despite another fall in vacancies, there are still well over a million jobs to be filled, far more than was normally the case before the pandemic.

“This labour market tightness has pushed up pay. However, continuing rapid inflation means that real earnings are declining. For the moment, economic policy must focus on bringing inflation down and thus enabling real pay to start growing again in the medium term.

“Inflation reduction is primarily a task for the monetary authorities. But we ought to continue to search for ways to improve the workings of the labour market through reforms to the tax and benefit systems and boosting productivity through reducing unnecessary employment regulation and barriers to competition. The UK labour market is currently ticking over reasonably well, but it could still do a lot better.”