Factors driving the decline

The key factor driving this decline is the high concentration of EU nationals that are employed in occupation and sectors worst hit by the pandemic.  We know that accommodation and food services and retail account for more than two-thirds of the fall in employment levels since the pandemic. In addition, we know that workers in accommodation and food services, retail and those in manual and elementary occupations are more likely to have been furloughed since the onset of the pandemic. 

A secondary factor is that most Europeans in the UK now have settled status. They are therefore at ease to work or seek work in their home countries now that they have secured their status in the UK. It remains to be seen therefore how many EU citizens who have been furloughed or made redundant will return to the UK when the economy recovers. 

The concerns

This trend won’t concern employers too much in the short term while recruitment activity remains weak. However, the worry is that a sizeable proportion of EU citizens won’t return to the UK now that they have secured their status, which is likely to contribute to recruitment difficulties in the medium-term.  This should especially concern low-wage industries, such as hospitality, food processing, social care and retail; many of whom have become reliant on EU workers in recent workers. As we know, the introduction of migration restrictions in January has put an abrupt stop to the supply of EU workers to fill low-skilled or unskilled roles in the UK.

On a positive note

The good news is that this should force employers to make full use of available UK workers, especially those recently made redundant with relevant skills and up to date experience. However, the bad news is that without a significant injection of skills investment from both government and employers, many UK jobseekers will be unable to fill some of the vacancies that the reduction in the supply of overseas workers will create when the economy recovers. 

This could be a particular problem if employers’ response to migration restrictions is increased automation and a shift to higher-value jobs. As the Bank of England has warned in recent months, UK employers are currently not able to make most of the potential to match jobs with job seekers. This is because there is a mismatch between the skills of those looking for jobs and the skills firms require, particularly in parts of the economy that continue to grow. 

The situation is set to get worse 

And this situation looks set to get worse rather than improve. A related key and emerging area of concern is how poorly educated, unskilled workers are likely to cope with an economy in which most jobs that are being created are skilled roles. The most recent data suggests that just 60% of 19-year-olds are qualified to Level 3 (2 or more A Level or an equivalent Level 3 qualification). As we know, employment has increased fastest in managerial and professional occupations over the past decade, and this trend is likely to continue in the future. If anything, the trend is likely to accelerate given the lack of a low-skilled route for overseas workers, which will incentivise more employers to shift the composition of their workforce away from unskilled and low-skilled workers. Low-end jobs may therefore disappear faster than low-skilled workers, which will add to the relatively long tail of UK workers without the right skills to fill vacancies.

The problems for employers may be compounded further by demographic and population trends, which do not point to a growth in the workforce. As the Bank of England’s Chief Economist, Andy Haldane recently commented, the rise in the UK population has offset the falling share of the total UK population of working over the past decade to great effect. However, recent data suggests that the UK population may be shrinking due to a sharp fall in immigration levels. 

Employers thus need to look at all aspects of their business strategy, workforce planning strategy and job quality to help attract and retain job-seekers; especially at the low end of the labour market. Close relationships with the local FE college, job design, progression opportunities, work organisation, strict monitoring of absence and productivity, pay and access to sick pay are some of the factors that can help improve the talent pipeline and employer offer to candidates to help fill the gap left by EU nationals. 

The bigger emerging problem lies with matching the shrinking labour supply with the rising demand for high-skilled jobs.  It is imperative that falling employer investment in skills is reversed to ward off skill and labour shortages. This should be matched by significant government investment in skills, in particular schemes such as the National Retraining Scheme. More significantly, employer investment in skills could be freed up if they had more control over how the Apprenticeship Levy budget is spent; especially in terms of basic skills training.

This juncture could ultimately be a wake-up call for employers and the Government to invest in the future of the domestic workforce. Such an approach is vital both to help maintain labour supply and to improve the employment prospects of jobseekers, especially poorly educated and unskilled workers.