Tuesday, June 25, 2024

UK job vacancy data may be losing value as economic indicator

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British economists worried about the accuracy of official labor market data have a new concern: doubts about the number of unfilled jobs.

The low cost of advertising for staff online and other factors may have left more slots advertised for longer than in previous years. The result could be inflating the aggregate number of vacancies across the UK, according to employment experts and economists.

The trend will make it more difficult for the Bank of England to measure tightness in the labor market, a key question for policy makers weighing when they can ease interest rates from a 16-year high. The vacancies data has picked up more attention in the past six months after the Office for National Statistics was forced to temporarily withdraw its key survey on unemployment and inactivity.

Data from jobs site Indeed show the share of vacancies deemed “hard to fill” — postings open for 60 days or longer — has risen from as low as 20% before the pandemic to about a third of the total in recent years.

Those numbers suggest employers may be speculatively casting their net for talent or willing to hire if people with the right skills become available. Some are hording the workers they have after a drop in the size of the labor market since the pandemic.

“Just looking at vacancies isn’t enough,” said Jack Kennedy, senior economist at Indeed Hiring Lab. “They might be posting lots of open vacancies because it’s cheap and they’re not trying particularly hard to fill them in some cases. We look at indicators like signing bonuses — that’s one of our favorite indicators of how intensively employers are actively trying to fill vacancies.”

Official jobs market data due Tuesday are likely to show unemployment edging higher and wage growth cooling slightly. Vacancies have fallen for months but remain historically strong — an indication that companies may have to bid up wages to secure the staff they need.

BOE Governor Andrew Bailey highlighted two rounds of inflation and jobs data before the June meeting that will be key to judging whether domestic price pressures are being tamed.

However, BOE rate-setters are concerned they cannot trust signals coming from the official labor market data as they weigh when to begin cutting interest rates. As a result, some policymakers say they’re watching the vacancies figures particularly closely.

BOE Deputy Governor Dave Ramsden and Jonathan Haskel, a member of the Monetary Policy Committee, have both cited the vacancies to unemployment ratio as influencing their thinking on policy in recent weeks.

Government-produced data on unemployment, employment and economic inactivity have been hit by a plunge in response rates for the Labour Force Survey published by the Office for National Statistics. That’s made it more difficult for the UK central bank to determine the tightness of the jobs market. The ONS is currently overhauling how it does the jobs survey to boost response rates.

The ONS — which uses a survey to collect job postings data from employers — said that vacancies are down sharply on the record 1.3 million openings in 2022 but are still at historically high levels of over 900,000. However, the research from economists suggests that industry and official vacancies data risk sending misleading signals to policy makers.

Stephen Evans, chief executive of the Learning and Work Institute, said it’s “right to be cautious” about the headline figures as it’s “definitely easier for employers to advertise vacancies now and ‘test the market’ for applicants.”

“But it’s also true that many employers have found it challenging to fill vacancies, particularly after a post-pandemic rise in job-to-job moves,” he said.

Tony Wilson, head of the Institute for Employment Studies, said there was anecdotal evidence of firms having vacancies up only for a few weeks or advertising “indefinitely and then assessing candidates as and when.”

However, he said that the official vacancies data is likely to be “sound and genuinely very high.”

“If anything, I think the most likely bias would be that it is under-stating real vacancies,” Wilson added.

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