The Cambridge Dictionary defines the labour market as the supply of people in a particular country or area who are able and willing to work. The labour market can be seen as the place where employees and workers interact with each other where supply is the workers and demand is the companies or organisations that will employ those workers. Employers want to hire the best people to work for them and employees compete to work for the best jobs in terms of pay and satisfaction.
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Overview
In the UK, the Office for National Statistics tracks data each month on the number of people employed or receiving a regular income and the Claimant Count, which is the number of people claiming benefits related to being unemployed. Their ‘Labour Market Overview’ is released each month.
Information that feeds into the labour market includes:
- The number of people employed and not employed
- Salary data
- Turnover of those in employment
- Workplace conditions
Labour market data shows economic inactivity (ie those not employed) as well as current activity.
Why is The Labour Market Important?
The labour market is important to business as it helps employers determine the number of employees they need and the long-term skills and experience they require in their workforce to meet their strategic goals.
Labour market statistics are useful for anyone involved in recruitment. They help you understand how easy or hard it will be to attract new talent. If there are more people than normal looking for jobs, there will be a wider talent pool from which to recruit.
Knowledge of the labour market also provides macroeconomic information. For example, having more people available for work can indicate that companies are not employing as many people or are creating more redundancies, which can provide information on the general economic outlook.
Understanding the labour market helps with the following:
- Knowing how many employees an organisation needs to meet its business goals
- Providing information on what is the appropriate salary to pay for roles
- Aligning training and developing opportunities for employees with the skills that are required within the industry
- Supporting organisations to have the right structure
How Does The Labour Market Work?
Understanding the labour market involves looking at it from a macroeconomic and microeconomic viewpoint.
Macroeconomic
Macroeconomics examines the economy as a whole. It considers how the relationship between labour and the domestic and international market for goods and services impacts employment levels, participation rates and gross domestic product (GDP). Other factors such as immigration rates, the age of the population and education and skills levels are also considered.
Gauges of the macroeconomic labour market are:
- Unemployment rates
- Labour productivity rates
- Total income
- GDP
For example, we can use macroeconomic theory to understand why a highly competitive job market creates downward pressure on salaries. When the supply of labour exceeds demand, employers can pick from a larger labour pool and do not need to pay as much to secure the best people for their jobs.
Microeconomic
Microeconomics looks at what is happening between individual organisations and their workforces rather than the economy as a whole. It considers how and when businesses decide to hire employees or reduce their workforce, as well as how much they will pay for specific roles. Microeconomics helps us understand what drives the market value of different roles, i.e., how much employers are willing to pay and how much employees are willing to accept. Knowing the market value for a role is essential information for a company’s compensation management strategy.
Gauges of the microeconomic labour market are:
- Number of hours worked
- Individual salaries
For example, when a firm is more profitable, it may increase the number of employees it has or pay more for existing employees to work more hours.
What We Know About the UK Labour Market in August 2024
Based on the information provided by the UK Office for National Statistics for August 2024, we know the following about the UK labour market:
- The UK employment rate is 74.5%
- The UK unemployment rate is estimated at 4.4%, which is above estimates from August 2023
- The number of job vacancies is continuing to fall, although they are still higher than pre-Covid levels
- Regular earnings continue to experience strong annual growth, although this has slowed slightly to 5.4%
- The number of people with second jobs has increased this year and now stands at 3.8% of people in employment
Economists view the labour market as cooling, with a slowing demand for employees as there are fewer vacancies to be filled and unemployment rates rise slightly. However, there is still strong wage growth, which indicates that those who are employed are experiencing pay rises, driven by the high cost of living.
