While the general unemployment rate has been very low across much of the developed world in recent years, this masks a much less positive picture. When you look at those who are economically active, only around 60-65% of the working-age population actually are.

Research from Bayes Business School highlights the tremendous waste of human potential this represents. According to the research, which covers 30 years of labor market data, the U.K. labor market is predicted to suffer due to various factors such as a shortage of active workers, a high number of long-term sick individuals among inactive workers, a decrease in men’s working hours, and a growing gap between jobs and skills.

Increasing productivity

To tackle this issue, the report recommends that the government develop a comprehensive plan to increase productivity, especially in light of the cost-of-living crisis and rising healthcare costs affecting workers’ income. With 2.5 million out of 8.9 million inactive adults aged 16-64 registered as long-term sick and the U.K. population expected to grow by 7% to 72 million by 2040, the report suggests that a workforce strategy aimed at incentivizing workers, resolving pay issues, addressing skills and health inequalities, could make a significant difference.

The report coincides with the Institute for Fiscal Studies (IFS) reporting an increase in the number of 50- to 64-year-olds coming out of retirement, with 5% of economically inactive adults looking to return to the workforce (up from 3.8%). This follows Chancellor Jeremy Hunt’s call for the one million non-students who took early retirement since the pandemic to return to work.

“There is a danger in just looking at a couple of data points. The uptick is welcome but very small and is dwarfed by the increase and number of people that are inactive due to long-term sickness,” the researchers explain.

“Our research is a more reliable commentary on what has been going on in labor markets. Proportionally fewer men are economically active, there is a huge rise in part-time working, while the proportion of people working in manufacturing and manual occupations is very low and continues to fall. Add to this the rise in long-term sickness and I think the U.K. plc needs to be concerned.”

Despite the rate of economic activity being the same as it was in 1992, the removal of the default retirement age has not resulted in a continued increase in the number of older people working beyond the state pension age. The researchers believe this plateauing is a “worrisome trend.”

“While economic inactivity has increased in most countries during the pandemic, the U.K. is one of the few developed economies where it has still not rebounded. The stagnation of the workforce is quite galling. This is despite the removal of the default retirement age and other work-friendly pension reforms in the interim period,” they conclude.

“Policymakers need to come up with a solution to support a rise in productivity. A narrow lens is not the way to uplift what is a dangerous trend towards increased inequalities and economic struggles.”