Employment levels are rising, but ill health keeps millions out of work
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© Credit: David Tett at Age positive image library
This month’s labour market figures showed a welcome decrease in unemployment on the quarter to 4.1% and a fall in economic inactivity to 21.9%. At the same time, employment levels increased to 74.8%. This is broadly similar to last year’s levels, but remains substantially lower than pre-pandemic figures (75.6% in January-March 2020). Underneath these broadly positive headline figures, however, there remain substantial challenges.
Long-term sickness is keeping millions from returning to work
Overall, 21.9% of the working-age population are out of work and not looking for work due to a variety of reasons. In historical perspective, this is in line with average rates over the past 10 years. What is alarming, however, is the fact that an increasingly large group of people have left the labour market due to long-term ill health in the wake of the pandemic. This number has grown by 658,000 since January-March 2020 and now stands at 2,785,000.
The new Labour government appears to recognise the scale of this problem. Today, Secretary of State for the Department for Work & Pensions’ Liz Kendall stated that economic inactivity due to long term health is “the greatest employment challenge of a generation”, and has appointed a new Labour Market Advisory Board to advise government how to tackle the root causes and support the aim of reaching an 80% employment rate. A forthcoming White Paper will provide more detail on how government aims to reach its goals.
Figure 1: Number of people aged 16-64 who are economically inactive due to long-term sickness (thousands)
Source: Work Foundation calculations of ONS (Office of National Statistics) data (10 September 2024) using Dataset A01, table 11: Economic inactivity – People aged 16 to 64 by reason for inactivity (seasonally adjusted).
Why the rise in youth unemployment isn’t a cause for concern (yet)
It is worth exploring the flows between employment and inactivity in more detail, particularly as there appear to be misconceptions regarding the extent to which today’s figures should prompt concerns about young people entering the labour market.
For example, early commentary today suggested that youth unemployment among those aged 18-24 had risen to a ‘worrying’ height. The increase of 62,000 young jobseekers does look substantial, but in actuality, the figures may not be particularly concerning. Rather, they signal that those who were previously ‘inactive’ because they were full-time students are now entering the labour market and starting to look for work. This does raise youth unemployment to a three-year high, but context is key.
In the wake of the pandemic, the number of students increased in part due to the need to postpone labour market entry. Now, with economic growth improving and a continued high level of vacancies offering opportunities, young people are exiting education and starting to look for work. It is common for first-time jobseekers to take some time to identify and obtain their first role, but if the period of unemployment is brief (less than 6 months or a year), there is little cause for concern.
Nevertheless, this is something for policymakers to be vigilant about during the remainder of 2024 and be ready to provide additional support where necessary.
De-risking the journey into work: is government ready to rethink the punitive benefits system?
Liz Kendall’s statement today shows government recognises the challenge of economic inactivity due to ill health, although it is not clear yet how they aim to tackle it.
Ultimately, to facilitate people’s return to the labour market, we need a greater focus on a benefits system and employment service which supports people to obtain good quality, secure roles.
The first step would be for government to review the punitive aspects of the benefits system in order to transform the culture at Jobcentres. Government has hinted that it aims to ‘de-risk’ the journey into work, but it has not yet proposed concrete steps to reassess or reduce the harsh elements of the current benefits system. Strict work search requirements often force claimants into insecure, low-quality jobs and may therefore be acting as a disincentive for those receiving incapacity benefits from looking for work.
Previous Work Foundation research has revealed other unintended consequences too, such as trapping workers in insecure roles and preventing Universal Credit claimants from participating in training that could improve their job prospects.
This is why it is vital that any attempts to encourage and support more of those who have opted out of the labour market to return, addresses both the emphasis on punitive sanctions in the welfare system and seek to increase the number of secure and flexible jobs on offer.
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