Job Market Insights: Over 20% of UK Adults Currently Not Looking for Work

More than 20% of working-age adults in the UK are not actively seeking employment, according to recent figures. The economic inactivity rate stood at 21.8% between November and January, slightly higher than the previous year. This means that 9.2 million individuals aged between 16 and 64 in the UK are neither working nor actively seeking employment, a figure more than 700,000 higher than before the COVID-19 pandemic.

Concerns have emerged about worker shortages impacting the UK economy, especially with a general election on the horizon, prompting major political parties to pledge initiatives to boost growth. The UK slipped into recession at the end of the previous year, witnessing economic contraction for two consecutive three-month periods. However, unemployment levels remained steady according to official statistics, while wage rises slowed, although still outpacing inflation.

Despite the economic challenges, the number of individuals not employed or actively seeking work has remained persistently high since the onset of the pandemic. Long-term illness has been identified as the primary reason for about a third of the working-age inactive population not participating in the labor force.

Groups included in the inactive category, as defined by the Office for National Statistics (ONS), encompass students, individuals responsible for family or home, people with disabilities, and early retired or discouraged workers. Although more women have historically been classified as economically inactive compared to men, the gender gap has narrowed over the years, largely due to increased female workforce participation.

Recent ONS figures indicate a decrease in the number of people inactive due to illness in recent months, although the figure remains higher than estimates from a year ago. There has been a rise in economic inactivity among people aged 16 to 34, while the number has decreased among those aged 35 to 64. A report suggests that individuals in their early 20s are more likely to be out of work due to ill health than those in their early 40s, with cases of poor mental health believed to be increasing.

To address workforce shortages, Chancellor Jeremy Hunt has outlined a series of measures in the recent Budget, aimed at encouraging people to find work or increase their working hours. These policies include reducing the starting rate for National Insurance Contributions and extending free childcare services for working parents.

While business groups acknowledge the positive steps, they argue that more needs to be done to address long-term weak economic growth in the UK. Neil Carberry, CEO of the Recruitment and Employment Confederation, suggests that addressing inactivity requires a comprehensive approach, including considerations for childcare, transportation, and NHS waiting lists.

Alexandra Hall-Chen, principal policy adviser for employment at the Institute of Directors, emphasizes that many companies are still struggling to access the skills they need. She calls for a future government to prioritize tackling skills shortages and increasing labor force participation as part of its growth plan.

Chris Bingham, CEO of Greenarc Ltd, urges businesses to focus on understanding how to encourage people into the workforce, especially younger employees. He suggests a bigger emphasis on apprenticeships and workplace engagement, emphasizing the need for a nuanced approach instead of a one-size-fits-all university route.

Work and Pensions Secretary Mel Stride asserts that the UK has a “very healthy” labor market, and the government’s plan is focused on reducing economic inactivity. The Office for Budget Responsibility (OBR) estimates that policies on childcare expansion, welfare reform, and personal tax cuts could increase the UK’s labor supply by over 300,000. However, the OBR also notes that frozen personal tax thresholds could impact work incentives, potentially leading to a more modest increase of around 200,000.

Richard Hughes, chair of the OBR, expresses concern about people being out of the workforce due to health reasons, highlighting its impact on tax contributions and increased reliance on benefits.

Liz Kendall, Labour’s shadow work and pensions secretary, contends that millions of people are “locked out of work” due to long-term sickness during the “Tories’ watch.” She emphasizes Labour’s commitment to cutting NHS waiting lists as part of a plan to get more people into employment.

Alongside economic activity figures, the ONS reports a steady unemployment rate of 3.9% between November and January, slightly higher than economist forecasts. Growth in regular pay, excluding bonuses, has slowed but remains at 6.1%, outpacing inflation by 2%. The ONS also notes 203,000 working days lost due to strike action in January 2024 and a decrease in job vacancies from December to February, although they remain above pre-COVID levels.

Despite the data, the ONS issues warnings about the reliability of its jobs market data, citing a smaller number of respondents in the survey, raising concerns for the Bank of England, which relies on ONS releases to assess the UK economy’s health.