Where are the Workers?

Economic inactivity has become a huge issue in politics – and is expected to be a key area of focus in this week’s Budget. But many of the most common claims about inactivity turn out to be mistaken, or capture only part of a more complex picture.

‘Where are the Workers? A new diagnosis of inactivity in the UK’ by CPS Senior Researcher Karl Williams examines the rise in inactivity post-pandemic. He finds that the largest number of inactive workers are aged 50-64 – but shows that this is probably driven more by early retirement than ill health. However, he also shows how changes to disability benefits have increased inactivity; an alarming rise in inactivity among those aged 18-24, in particular due to mental health issues; and a very significant gender imbalance among those no longer looking for work.

While many have linked the rise in long-term sickness to the NHS’ ability to cope with demand, 77.3% of those economically inactive due to long-term sickness did not want a job and 69% who were newly classified as long-term sick were already out of the labour market for another reason. The rise in economic inactivity due to long-term sickness also began prior to the pandemic, with figures tracking up since the start of 2019. 

The report also shows that despite high childcare costs placing an undoubted burden on families, especially as the cost of living increases, it is probably not behind a spike in economic inactivity. Women aged 25-34 are actually entering the workforce in greater numbers, not leaving it, which we would expect to see if rising childcare costs were forcing women to stay at home.

The increase in economically inactive younger people, with the number of 18-24 year olds out of work up 2.5%, is particularly concerning as economic inactivity at this stage can seriously affect lifetime earnings. Despite this age group seeing a net increase in inactivity of 105,000 people, they are often overlooked in favour of focusing on older people leaving the workforce. It is commonly claimed that heightened inactivity among the young is largely driven by more people staying in education for longer during Covid, and that these people will soon return to the workforce. However, a surge in unemployed ‘not in education, employment or training’ (NEETs) suggests this complacency is unwarranted.  

The report also shows how the Cameron Government’s reforms to the Personal Independence Payment (PIP), intended to encourage those with disabilities back into employment, in fact led to a significant increase in the number declaring themselves unable to work. The report argues that this decision should be re-evaluated, and that the Government needs to urgently investigate the causes of mental health problems among the young, and the reasons for the gender imbalance in inactivity.

It also argues that the lifetime limit of £1 million on tax-free pension savings should be raised or scrapped, pointing out that its real-terms value has fallen by more than half since 2010/11 (when the allowance would have been worth £2.4 million in today’s money). This would help significantly with the NHS’s retention issues.

Karl Williams - Tuesday, 14th March, 2023