It’s not quite the Black Death, but worker shortage hits UK firms hard
Adeadly virus arrives from the east and sweeps through western Europe for two years. The pandemic devastates the country’s economy and drastically reduces the number of available workers. Those who survive find they are in a strong position to secure a higher price for their labour.
That was the England of the 1350s in the aftermath of the Black Death, when emergency measures were brought in to cope with labour shortages. And, while the death toll from Covid-19 is nowhere near as severe as the drop – of at least a third – in England’s population between 1348 and 1350, the outcome for today’s economy is in some ways similar.
This week’s UK labour market figures are expected to show job vacancies running hot. Vacancies have scaled record highs in recent months and fears that the end of the furlough scheme would lead to a sharp increase in unemployment have proved unfounded.
The story behind the official data is of employers struggling to attract or retain staff, and of workers seeking to make the most of it. Those who want to continue working from home part of the time or cut down to a four-day week have found employers more receptive than in the past.
“Employers are working hard to keep staff happy,” says Jon Boys, labour market economist at the Chartered Institute of Personnel and Development. “They are trying to look after their staff and do more for them. A year ago we were worried there would be not enough jobs and too many candidates for them. Now we are worried that there are too many jobs and not enough candidates.”
During the early part of the pandemic, in 2020, there were four unemployed people for every vacancy in the UK. Now the ratio is one for one. “There aren’t many candidates out there”, Boys says.
Economists say the explanation for the current strength of the labour market is simple: demand for workers has been going up at a time when their supply has been limited. On the demand side, the reopening of the economy as the pandemic loosens its grip has meant stronger competition for staff. On the supply side, a combination of factors means the labour force is smaller than it was expected to be pre-Covid.
Stephen Evans, chief executive of thinktank the Learning and Work Institute, says there are 1.1 million fewer people in the workforce than there would have been had pre-pandemic trends continued. A third of that is because the population is smaller, as more people have left the UK and fewer people are coming in. This has exacerbated employment pinch points in sectors such as hospitality. Another reason for the drop is that young people are spending longer in education.
The biggest cause of the drop, however, is older workers – those aged 50 and over – leaving the workforce altogether. Support for this group – to encourage them to continue looking for work – has not been good enough, Evans says.
“The end of the furlough is agreed to have been a triumph,” he says. “The soft landing is great news for those in employment. But there was no attempt to talk to people who were dropping out of the workforce altogether, and no retraining.”
Evans argues that more needs to be done to tackle Britain’s chronic skills deficit, noting that while the government is increasing spending on adult skills, it will still be investing less in 2025 than it was in 2010. Over that period, the number of adults improving their skills has dropped by 800,000: against that backdrop, he says, the target set out in the recently published levelling up white paper – to increase that number by 200,000 by 2030 – is not nearly ambitious enough. About 9 million adults in the UK have low literacy or numeracy skills – they aren’t able to understand the dosage levels on a packet of painkillers, for example – and the total has barely shifted over the past 20 years.
Andy Briggs, chief executive of Phoenix Group, is the government’s business champion for older workers. “I would say the government has a strong focus on this and is doing a lot of the right things,” he says, though he admits that more could be done. However, employers must also take responsibility for doing more to attract and retain older staff.
“It’s absolutely critical. There are massive benefits to this,” says Briggs. As the head of Britain’s biggest long-term savings and retirement firm, which has assets of more than £300bn, he says it makes business sense to employ an age-diverse workforce.
“Some older workers have chosen not to work. But we estimate that between 750,000 and a million over-50s who aren’t working actually want to. On the other side there are significant workforce shortages in many sectors. So the solution is for more employers to think about their approach to recruitment and training, and to think differently about attracting over-50s, who have an awful lot of transferable skills.”
According to official figures, the employment rate for 50-64-year-olds has dropped by almost 2 percentage points to 70.8% since Covid-19 hit, reversing a global megatrend for more older people to join or stay in the workforce. Even the 2008 financial crisis barely affected this trend.
Kirstie Donnelly, chief executive of City & Guilds, the body that has worked on skills delivery for 143 years, says vacancies are spread across most sectors of the economy: 42,000 in construction, 60,000 in transport, 170,000 in food and accommodation, and 200,000 in care. “There are jobs without people and people who don’t want the jobs”, she says.
So what happens next? Boys at the CIPD doesn’t believe in the Great Resignation – the idea that the pandemic made people more likely to leave their job and start a completely new career.
Although it is counterintuitive, he says, people tend to look to move when unemployment is high rather than when it is low. Boys says this is because when jobs are hard to come by, people can find themselves doing work that doesn’t match their skills or aspirations. In periods of low unemployment, people are more likely people to have found jobs that suit them.
The Bank of England expects unemployment to continue falling in the very short term, to 3.8% in the first quarter of 2022. After that, though, it is forecasting a rise in the jobless rate, to a peak of 5%, as the cost of living crisis bites.
Tony Wilson, director of thinktank the Institute of Employment Studies, agrees that the labour market will eventually cool. “Firms are under big pressure to raise wages, and most will want to do so, but it will be at the expense of jobs unless they can get some gains through productivity. National insurance is going up, wages are going up, and so firms will increase working hours and won’t replace workers who leave as quickly.”
But long-term problems are likely to persist. Research by City & Guilds suggests there will be 3.1 million key worker openings in the next five years, but only around a quarter of UK citizens would consider taking up jobs in sectors such as food production or logistics. Low pay is one factor deterring them; lack of relevant skills, experience or qualifications is another.
“In the face of a growing labour crisis impacting these vital industries and wider society, we need to collectively take a long, hard look at how we can make these jobs more attractive”, Donnelly says. “We need to do more than simply clap for carers. We desperately need to re-evaluate the way we as a nation recognise these roles.”
In the 14th century, coercion was used in an attempt to increase the supply of labour. In 1351, the Statute of Labourers decreed that all able-bodied men had to work at pre-Black Death wage rates. Such meddling with market forces proved a flop. Today’s experts say a different approach is needed this time.