Something unusual is happening in the UK labour market. According to official estimates, close to one million people have left, quit or retired from the workforce since the pandemic, creating chronic labour shortages which forecasters say will drag on the economy’s performance for years.
The exodus has no equivalence anywhere else in the world.
The UK is the only advanced economy where headline employment, even with inward migration, still lags behind its pre-pandemic level.
Contrast this with Ireland, where employment has ballooned to a record 2.71 million, 14 per cent above the pre-pandemic rate.
Various reasons have been put forward to explain the UK’s “great retirement” boom (that’s an incorrect moniker, as we’ll see) but none of them seem to fully capture it.
Initially the narrative was that many baby boomers, those in their late 50s and 60s, having sampled the fruits of remote working, decided to quit the rat race altogether and eke out a living on savings or by other means.
While this seemed to chime with the notion that many older employees had reassessed their work-life balance in the wake of Covid, it wasn’t borne out by the figures.
While the number of people exiting the workforce due to retirement did rise initially, it quickly fell away again and now mirrors pre-pandemic norms.
Then came explanation number two, namely that the exodus was being driven by a deterioration in health rather than a lifestyle reappraisal.
While non-EU migration into the UK has surged, a large portion are students and high-skilled workers that don’t do the same kinds of jobs that EU migrants did.
Recent Office for National Statistics (ONS) data indicate that the number of those aged 16 to 64 classified as economically inactive rose to a record 22.2 per cent between December and February this year, 850,000 more than at the start of the pandemic.
The reason why people are economically inactive are complex and variable. For example, many young people are economically inactive because they are students.
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But the bulge in the UK numbers seems to relate to those who are inactive for health reasons.
According to the ONS, the number of people registered as economically inactive for reasons of long-term sickness in the UK stood at 2.83 million in February, equivalent to 7 per cent of working-age people.
When combined with those not participating due to short-term illnesses, the number rises to more than three million.
It is perhaps not surprising to see a deterioration in the population’s health at the same time as a pandemic, particularly with long Covid now such a significant phenomenon.
But linking it to Covid-19, according to experts, is too simple and again isn’t borne out by the figures.
They say the UK’s worsening health trajectory predates the pandemic and that the higher rates of inactivity relate to a rise in long-term health conditions such as cancer, depression or muscular-skeletal issues.
While long-term health conditions are part and parcel of an ageing population, some have linked the country’s sicker disposition to increased levels of inequality, an underfunded health service and National Health Service (NHS) backlogs.
“So my take would be that if worsening health is a factor, it is particularly about worsening health of those already out of work, and where UK appears to be worse than other countries is in having good quality rehabilitation support (health and employment related) for those people, ie they generally don’t get access to help through employment services, we have limited community support available these days, and health services are focused more on treatment than rehabilitation,” says Tony Wilson, director of the Institute for Employment Studies in the UK.
“Plus undoubtedly a lot of people left jobs in 2020/21, and again our lack of any coherent, active approach to helping people get back into work I suspect has meant that many people who had been in more flexible work due to health conditions have struggled to find similar work since,” he says
Either way, with fewer people active in the labour market vacancy rates have remained high and the economy’s underlying productivity problem remains unaddressed.
And then of course there is the role of Brexit, which has aggravated post-pandemic labour shortages in the UK from the outset principally because of the reduction in migration from the EU.
While non-EU migration into the UK has surged, a large portion are students and high-skilled workers who don’t do the same kinds of jobs that EU migrants did.
So the reasons for the UK’s great workforce retreat (as opposed to retirement) appears to stem from a combination of factors.
The shrinking ratio of workers to retirees is a demographic time bomb lurking at the heart of most advanced economies.
Currently it’s about 20 per cent, meaning there are about five workers to every one retiree, but by 2050 Ireland’s ratio is forecast to shrink to just over two workers to every retiree. In other countries the ratio is forecast to shrink to just one worker per retiree.
How governments plan to pay for the potential explosion in pension and healthcare costs associated with this demographic shift and from a proportionately smaller pot of income tax is one of the biggest economic imponderables.
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