Government efforts to boost Britain’s workforce should focus on supporting more mothers into work, and helping older workers and those with a disability stay in work, rather than persuading the large Covid cohort of older workers to ‘unretire’, according to new Resolution Foundation research published.
The issue of workforce participation has come to a head following a sharp rise in economic inactivity over the course of the pandemic – up by 830,000 between 2019 and 2022, with three quarters of the rise concentrated among those aged 50 and over.
This has prompted calls to action, with the Government’s response likely to form a major part of the upcoming Budget. The authors say that attention on this issue is welcome but warn that a policy focus on trying to persuade this recent ‘Covid cohort’ of lost workers back into the labour market is unlikely to work.
The report finds that increased labour market exits during the pandemic were disproportionately from higher-than-normal retirements among higher-paid professionals, with flows from employment into retirement from many low-paying occupations actually falling. It will be hard to persuade these people, two-thirds of whom own their own home outright and therefore have low living costs, to ‘unretire’ says the authors.
The Foundation adds that someone who took early retirement during the summer of 2020 has now been economically inactive for two-and-a-half years. Historically, just 1-in-50 people in this situation return to work every three months.
Using the benefit system – to target more support, or increase the pressure to work – is unlikely to work either, as just one-in-ten of the economically inactive 55-59 year olds who have left employment since the start of the pandemic are relying on benefit support in the first place.
Policy makers should instead look ahead and focus on three groups – older workers, mothers and those with ill-health or a disability – where the UK’s past experience tells us progress can be made.
In the decade running up to the pandemic, the UK saw employment rates rise by 13 percentage points for women aged 55-64 (and four percentage points for men) and by five percentage points for coupled mothers, while the employment gap between those with or without a disability fell by five percentage points between 2013 and 2022.
First, demographic changes mean that there will be many more older age workers in Britain in the 2020s – the number of people aged 65 and over will rise by 2.5 million between 2020 and 2030.
The Foundation warns against a narrow focus on simply raising the State Pension Age, which disproportionately impacts those on lower incomes and poor places with lower life expectancies. If the Government wants to discourage early retirement – having previously encouraged it for richer people with ‘pension freedoms’ – it could accelerate the rise in the minimum age at which people can draw their private pension, which is currently due to rise from 55 to 57 but to remain 10 years lower than the state pension age.
Second, the UK must address its maternal employment gap, where participation rates among low-income women aged 25-54 were just 50 per cent in 2017-2019, compared to 94 per cent among high-income women of the same age.
The Foundation warns that policy makers need to be clear what their objectives are when it comes to new childcare policies. Popular proposals to extend the number of ‘free’ childcare hours will largely boost the incomes of already-working parents in middle-and-high income households, rather than boost employment among lower income households. To achieve the latter, the government should reform childcare support and work incentives for second earners in Universal Credit.
Third, the report notes that a growing share of the population lives with a disability or ill-health. As well as a wider policy agenda to tackle the underlying causes of this trend, including rising mental ill-health, policy makers can do far more to help those affected stay in employment.
The Government should build on the success of statutory maternity leave in boosting maternal employment, and create a new ‘right-to-return’ so that workers who need take some time off work for ill-health remain attached to their employer and job. The Foundation also warns that proposals from both main parties to reform disability benefits to ease the path back into work are well intentioned, but either relatively minor or fraught with implementation challenges.
Without further progress on these three areas, the authors warn that the economic inactivity rate for 15-75 year olds is set to rise from 29.5 per cent up to 30.8 per cent by 2030, the highest rate since the turn of the century (2001).
Louise Murphy, Economist at the Resolution Foundation, said:
“Britain did a great job of getting more people into work in the 2010s. But some of that progress has been undone by the pandemic, with economic inactivity rising by 830,000 over the past three years.
“We need to reboot progress on getting people into work, but we’re not going to achieve it by persuading the recent Covid cohort of older workers to ‘unretire’.
“Instead, we need to do more to encourage mothers in low-income families into work, and help people who need to take periods of time-off for ill-health stay attached to their jobs.
“Taking the right approach to workforce participation would boost individuals’ living standards, and improve the wider health of our economy.”
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