Are high levels of economic inactivity the new normal?
Posted on
© By Chris Whatley from Unsplash
The latest statistics must be cautiously interpreted as the ONS warns of underlying issues around sample sizes.
This month’s statistics show a fall in employment, dropping from 75% to 74.5% over this most recent quarter. At the same time, unemployment increased from 3.9% to 4.2%, meaning that there are now 1.44 million people who are actively searching for work. Worryingly, there is a substantial shift towards increasing numbers of people who are unemployed for over 12 months, indicating that despite vacancies remaining historically high, some jobseekers are struggling to obtain work.
An international outlier
The number of people who are economically inactive (those who are out of work and not looking for work), has grown substantially since the Covid-19 pandemic and has now increased again on the quarter by 150,000. People can have different reasons for being inactive, such as entering full-time education, or enjoying early retirement.
The UK is an international outlier in this regard. Compared to other European nations, where the post-pandemic rises in inactivity have returned to normal, the UK’s rate remains stubbornly high, and this month’s data shows that the tide isn’t turning.
Figure 1: Change in the economic inactivity rate since 2017
Concerningly, the biggest driver for the overall rise since the pandemic has been the increase in ill-health. The number of people who are out of work and not looking due to long-term sickness now stands at a record 2.8 million, a striking 717,000 more than before the pandemic.
Figure 2: Long-term sickness drives the overall growth in inactivity
In the context of sluggish economic growth and persistent labour shortages in some sectors – policy responses broadly fit two approaches. One aiming at bringing inactive people back into the labour market – through welfare conditionality and employment support. Whilst it is right to focus on supporting people to re-enter work when they want that, particularly as the UK’s safety nets are inadequate at preventing those out of work from falling into poverty – this will have limited impact on inactivity rates overall, and taking a punitive approach may worsen outcomes.
Many economically inactive people do not interact with the benefits system in the first place. For those that do, by Government’s own admission conditionality and the threat of sanctions (for instance around job search requirements), can be incredible stressful and damaging and fails to foster long-term sustained engagement with the labour market. The uptake of jobs does not always mean lasting employment – particularly if those jobs are insecure.
The second policy approach is by improving the retention of people, including those with health conditions, in work. For example, in recent fiscal Budgets, the current Government has focussed on occupational health services and flexible working as important mechanisms that can improve people’s ability to remain in the labour market, for instance when they become ill or disabled. Our project on Remote and Hybrid working for disabled workers explores some of these issues.
Future proofing the UK labour market
Ultimately, it is unlikely that either policy lever will substantially reverse the trend we are seeing – and this is because of population ageing, a phenomena that cannot be reversed.
Let’s take a step back from the focus on long-term sickness and to examine the issue as one of a shrinking workforce and an expansion in the number who are out of work. Even if we manage to turn the dial on sickness, our workforce will shrink over the next decades due to an ageing population. The number of people aged 65-79 is predicted to increase by a third to over 10 million over the next 40 years, while the number of those aged 80 and over is predicted to double. As such, the current participation issue is only the start of the challenges coming down the line.
We need to move away from tackling the issue as a numbers game, where getting more people into work will solve the issue. Rather, we must tackle how we work. The UK’s productivity has been lagging behind other European countries for years. Now could be a time to think about other strategies, such as investing in innovation, tech and AI to improve productivity. We could invest in making lagging industries more productive, in capital and life-long learning, and upgrading the digital and technological capacity of people and places. It also means being realistic about how to sustain healthy working lives over a longer time period and the limits to this.
Related Blogs
Disclaimer
The opinions expressed by our bloggers and those providing comments are personal, and may not necessarily reflect the opinions of Lancaster University. Responsibility for the accuracy of any of the information contained within blog posts belongs to the blogger.
Back to blog listing