United Kingdom: Labor market remains soft at the end of Q2
While the headline unemployment rate remained at 3.9% in the March–May period according to recent data, this masks the significant deterioration in the labor market in recent months. In June, although the claimant count dipped slightly from May it was still over double the pre-coronavirus level, while job vacancies—an indicator of labor demand—were at a record low in Q2. Moreover, the number of employees on payrolls was down 650,000 in June from March, and wages are falling. The stark difference between the headline unemployment rate and other labor market indicators is due in large part to the government’s wage subsidy scheme (CJRS) keeping the unemployment rate artificially low, with over 9 million jobs now covered by the scheme.
Looking ahead, the gradual reopening of the economy should support an improvement in the labor market over the next few months. However, as Kallum Pickering, economist at Berenberg, comments:
“As for the headline unemployment and employment data, they may remain unreliable until the CJRS comes to an end in October – at which point the estimates may deteriorate materially if many workers suddenly suffer layoffs.”