Why are so many people leaving the workforce amid a UK cost of living crisis?

Ssomething strange is happening in the UK labor market. Even as unemployment nears its lowest level since the mid-1970s and businesses across the country struggle to recruit enough staff to fill positions, growing numbers of people are leaving the labor market altogether. work.

Rising economic inactivity – when working-age adults are not in and looking for jobs – is one of the biggest challenges facing the economy as the country struggles. faced with the twin threats of runaway inflation and weaker economic growth. Both are swayed by the loss of more than 600,000 “missing workers” since the Covid pandemic.

According to experts from the Institute for Employment Studies, the number of people leaving work as unemployed in the most recent official figures from the Office for National Statistics was below a quarter of a million for the first time. More than twice as many people have left work because of economic inactivity, which means not only that they are not working, but that they are also not looking for work.

More than 9 million people between the ages of 16 and 64 are now completely excluded from the labor market, a group made up of students, people with long-term health conditions, pre-retirees and people caring for young children. or elderly parents.

No other advanced economy has managed to bring employment back to pre-pandemic levels, with the UK being an international exception. It’s a trend that intrigues leading economists. It’s a puzzle because, in principle, as higher wages are offered – alongside the worst hit standard of living since the middle of the last century – this should bring more people back into the labor market.

Simply put, if people aren’t working, how do they manage to meet the cost of living emergency?

In search of answers, the government has launched an investigation, while economists around the world examine the question. Business leaders fear that Rishi Sunak has so far failed to grasp the gravity of the situation.

Economists see a mix of reasons behind this trend, with both positive and negative factors pushing people away from the labor market. Many would gladly work if their circumstances permitted. For others, work is a four-letter word they prefer to forget.

One of the main drivers identified by economists is the weakness of British public services. Long NHS waiting lists, inadequate support for people with health conditions and disabilities, as well as long Covid, are often cited. The lack of affordable childcare and support for aging parents, or the intransigence of employers who refuse to offer flexible working, are other common complaints.

It is this group that has grown the most since the coronavirus pandemic to reach record highs, with more than 2.5 million working-age adults now ill long-term. For the first time since the Industrial Revolution, health gains helping to increase the size of the workforce have reversed, according to former Bank of England chief economist Andy Haldane. This is partly due to the steady erosion of public services after 12 years of Conservative government. It is a trend that has revealed as a fantasy the conservative dogma that reducing the state is always good for the economy.

A child playing.
Lack of affordable child care is one of the reasons people leave the workforce. Photograph: Dominic Lipinski/PA

At the other end, the early retirement boom could suggest that a growing number of people over 50 feel financially secure enough to quit their jobs. After years of rapidly rising house prices, for those lucky enough to have paid off a mortgage, it only makes sense to stop the rat race.

ONS surveys show that most people aged 50-65 who have left work since the pandemic fully own their homes and are more likely to be debt-free. The places where economic inactivity has increased the most are generally wealthier. The UK’s biggest leap since the end of 2019 was in Chichester, West Sussex, followed by parts of Devon and Surrey. However, increases have also been significant in places such as Preston and Mansfield – areas with similarly aging but less affluent populations.

A reassessment of our professional lives may have taken place since the shock of the Covid pandemic. The ONS said people approaching 50 are more likely to consider returning to work after early retirement. However, there is a preference for more flexible hours, a good salary and the possibility of working from home.

Some commentators suggest welfare played a role, with the Spectator pointing out that more than 5.2 million people receive unemployment benefits. The clear suggestion is that a life of unemployment has become preferable to work, and that cutting benefits or limiting eligibility could solve the UK’s labor shortage.

However, the figure does not take into account that around 3.3 million of these claimants were receiving incapacity benefits or had ‘no work requirements’ under the Universal Credit scheme. This means that they are exempted from finding work because of a disability, family responsibilities or because they are over the legal retirement age.

It’s also based on the assumption that less than £400 a month for a single adult over 25 is somehow enough to keep millions out of work by choice. This figure is close to 10% of the average wage, making it one of the least generous unemployment benefits among rich countries.

Even after the government announced it would raise benefits in line with the rate of inflation from April – an increase of more than 10% – the basic rate will remain at its lowest in real terms for 40 years. This “barely erases levels of deprivation for some adults”, according to the Joseph Rowntree Foundation, a charity that works to solve poverty in the UK.

What is clear is that the absence of workers is a big problem for the UK. In the decade before the Covid pandemic, the economy benefited from rising labor force participation that underpinned growth, at a time when productivity gains stagnated. Today, without labor force growth or sufficient productivity improvements, Britain is stuck in a cycle of low growth.

To escape this, employers will need to redouble their efforts to get people back to work, through higher wages and flexible and better working conditions. The government must also play a role, with more investment in training, job support and better public services so people can be helped to work. Failure to act will condemn the country to its current growth trap.

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