## 1. The UK saw a distinctive rise in inactivity, notably among elderly and male workers, ## Source details **Canonical URL:** [1. The UK saw a distinctive rise in inactivity, notably among elderly and male workers,](https://www.imf.org/-/media/files/publications/selected-issues-papers/2023/english/sipea2023051.pdf) ## Other formats - [Markdown version](/-/media/files/publications/selected-issues-papers/2023/english/sipea2023051.pdf.md) - [Structured JSON version](/-/media/files/publications/selected-issues-papers/2023/english/sipea2023051.pdf.json) --- ### Recent trends and key statistics - Between end-2019 and end-2022 about half a million people (0.8 percent of the working age population) became inactive. - The UK still has weaker labor force participation today than before the pandemic (by about 250 thousand workers). - The inactivity spike was more acute among men than women. - Older workers (50–64) experienced the highest growth in inactivity (mostly due to illness and retirement); the youngest cohort (16–24) also saw increased inactivity as many became university students. The middle-aged group (25–49) saw only a slight increase in inactivity. - By end-2022, students from non-EU countries account for approximately 34 percent of the net migration from these countries into the UK; the proportion of those arriving for humanitarian reasons rose to a combined 28 percent by end-2022. - UK inactivity rate reported: - UK, 2022:Dec, 21.4 - UK, 2023:Mar, 21.0 ### Comparative perspective with peers - Between end-2019 and end-2022, inactivity grew twice as much in the UK than in the US, particularly among older workers (50–64). In the US inactivity increases were more concentrated among middle-aged workers (25–49). - Germany: inactivity remained unchanged overall, with a mild decline only among younger workers (15–24). - France: inactivity decreased significantly across all age groups. - Historically the UK’s inactivity rate has been lower than peer countries and remains relatively low in level terms despite the recent rise. ### Drivers of the increase in inactivity - Main self-reported reasons for not returning to work when the economy reopened (summer 2022): retirement (especially among men), illness and worsening health conditions (not only Covid-related), and looking after family members (third main driver for women). - Long-term sickness and disability became the single main driver of lingering inactivity in the UK for 1 in 3 inactive workers (2023Q1). - LFS inactivity by reasons, 2023Q1 (Percent of total inactive population - ages 16-64): - Student 25% - Looking after family 19% - Temp Sick 2% - LT Sick 29% - Discouraged 13% - Retired 12% - Since before the pandemic, among younger and middle-aged cohorts the largest overall increase in people with long-term sickness was due to mental illness (a 24 percent increase) and the second was for progressive illnesses (a 69 percent increase) such as cancer. - Socioeconomic patterns noted: - Over 50 percent of economically inactive 50–65-year-olds lived in poor-income households (most inactive due to sickness). - Inactivity was three times lower in higher-income households (mainly driven by retirement). - Two-thirds of those who left the labor market since the start of the pandemic owned their homes outright and half funded their retirement through a private pension. ### Health system links and indicators - Rising inactivity may reflect pressures on the NHS and social care amid declining health indicators. - Indicators and pressures cited: - Sickness absence rate increased to 2.6 percent in 2022, up 0.7 percentage points from its pre-pandemic 2019 level, reaching its highest point since 2004. Sickness absence was more prevalent among women, public sector workers and part-time employees. - General Practitioners’ workloads have increased by 18 percent since 2019; the full-time-equivalent (FTE) workforce has fallen by nearly 700, with each FTE GP now caring on average for an extra 120 patients. - Number of hospital beds per 1000 people: Germany 7.8; France 5.7; UK 2.8. - British Medical Association reported median waiting time for treatment of 13.8 weeks in April 2023, compared with a pre-COVID median of 7.2 weeks in April 2019. - Around 40 percent of premature mortality in the UK is caused by preventable cardiovascular disease, diabetes, cancer, and chronic obstructive pulmonary disease. - Structural health spending and capacity: - Health already absorbs 38 percent of government spending. - The UK still spends less on health care than France and Germany as a share of GDP; the gap is especially large in capital spending, with the UK at the bottom of the OECD in terms of health investment per person. ### Potential macroeconomic and fiscal consequences - If inactivity became structural it could reduce labor supply and affect medium-term growth; even if productivity grew twice as fast as in the pre-pandemic decade, medium-term potential output would mechanically be lower than otherwise. - Additional consequences: - Exacerbates labor market tightness, pushing up wages and inflation. - Complicates fiscal challenges associated with aging (pensions, health and social care spending). - Prevents parts of the population from reaching their potential, exacerbating income disparities. ### Policy measures and recommended remedies - Improving healthcare - The 2022 Autumn Statement included additional budgetary allocations (about 0.3 percent of GDP per year) until 2025 for the health and social care systems. - The 2023 Spring Budget introduced initiatives to remove barriers for those inactive due to long-term sickness: a Universal Support program to match people with disabilities and long-term sickness with jobs and provide support and training; tailored employment support in mental health and musculoskeletal health services; and expanding access to digital resources and health checks. - More