January 26, 2022

Although the UK economy is emerging from the pandemic with low levels of unemployment, the labour market looks very different. The labour force has shrunk by 529,000 (1.5%) since the start of 2020. Workers at opposite ends of the age spectrum are those who have most likely withdrawn. Some of the fall is likely associated with workers returning to the EU.

Some of the associated rise in inactivity is explained by more of those aged 18-24 entering or staying on in further education. Very little of the increase (44,000) is accounted for by retirement. Worryingly 201,000 more people are inactive because of long-term sickness. This may reflect ‘long Covid’ or other ailments that have not been suitably addressed over the past two years. There are fewer people out of the workforce looking after their families/home. And little change in the numbers not participating because they are discouraged or have short-term illness.

Whatever the reasons, this represents a major supply-side shock to the productive capacity of the economy and the ability of firms to operate as they wish. And the loss of older workers removes experience and knowledge from the workforce. Higher wages may bring some people back – a large chunk of the rise in inactivity reflects “other” non-specific reasons not identified above. But the biggest block to getting people back into the labour force may be that 524,000 more inactive people than before the crisis state in the Labour Force Survey that they are not interested in getting a job.

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