Long-term sickness and inactivity hampers UK job market and economy

The growing number of Britons out of work due to long-term illness appears to have been exacerbated by long waiting times on the NHS and continues to put pressure on the UK job market.

Data released Tuesday from the Office for National Statistics shows that while the unemployment rate remains historically low at 3.6 percent, the level of ‘economic inactivity’ has continued to rise to record highs since the start of the pandemic.

Economic activity — which measures the number of people who are unemployed, not looking for work, and therefore not applying for unemployment benefits — rose to 21.6 percent in the three months to the end of September, the ONS data shows.

There are currently nearly 9 million economically inactive Britons aged 16 to 64, 108,000 more than in the previous quarter and 629,000 since December 2019.

The growth in post-Covid economic activity has reversed a trend seen since records began in 1971, with it generally declining.

CBI data suggests ill health alone is costing the UK economy 131 million working days a year and around £180 billion in GDP.

Modupe Adegbembo, G7 economist at AXA Investment Managers, explained that limited labor supply and increasing inactivity have been “one of the biggest uncertainties in the labor market since the pandemic and that the labor market could remain tight despite the sharp drop in demand.”

Thomas Pugh, economist at RSM UK, added: ‘It will be extremely difficult for economic growth to recover strongly without getting more people into work.’

The increase in inactivity coincided with strong employment numbers, which remained broadly unchanged in the last quarter, as companies continued to advertise job openings.

However, the number of job openings is starting to fall, falling by 46,000 to 1,225,000 over the period.

Who is leaving the workforce? And why?

The trend of increasing inactivity has been largely concentrated within the 50 to 64 age group since the start of the pandemic, but the latest ONS data shows a growing number of younger Britons are leaving the workforce.

According to the ONS, more than 55 percent of the increase in economic inactivity during the pandemic has been driven by those aged 50 to 64, but the increase in the most recent quarter was largely driven by those aged 16 to 24. years and people aged 35 to 49 years.

In the youngest cohort, the increase in inactivity can be partly explained by the transition to education.

The ONS said: “While economic inactivity has increased across all age groups over the past three months, those aged 16 to 24 and those aged 35 to 49 accounted for the increase in inactivity, while those aged 50 to 64 accounted for the least saw growth. increase since July to September 2020.

“The number of inactive people because they are students has also contributed to the increase in economic inactivity over the past three months.

‘While the number of inactive people because they are students has been decreasing since mid-2021, it has been increasing in the last period.’

Similarly, while men have been the most likely to become economically inactive since the start of the pandemic, women accounted for the largest increase over the past quarter. The number of inactive men declined over the period.

Long-term illness has been the main reason for the increase in inactivity since the start of the pandemic, and this trend continued in the most recent quarter.

The ONS said: “During the last three-month period, the number of people who were economically inactive due to long-term illness rose to an all-time high and drove economic inactivity from July to September 2022.”

James Smith, ING’s developed markets economist, said long-term illness appears “disturbingly” to be a “British specific problem”.

He added: ‘There is no single condition causing all of this, although it is difficult to escape the conclusion that rising NHS waiting lists are a contributing factor.

“The workers who have left their jobs due to illness are mainly in lower paid sectors and positions, especially in consumer services.

“That suggests it may well be a contributing factor to the labor shortages we’re seeing in the hospitality industry.”

Data from NHS England shows that the number of people currently waiting for routine hospital treatment has reached its highest level since records began, reaching 7.1 million in September.

The data shows that 401,537 people have been waiting more than 52 weeks to start treatment, up from 387,257 at the end of August.

However, data from Phoenix Insights suggests that ill health may not be the only cause of inactivity, especially among older age groups.

The group’s survey results show that only 16 percent of 50-64 year-olds in the UK cited long-term illness as a reason for leaving the labor market, compared with 26 and 37 percent of the same age group in the US and Germany respectively.

Conversely, the research suggests that financial strength is a major driver of inactivity.

Catherine Foot, director of Phoenix Insights, said: ‘A combination of factors appears to be driving people’s decision to retire. Of those who have left the workforce since 2019, 57 percent of those in their late 50s said they weren’t looking for work because they wanted to retire or take care of their families.

Relatively high levels of home ownership and the perceived financial security this entails also played a role: 71 per cent of economically inactive 50-64 year olds in our UK sample were homeowners, compared to 55 per cent in the US and 34 per cent in Germany .’