funding and structural reforms may be needed soon; the NHS signaled the need for additional funding to meet expenditure pressures through up to 2025. - Structural suggestions: rebalance composition of spending toward primary care, prevention and public health; focus hospital funding on health-outcomes and innovation rather than top-down activity metrics; address shortages of doctors and nurses via better working conditions and higher pay to recover the decade-long decline in real pay. - New incentives for occupational health - Employer investment in health and wellbeing can reduce ill-health related job loss, sickness absence, presenteeism and improve productivity, but SMEs face barriers (lack of expertise, time constraints, cost). - Joint departmental work shows financial support plus supplementary advice could increase uptake of occupational health initiatives by SMEs and potentially reduce sick absences and/or inactivity due to long-term sickness. - The 2023 Spring Budget announced an expansion of the SME occupational health subsidy pilot scheme; staff recommend building on this and other evidence-based initiatives to help firms invest in workforce health. ### Returning retirees vs. other inactive groups — findings - Among those out of work for less than three months, about 22 percent of those with long-term sickness flow back to employment each quarter. - Among retirees aged 50–64, only 6 percent flow back to employment each quarter. - The chance of a retiree aged 50–64 returning to work declines with time out of work: those who left between two and three years ago are three times lower likely to return than those who left work less than three months ago. - Independent research shows people inactive due to long-term sickness or disability are consistently more likely to return to employment than early retirees. ### Policy focus: keeping older workers in the labor market - Matching Sweden’s older workers’ participation rate would add about 1 million workers to the UK labor market, enough to compensate by itself the loss from the post-pandemic inactivity spike. - Recent UK measures to attract older workers: - Spring budget: targeted pension tax reform to remove disincentives to work more hours. - New program of “returnships” for elder workers. - Other policy options to consider: - (i) Increasing the State Pension retirement age from 66 to 68 earlier than planned to retain older and experienced workers. - (ii) Deepening employment support tailored to the needs of older people and to sectors more likely to hire older workers. - (iii) Expanding the network of work advisers specifically trained to deal with the full range of older jobseekers, including those from managerial or professional backgrounds. ### Strengthening female labor participation — findings - Female labor force participation in the UK has increased in the past two decades by 6 percentage points and is higher than G7 peers, but still below the Nordic countries. - Increasing female labor participation rates to the levels of Denmark could add about another million female workers to the UK’s labor force. - Participation gap for ages 25–34: 93 percent for men vs 81 percent for women. - Sizable differences exist in labor force participation between prime-aged women with and without children. ### Childcare policies — recent actions and potential complements - Childcare cost rose by 60 per cent in cash terms between 2010 and 2021—twice as fast as average earnings. - Spring budget childcare expansions: - Provide 30 hours a week of free childcare for 38 weeks a year for eligible working parents of children aged 9 months to 3 years, rolled out gradually over the next three years. - This addition complements the existing 30 hours a week for eligible working parents of 3 to 4-year-olds. - Government to uplift hourly funding rate to providers and launch a scheme to support expansion of school-based childcare provision. - Support for childcare costs in Universal Credit to be made available upfront and the maximum potential benefit for parents is expected to increase. - Other complementary measures to consider: - Increasing the hours per day when childcare is available and adding free part-time childcare options for parents with longer schedules. - Expanding social care infrastructure to support those who care for the elderly and disabled. - Investing in tailored retraining programs for caregivers (who are mostly women) to aid return to work after long inactivity spells. ### Addressing skills shortages — findings - Percentage of businesses experiencing a shortage of workers since end-2021 has ranged between 13 and 17 percent. - Last year 80 percent of small businesses declared difficulties recruiting applicants with suitable skills. - Industries with highest shortages: accommodation, food services, and construction. - Contributing factors cited: faster-than-expected post-pandemic labor demand growth; recruitment difficulties in low-wage industries due to unattractive pay or working conditions; and the end of free movement linked to Brexit, which independent research indicates appears “to have exacerbated these existing problems employers have faced.” ### Skills and immigration policy recommendations - Enhance retraining programs and encourage more open immigration arrangements to address labor and skills shortages. - Possible immigration system refinements: - Increase the frequency of revisiting lists of shortage occupations to better respond to specific sectoral requests. - Domestic policy measures: - Retrain domestic workers through reskilling programs introduced during the pandemic to alleviate shortages. - Expected macro benefits: - These measures would unlock economic growth and tax revenues for public services and infrastructure. - A well-designed immigration system can enhance labor market flexibility and help alleviate inflationary pressures. ### Enhancing