There is no quick fix to the economic inactivity problem

Professor Christina Beatty, Centre for Regional Economic and Social Research, Sheffield Hallam University

Twitter: @CBeatty_CRESR

As I write this blog, the usual round of pre-Budget leaks have been appearing in the newspapers.  By the time this blog is published it is likely we will know the policy details underpinning the rumours.  But the pre-Budget briefings have confirmed what many of us have known for a long time – that the UK labour market has an economic inactivity problem, the Government recognises that there is a problem, and that there is a growing consensus that new policy initiatives are needed to address the issue. 

This blog first appeared as an Editorial for the Institute of Employability Professionals (IEP) Journal. This highlightedthe evidence base on both the longer-term and shorter-term increases in economic inactivity amongst particular groups, especially amongst those with health conditions or disabilities.  These have pointed out that whilst the Labour Force Survey (LFS) indicates that unemployment is at a historical low, employment has still not recovered to pre-pandemic levels with currently a quarter of a million fewer people in employment than before the pandemic.  So how do we square the circle?  The largest intervening factor in this equation is the rise in the number of working age people who are economically inactive – neither in employment or unemployed – currently running at just over half a million people more than before the pandemic.

The government’s response to the issue of stalling employment, high levels of vacancies in particular sectors in the labour market, and a fall in labour market participation is outlined in comments from the Chancellor ahead of the Spring Budget:

“For many people, there are barriers preventing them from moving into work – lack of skills, a disability or health condition, or having been out of the jobs market for an extended period of time…. I want this back-to-work Budget to break down these barriers and help people find jobs that are right for them.”  

However, many commentators from the wider policy, practitioner and academic communities have questioned whether the government really has understood the nature of the economic inactivity problem, the long-term processes and economic geography underpinning it, and the role of employers in what is a demand side as well as a supply side issue.

For example, one mooted Budget policy initiative seeks to stem early retirement amongst the over 50s and increase retention of older workers in the labour market.  It aims to do this by changing the tax rules for annual and lifetime pension contributions.  However, whilst there were 80,000 more early retirees as we emerged from the pandemic in mid-2021 compared to the pre-pandemic period, there are currently 15,000 fewer early retirees than before March 2020[1].  This has led some to point to a misdiagnosis of the issue and that The Great Retirementis ill-conceived and increases in economic inactivity amongst the over 50s are more related to ill health and the health system rather than early retirement per se.  In reality, the largest increase in economic inactivity are for those will long-term health conditions or disabilities – there are currently more than 350,000 in this group compared to the pre-pandemic period (LFS).

Other initiatives likely to be announced in the Budget will hope to make it easier for families with children who receive Universal Credit (UC) to get more help upfront with childcare costs as well as increasing the level of childcare costs covered by UC – primarily aiming to get more women in low-income households with childcare responsibilities back into the workplace.  This is surely a positive initiative?  However, we know that finding suitable and accessible childcare that works around part-time work, irregular hours, school holiday periods, and the usual juggling of work and school drop offs/pick-ups is an issue for many women or lead carers as well as how much it costs.

It has been suggested that this policy change will be coupled with a scrapping of the Administrative Earnings Threshold (AET) for couples.  This would mean more partners of UC claimants with children above a certain age would be expected to meet with a Work Coach more regularly and take active steps to move into work or increase their household earnings[1].  Such a tightening in the conditionality regime would be enforced with a tougher sanctions regime.  Ultimately, compulsion backed up by sanctions translates more as punishment rather than support.

There appear to be relatively limited details of the types of additional support that may be made available to those with long-term health conditions or disabilities.  Whilst some reports suggest the Work Capability Assessment will be scrapped there is limited detail on how this will be operationalised – will those with long-term health issues just be reclassified or hidden within a different part of the benefits system? Will greater conditionality or sanctions then be imposed on the group?  This will not help support this group towards employment it will simply ignore and reclassify the underlying problem.  Research on interventions for this group consistently shows that it needs to be tailored to health as well as employment support and a standard unemployment delivery model will not solve the issue.

A recent special issue of the IEP journal brings together a range of evidence on this very issue.  The articles provide an understanding of the frequent challenges faced by many economically inactive groups and how employment support interventions might be shaped to support transitions back to active labour market participation.  Perspectives are provided by a range of local and regional policy makers, third sector providers, practitioners, academics, and evaluators.  They highlight evidence on interventions supporting various groups of the economically inactive including lone parents; potential second earners in low-income couple households with children; those with long-term health conditions or disabilities; those who may be marginalised in the workforce or live in disadvantaged communities; and employers views on Active Labour Market Policies.

A key message is that a ‘one size fits all’ approach to policy interventions for the economically inactive is unlikely to work.  Instead, interventions need to reflect the different needs, capabilities and aspirations to work amongst sub-groups of the economically inactive population.  Interventions and delivery models need to be tailored to varied local labour market conditions and contexts.  Taking a more supportive rather than punitive approach seems sensible or otherwise participants lose trust or disengage.  The role of the employer is crucial and demand side interventions are needed as well as a supply side model.  It also needs to be remembered that for many people who want to return to work but have health conditions, disabilities, significant caring responsibilities or long periods of time outside active labour market participation that the journey is often incremental over long periods of time and there is no quick fix

A version of this blog first appeared as the Editorial for a Special Issue of the IEP Journal:.

IEP Journal – March 2023

The Institute of Employability Professionals (IEP) is an international member institute that is present in Great Britain, Ireland, Saudi Arabia, the United Arab Emirates, Sweden and Australia. It is the only membership body for employability professionals, the people who support others gain work, progress in work and retain work.

IEP’s purpose is to provide and advance education in the Employability Sector and empower individuals to perform to a professional standard, champion employability as a recognised profession, secure employer recognition and create a network of opportunity for providers and practitioners.

Twitter: @IEPInfo     IEP LinkedIn

[1] Currently this is the case for only those partners in UC households below the AET.

[2] Comparison of LFS data from Dec-Feb 2020 to May-Jul 2020 to Oct-Dec 2022.

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