In the News

UK Economy Update: What is a Tight Labour Market?

Geoff Riley

25th November 2022

In this revision video we explore the meaning of a tight labour market and look at some evidence. We also think about some of the economic effects and how businesses are responding to labour shortages.

UK Economy Update: What is a Tight Labour Market?

What is a tight labour market?

  • A labour market is “tight” if vacant jobs are plentiful and available workers are scarce.
  • This often happens when unemployment has fallen, and economic growth is strong with many employers looking to expand their workforce
  • But it can occur when there is a decline in labour force participation / rise in economic inactivity

Some consequences of labour market tightness

  1. Can contribute to a supply crunch where production is hampered by labour shortages
  2. Increases relative bargaining power of people in work – perhaps a rise in union pay demands
  3. Can lead to cost-push inflation as employers pay higher wages to hire and retain key staff
  4. Might cause interest rates to be higher too

Geoff Riley

Geoff Riley FRSA has been teaching Economics for over thirty years. He has over twenty years experience as Head of Economics at leading schools. He writes extensively and is a contributor and presenter on CPD conferences in the UK and overseas.

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