Introduction
Today I want to talk about an unusual feature of the UK labour market. It is cooling, but mainly through less hiring rather than more firing.
The economy has been more resilient to the recent energy cost shock than expected. Activity has held up better than anticipated, unemployment has risen only gradually, and redundancies remain relatively low. That may sound like good news. In lots of important ways, it is. But a low-hire, low-fire labour market creates its own problems. It protects those already in work while making it much harder for those trying to get in or move on.
This matters because the current slowdown in hiring comes on top of a longer-term decline in mobility within the labour market. People are changing jobs less often. And when they do move, they are less likely to change industry or move into work requiring different skills. The labour market has become less effective at moving people towards new opportunities. The labour market is stuck in low gear.
That has three important consequences.
First, it affects how we interpret the rise in unemployment. If those looking for work are poorly matched to the jobs available, higher unemployment may do less to ease wage pressures than it has in the past.
Second, it can weaken productivity and growth. Moving jobs helps workers find roles where their skills are better used. When that process slows, people miss opportunities to progress and firms find it harder to recruit the staff they need. The costs are falling particularly heavily on young people, for whom the first step into work has become harder.
Third, it can make the economy less able to adapt. That matters as artificial intelligence changes the tasks people perform and the skills employers need. The gains from AI will depend partly on how readily people can move towards the new opportunities it creates.