Gerard Lyons: What can be done to get half a million people – and more – back

Dr Gerard Lyons is a Senior Fellow at Policy Exchange. He was Boris Johnson’s chief economic adviser during his second term as Mayor of London.

Last Friday was an important day for financial markets and for gauging the strength of the global economy. It was announced that the US economy added 517,000 jobs in January. The increase in non-farm payrolls beat market expectations of 185,000, suggesting the US economy may be healthier than many believe. This has raised the possibility that the US is headed for a soft landing where tighter monetary policy reduces inflation while the job market remains strong.

What is the UK job market? Despite all the pessimistic talk, could the same thing happen here? Inflation is 10.5 percent and is expected to decline significantly Meanwhile, the unemployment rate was down at 3.7 percent, up slightly from 3.5 percent a few months ago, the lowest rate since 1973.

Last week, the Bank of England forecast that UK unemployment would rise to 5.2 percent by 2025, although just three months ago they expected it to rise to 6.5 percent. Their latest forecast may yet prove too pessimistic. The job market has proven remarkably resilient.

Indeed, in the wake of the pandemic, forecasters expected a large increase in unemployment and permanent scars. This did not happen, aided by policy measures and firms stockpiling workers, perhaps due to difficulties in rehiring skilled or experienced workers and perhaps retaining them as firms anticipated a post-pandemic recovery in demand.

However, employment has fallen since pre-pandemic, with employment down 292,000 compared to February 2020. Nevertheless, employment numbers are still impressive. Employment fell from 33 million to 32.7 million. This was fully explained by a 777,000 drop in self-employment to 4.2 million. Meanwhile, the number of payroll jobs rose by 529,000 to 28.3 million.

As in other countries, labor data not only provide a great insight into current economic activity, but also provide an insight into underlying structural problems. So much attention is now focused on the number of people who are registered as economically inactive – those who are not in employment or unemployed because they are not looking for work.

This has now fueled concerns – raising concerns that the labor market is too tight and companies may not be able to fill posts with suitable people. One in eight firms are reporting staff shortages. It expressed concern that the shortfall would put upward pressure on wages, driving up inflation. Moreover, it raises concerns about future impacts as the country has an aging population.

The latest data shows the UK population reaching 67 million by mid-2021. The state pension age (SPA) is 66 for men and women and, although you can continue to work after reaching SPA, one of the current challenges is that the pandemic has led some below SPA to either return to the workforce or not. .

There are three important current trends in demographic data: declining fertility rates, increasing longevity, and increased net migration.

According to the Office for National Statistics (ONS), “The total fertility rate is the lowest since records began in 1938. In 2020, women had an average of 1.6 children.” Meanwhile, deaths outnumbered births in 2020 for the first time since 1976, but this has increased due to natural population changes as people live longer. In 2020, life expectancy was 79 years for men and 82.9 years for women (although those born in 2020 can expect to live an average of 87.3 years for men and 90.2 years for women).

This creates a challenge. The old-age dependency ratio – which shows the number of people above the SPA for every 1,000 working people between 16 and the SPA – was 280 in 2020 and is likely to rise to 352 by 2041.

As the ONS notes, “immigration has been the main driver of population growth in the UK since the 1990s”. Since our departure from the EU, immigration has increased, but there are concerns about whether we are attracting them with the skills needed. It is important to note that, given the epidemic, this is a common problem in other countries as well. However, it does highlight the need for further investment in skills and vocational training as well as raising overall educational attainment.

Problems are most acute in housing and food service and construction. The tight labor supply has led the British Chamber of Commerce (BCC) to call for action, “supporting greater business investment in training workers, adopting flexible working practices, expanding the use of apprenticeships, and a comprehensive reform of the shortage occupation list to allow. Faces an urgent need for skills to get what is needed.”

What about being economically inactive? The number of working people above 16 years is 53.9 million. Of these, 34.0 are economically active, 32.8 million are in the workforce and 1.2 million are unemployed. That leaves 19.9 million who are not in the workforce and are pensioners or people aged 16 to 64 who are economically inactive. This latter group has recently attracted attention.

Vacancies are at 1.1 million and, while they are down about 75,000 from their peak, they are historically high. Adding employment and vacancy numbers together suggests that labor demand is higher than pre-pandemic, but the challenge is that labor supply has tightened since pre-pandemic. Thus, putting more of the idle back to work will help the economy.

In the UK, there are 8.9 million people between the ages of 16 and 64 who are economically inactive. Contrary to popular belief, it was often higher than this pre-pandemic. In fact, it peaked at 9.5 million between May and July 2011 and is the highest since records began in May 1992, when it was 8.4 million.

Currently, 2.4 million people, or one in four economically inactive people, have a long-term illness. That’s 300,000 more than pre-pandemic – although the number was already over 2.1 million in the three months before the pandemic. The next highest categories are now students (2.2 million), those looking after a home or family including carers (1.7 million), those aged 16-64 who are already retired (1.1 million) and terminally ill (202,000).

If we compare the three months immediately preceding the pandemic with the last three months, the number of economically inactive increased by 514,000. This number is often cited, leading to calls for policy action. The number of people suffering from a long-term illness rose by 318,000 and the other big increase was the number of students who rose by 173,000. The following numbers of retired SPAs are up to 19,000.

What can be done to get more of this inactive group back to work? The challenge is that, because the levels have been so high throughout this century, it’s not clear that there are easy solutions.

A focus policy has been ensured in recent years to be more effective in helping people move from benefits to work Another important issue is improving childcare provision and effectiveness. Perhaps we should also focus more on adopting foreign best practices, such as Japan’s Society 5.0 which uses technology as opposed to labor in many areas to help its aging population. The Chancellor, too, is right to focus on using incentives to encourage those who can work to stay in the workforce and this should feature prominently in the March Budget.