labor productivity — findings - Long-term GDP growth relies on productivity growth (total factor productivity or labor productivity). - UK average annual productivity growth between 2009 and 2019 was 0.7 percent, between 0.2 and 0.4 weaker than in the US, France, or Germany. - During the pandemic the UK slightly reduced annual average hours worked and increased productivity slightly, but not enough to catch up with those three peers. ### Productivity and skills policy recommendations - Recent initiatives to improve education and reskill the workforce: - 2021 Spending Review: use of the UK Shared Prosperity Fund to improve education and skills in struggling regions with focus on adult numeracy; Lifetime Skills Guarantee for access to education and training throughout lives; free courses at upper secondary level in economically valuable areas; skills bootcamps linked to job vacancies. - 2022 Autumn Statement and 2023 Spring budget: confirmed funding for traineeships and apprenticeships, expanded Youth Offer and work coach support, and introduced the “Supported Internships Pilot”. - Additional measures to consider: - Introduce a national work-study apprenticeship system (similar to Germany) to connect students with private firms and reduce young inactivity and ease first transitions into the labor market. - Provide additional funding for on-the-job training. - Ensure consistency over time: identify most successful programs and concentrate resources to grow them faster over the medium term. *Source: https://www.imf.org/-/media/files/publications/selected-issues-papers/2023/english/sipea2023051.pdf* ### 1. The UK saw a distinctive rise in inactivity, notably among elderly and male workers, ### 1. The UK saw a distinctive rise in inactivity, notably among elderly and male workers, ### Recent trends and key statistics - Between end-2019 and end-2022 about half a million people (0.8 percent of the working age population) became inactive. - The UK still has weaker labor force participation today than before the pandemic (by about 250 thousand workers). - The inactivity spike was more acute among men than women. - Older workers (50–64) experienced the highest growth in inactivity (mostly due to illness and retirement); the youngest cohort (16–24) also saw increased inactivity as many became university students. The middle-aged group (25–49) saw only a slight increase in inactivity. - By end-2022, students from non-EU countries account for approximately 34 percent of the net migration from these countries into the UK; the proportion of those arriving for humanitarian reasons rose to a combined 28 percent by end-2022. - UK inactivity rate reported: UK, 2022:Dec, 21.4; UK, 2023:Mar, 21.0. ### Comparative perspective with peers - Between end-2019 and end-2022, inactivity grew twice as much in the UK than in the US, particularly among older workers (50–64). In the US inactivity increases were more concentrated among middle-aged workers (25–49). - Germany: inactivity remained unchanged overall, with a mild decline only among younger workers (15–24). - France: inactivity decreased significantly across all age groups. - Historically the UK’s inactivity rate has been lower than peer countries and remains relatively low in level terms despite the recent rise. ### Drivers of the increase in inactivity - Main self-reported reasons for not returning to work when the economy reopened (summer 2022): retirement (especially among men), illness and worsening health conditions (not only Covid-related), and looking after family members (third main driver for women). - Long-term sickness and disability became the single main driver of lingering inactivity in the UK for 1 in 3 inactive workers (2023Q1). - LFS inactivity by reasons, 2023Q1 (Percent of total inactive population - ages 16-64): - Student 25% - Looking after family 19% - Temp Sick 2% - LT Sick 29% - Discouraged 13% - Retired 12% - Since before the pandemic, among younger and middle-aged cohorts the largest overall increase in people with long-term sickness was due to mental illness (a 24 percent increase) and the second was for progressive illnesses (a 69 percent increase) such as cancer. - Socioeconomic patterns noted: over 50 percent of economically inactive 50–65-year-olds lived in poor-income households (most inactive due to sickness); inactivity was three times lower in higher-income households (mainly driven by retirement). Two-thirds of those who left the labor market since the start of the pandemic owned their homes outright and half funded their retirement through a private pension. ### Health system links and indicators - Rising inactivity may reflect pressures on the NHS and social care amid declining health indicators. - Indicators and pressures cited: - Sickness absence rate increased to 2.6 percent in 2022, up 0.7 percentage points from its pre-pandemic 2019 level, reaching its highest point since 2004. Sickness absence was more prevalent among women, public sector workers and part-time employees. - General Practitioners’ workloads have increased by 18 percent since 2019; the full-time-equivalent (FTE) workforce has fallen by nearly 700, with each FTE GP now caring on average for an extra 120 patients. - Number of hospital beds per 1000 people: Germany 7.8; France 5.7; UK 2.8. - British Medical Association reported median waiting time for treatment of 13.8 weeks in April 2023, compared with a pre-COVID median of 7.2 weeks in April 2019. - Around 40 percent of premature mortality in the UK is caused by preventable cardiovascular disease, diabetes, cancer, and chronic obstructive pulmonary disease. - Structural health spending and capacity: - Health already absorbs 38 percent of government spending. - The UK still spends less on health care than France and Germany as a share of GDP; the gap is especially large in capital spending, with the UK at the bottom of the OECD in terms