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.