The mystery of Britain’s missing workers

Britain’s labour market is an international outlier. While joblessness is near all-time lows, the UK is on track to be the only country in the developed world with employment still below its pre-pandemic level by early next year. There are over 600,000 more economically inactive individuals than in early 2020 — making it the only developed country where the share of working-age people outside the workforce has risen so significantly and persistently since the onset of Covid-19. This has damped output and added pressure to wages, which keeps prices higher. Unless it gets to grips with the problem, Britain’s economic woes will only deepen.

Boosting its workforce will be crucial in raising the country’s economic prospects. A high level of withdrawals from the labour market not only stokes inflation, which puts more onus on the Bank of England to raise interest rates, it also means lower tax revenues and even less funding for already stretched public services. For the many out of work and with limited sustenance, it is a further drain on living standards as the costs of goods and energy soar.

Ill health has played a key role. Since 2019, there are half a million more people reporting long-term sickness as the main reason for being outside the labour market. While part of the pick-up predates the pandemic, Covid-19 has not only driven new long-term sickness but has probably exacerbated existing ailments by clogging healthcare services. Though this trend has been driven by older workers, the fastest growth in inactivity due to long-term illness has been among younger age groups, partly linked to mental health issues. Many former workers sidelined by sustained poor health also come from lower-paid and more contact-intensive industries.

Early retirement has been an important factor, too. Yet gaps in the data make it difficult to determine the multiple, interlinked reasons why so many have left the workforce and not returned. The review into workforce participation that the government announced in its recent Autumn Statement is important to pinpoint what is behind the UK’s particular problem with inactivity.

Whatever the causes, there are some obvious pinch points to address. Tackling Britain’s clogged healthcare waiting lists — and improving mental healthcare provision — would almost certainly make it easier for many people to return to work. So would better localised access to employment support and retraining, which currently overlook those who are economically inactive. Widening the scope of the government’s underspent “Restart” scheme, which was designed to tackle post-pandemic unemployment, would make sense. Employers have an essential role too. Greater job security, flexible working arrangements and better workplace support would strengthen incentives to rejoin the workforce.

Simply waiting for the trend in inactivity to reverse is not enough, even if the high cost of living may force some people back into employment. The longer people remain outside the workforce, the more their skills and confidence atrophy, and the harder it becomes for them to return to employment, leaving an even deeper scar on the economy. With baby boomers set to retire in droves throughout the 2020s and immigration likely to be lower, finding enough people to fill vacancies could become even more of a struggle. Britain’s longstanding productivity problem, meanwhile, is unlikely to be solved anytime soon. So it cannot afford to have more working-age individuals falling out of the labour force — and needs to find ways to entice the ranks of “missing” workers back into work.

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