Chart of the Week: High UK vacancy rates expose labour market frictions

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Job vacancies in the UK rose to a record high of 953,000 in the three-month period between May and July. This was 168,000 higher than their pre-pandemic level. The number of vacancies in sectors affected most by the easing of lockdown, such as hospitality, soared during the period. However, the number of people on furlough in these sectors remains high, suggesting labour market frictions. These frictions could be caused by multiple factors. Varied demand within sectors may mean some companies hiring while others continue to retain workers on furlough. Some workers may be content on furlough rather than seeking other full-time opportunities. And finally, as COVID has shifted labour demand within sectors, some workers who might otherwise fill the vacancies, may not have the required skills. In Fathom’s view, labour market frictions are likely to have increased the UK’s structural unemployment rate. Consequently, wage pressures could rise sooner than otherwise expected despite the ongoing signs of labour market slack. The driving forces behind the high vacancy rates are likely to be revealed when the furlough scheme comes to an end in September 2021.

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