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2020 UK Labour Market Review and 2021 Outlook: Hiring Needs to Gain Momentum

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The pandemic has increased public appreciation for essential workers, but they remain poorly paid.

Key points:

  • Coronavirus has dealt the labour market a heavy blow, but the furlough scheme has softened the impact.
  • Hiring recovery has been only partial.
  • Essential workers are in demand, but remain low paid.
  • There are reasons for optimism about the UK labour market in 2021, but nevertheless a tough winter lies ahead.

The UK labour market was turned on its head in 2020. At the start of the year, it was the tightest in living memory. Then COVID-19 hit, shutting down workplaces and bringing hiring to a near halt. Though the government’s furlough programme has mitigated the damage, more of the fallout may be felt next year, particularly after the extended job retention scheme closes at the end of March. 

The unemployment rate has risen from under 4% at the start of the year to 4.9%, and the labour market is in even worse condition than that number suggests. Job losses are mounting and unemployment is set to rise over the coming months. Vacancies have staged only a partial recovery, making it harder for those who have lost jobs to get back into work. Job postings on Indeed’s UK site are still running 37% below last year’s trend, regaining only part of the ground from more than 60% down at their nadir. 

Essential workers are in demand…

The pandemic and lockdown have raised public appreciation of those who hold key jobs, including nurses, carers, cleaners, warehouse workers and delivery drivers. Those and other necessary occupations have held up better than average. Essential worker job postings are down 19% on last year’s trend versus 39% overall. 

…but jobseeker interest has waned 

These are the jobs that society most needs to fill right now, but jobseeker interest does not match demand from employers. We compared average clicks per posting on essential jobs with clicks on jobs overall. Jobseeker interest in essential roles spiked in the spring lockdown, but then fell back and is now lower than before the pandemic, attracting less interest than the average job. In February, before COVID-19 hit, essential jobs were receiving an average of 121% more clicks than the average job. The differential rose to 174% at the peak, but then fell back and is now just 81%. 

Falling interest could in some cases be related to working conditions, including potential COVID-19  exposure. Jobseekers may feel that the low pay these positions tend to offer is not adequate compensation for the risks they entail. 

Historically, pay growth in these occupations has relied on minimum wage increases. The UK minimum wage rose 6.2% in April from £8.21 per hour to £8.72. But essential worker median wages only climbed 4.2%, from £9.38 per hour to £9.77. That’s not far above the voluntary living wage of £9.50 per hour, meaning almost half of job postings pay below that level. 

The big question is what will happen to key worker pay in 2021. The minimum wage will go up 2.2% in April, increasing 19p to £8.91 per hour. The original plan was to raise it 50p to £9.21 per hour, but the Low Pay Commission recommended a smaller increase to protect businesses already struggling amid the pandemic. That doesn’t augur well for most essential workers, albeit the Chancellor has promised a modest uplift to low-paid public sector workers, including NHS staff. 

Other labour market trends to watch

The 2021 labour market outlook depends largely on how quickly vaccines and other public health measures tame the pandemic. In the short term, conditions remain highly challenging and some businesses won’t make it through the winter. A no-deal Brexit would inflict a further blow, particularly to the exporting and manufacturing sectors, which have been less directly affected by the pandemic. 

Hopefully, the health situation will improve enough by the spring that many coronavirus restrictions can be lifted, which would particularly boost hard-hit sectors like hospitality. A key deadline is the end of the furlough scheme on 31 March. If the recovery is gathering momentum then, the fallout could be greatly limited. 

Unemployment forecasts reflect this more sanguine view. The Office for Budget Responsibility has lowered its projection for the peak in unemployment from 11.9% to 7.5%. That would mark a considerably better outcome than had been feared and would represent the lowest recessionary  unemployment peak since the 1970s. 

But, to keep unemployment in check, vacancy growth must pick up. We’ll be watching job posting trends closely and will publish regular trackers to monitor their course in the year ahead.

Methodology

Essential job postings are defined as those from the cleaning & sanitation, driving, loading & stocking, nursing and personal care & home health categories. 

Pay data are from job postings with hourly wages on Indeed UK between 1 Jan. and 4 Dec., 2020. During this period, 47% of essential job postings with pay information specified an hourly wage rather than an annual salary or another rate. When a job posting specifies a range (e.g., £9.50-£10.50 an hour), we use the midpoint.

To measure trends in job postings, we calculate the seven-day moving average of the number of job postings on Indeed. We index each day’s seven-day moving average to the start of that year (1 Feb., 2020 = 100 for 2020 data and so on) or another date if specified in the chart.

We report how the trend in job postings this year differs from last year’s trend in order to focus on recent changes in labour market conditions due to COVID-19. For example, if job postings increased 30% from 1 Feb., 2019 to 4 Dec., 2019, but only 20% from 1Feb., 2020 to 4 Dec., 2020, then the index would have risen from 100 to 130 in 2019 and 100 to 120 in 2020. The year-to-date trend in job postings would therefore be down 7.7% on 1 May, 2020, relative to 2019 (120 is 7.7% below 130). 

Information is based on publicly available information on the Indeed UK website, limited to the UK, is not a projection of future events, and includes both paid and unpaid job solicitations.