“We must get Britain working again,” the UK’s new chancellor Kwasi Kwarteng said last week. He is right. It would help the country’s inflation problem and its growth problem if more people joined the labour market. Yet inactivity — the term economists give to people who are neither working nor looking for work — is on the rise.
It’s worth dwelling for a moment on how new this is for Britain’s labour market. In the decade after the financial crisis of 2009, the UK became a more industrious place. The proportion of 16 to 64-year-olds who were inactive fell from about 23 per cent in 2009 to 20 per cent by 2019, the lowest since records began in 1971. Older people retired later and more women joined the workforce. The employment rate for mothers in couples rose over 5 percentage points between 2008 and 2019. It also became more common for single parents to work when their children were young, partly because of changes to welfare rules.
This growth in the size of the labour force was partly about benefit rules and changing social norms. But it was also about money. The UK was going through a lost decade for real wage growth that left people poorer than they had expected to be. As the Resolution Foundation think-tank put it in a report on these trends in 2019: “feel poor, work more.”
Now inactivity has climbed back up to 21.7 per cent. Of the 640,000 or so working-age people who have become inactive since the start of the pandemic, 55 per cent of them say they are long-term sick (the other big group are students, which is less of a worry).
But having identified the right problem, Kwarteng announced two policies last week that do not even attempt to tackle it. The first is to require people who receive universal credit while working up to 15 hours a week on minimum wage to “take active steps” to increase their earnings or face having their benefits cut. This is an expansion from the current threshold of 12 hours and will affect an extra 120,000 workers.
The idea that you can chivvy people into switching jobs or asking their employers for more hours or more money isn’t completely without evidence, but it’s a lot of effort for not much impact. The government’s trials of the policy found that people subject to this intervention earned about £5 more per week after a year than those people who were given minimal support.
More fundamentally, you don’t address a problem with worklessness by telling 0.4 per cent of the people who are working to work slightly longer hours. The share of workers who are part-time is lower than it was pre-pandemic already, while the share who are full-time is higher.
Kwarteng’s other policy was to give more job-hunting support to people on unemployment benefit who are over 50. Again, this is strangely off-target. The unemployment rate for 50 to 64-year-olds is just 2.6 per cent, the lowest on record.
The inactivity rate for this age group is 27.7 per cent — and it’s the people in this latter group we need to worry about. They aren’t looking for jobs and many of them are not claiming any benefits at all. The government is applying its policy lever to a group that is small and shrinking, rather than to the group that is large and growing.
So what would work? The underlying problem, it seems to me, is that Britain is worn out after a tough decade. Public infrastructure is worn out; social infrastructure is worn out; people are worn out. Compared with the over-60s, those leaving the labour market in their 50s since the pandemic were less likely to leave work for retirement reasons and more likely to cite stress or mental health, according to the Office for National Statistics.
Properly funding the NHS and social care would lift barriers to growth, by allowing people to get the care they need so they can work. The same goes for addressing the UK’s expensive and inflexible childcare provision. People in their 50s and 60s, as well as increasingly suffering from ill health themselves, are often now called upon to help care for grandchildren and ageing parents as well.
Britain would also benefit from a modern public employment service which is open to people who aren’t on benefits, something which is common in other countries in Europe.
Kwarteng is right to focus on the labour market if he wants to boost growth. But last week’s policies were small solutions to problems that don’t exist, rather than big solutions to the problems that do.
sarah.oconnor@ft.com
Source: Economy - ft.com