of health investment per person. ### Potential macroeconomic and fiscal consequences - If inactivity became structural it could reduce labor supply and affect medium-term growth; even if productivity grew twice as fast as in the pre-pandemic decade, medium-term potential output would mechanically be lower than otherwise. - Additional consequences: - Exacerbates labor market tightness, pushing up wages and inflation. - Complicates fiscal challenges associated with aging (pensions, health and social care spending). - Prevents parts of the population from reaching their potential, exacerbating income disparities. ### Policy measures and recommended remedies - Improving healthcare - The 2022 Autumn Statement included additional budgetary allocations (about 0.3 percent of GDP per year) until 2025 for the health and social care systems. - The 2023 Spring Budget introduced initiatives to remove barriers for those inactive due to long-term sickness: a Universal Support program to match people with disabilities and long-term sickness with jobs and provide support and training; tailored employment support in mental health and musculoskeletal health services; and expanding access to digital resources and health checks. - More funding and structural reforms may be needed soon; the NHS signaled the need for additional funding to meet expenditure pressures through up to 2025. - Structural suggestions: rebalance composition of spending toward primary care, prevention and public health; focus hospital funding on health-outcomes and innovation rather than top-down activity metrics; address shortages of doctors and nurses via better working conditions and higher pay to recover the decade-long decline in real pay. - New incentives for occupational health - Employer investment in health and wellbeing can reduce ill-health related job loss, sickness absence, presenteeism and improve productivity, but SMEs face barriers (lack of expertise, time constraints, cost). - Joint departmental work shows financial support plus supplementary advice could increase uptake of occupational health initiatives by SMEs and potentially reduce sick absences and/or inactivity due to long-term sickness. - The 2023 Spring Budget announced an expansion of the SME occupational health subsidy pilot scheme; staff recommend building on this and other evidence-based initiatives to help firms invest in workforce health. *Prepared by Gloria Li and Carlos Mulas Granados (both EUR).* ### 14. While a significant part of the post-pandemic inactivity spike was due to retirement, ### 14. While a significant part of the post-pandemic inactivity spike was due to retirement, bringing back retirees into the labor market is particularly challenging. ### Returning retirees vs. other inactive groups — findings - Among those out of work for less than three months, about 22 percent of those with long-term sickness flow back to employment each quarter. - Among retirees aged 50–64, only 6 percent flow back to employment each quarter. - The chance of a retiree aged 50–64 returning to work declines with time out of work: those who left between two and three years ago are three times lower likely to return than those who left work less than three months ago. - Independent research shows people inactive due to long-term sickness or disability are consistently more likely to return to employment than early retirees. ### Policy focus: keeping older workers in the labor market - Matching Sweden’s older workers’ participation rate would add about 1 million workers to the UK labor market, enough to compensate by itself the loss from the post-pandemic inactivity spike. - Recent UK measures to attract older workers: - Spring budget: targeted pension tax reform to remove disincentives to work more hours. - New program of “returnships” for elder workers. - Other policy options to consider: - (i) Increasing the State Pension retirement age from 66 to 68 earlier than planned to retain older and experienced workers. - (ii) Deepening employment support tailored to the needs of older people and to sectors more likely to hire older workers. - (iii) Expanding the network of work advisers specifically trained to deal with the full range of older jobseekers, including those from managerial or professional backgrounds. ### Strengthening female labor participation — findings - Female labor force participation in the UK has increased in the past two decades by 6 percentage points and is higher than G7 peers, but still below the Nordic countries. - Increasing female labor participation rates to the levels of Denmark could add about another million female workers to the UK’s labor force. - Participation gap for ages 25–34: 93 percent for men vs 81 percent for women. - Sizable differences exist in labor force participation between prime-aged women with and without children. ### Childcare policies — recent actions and potential complements - Childcare cost rose by 60 per cent in cash terms between 2010 and 2021—twice as fast as average earnings. - Spring budget childcare expansions: - Provide 30 hours a week of free childcare for 38 weeks a year for eligible working parents of children aged 9 months to 3 years, rolled out gradually over the next three years. - This addition complements the existing 30 hours a week for eligible working parents of 3 to 4-year-olds. - Government to uplift hourly funding rate to providers and launch a scheme to support expansion of school-based childcare provision. - Support for childcare costs in Universal Credit to be made available upfront and the maximum potential benefit for parents is expected to increase. - Other complementary measures to consider: - Increasing the hours per day when childcare is available and adding free part-time childcare options for parents with longer schedules. - Expanding social care infrastructure to support those who care for the elderly and disabled. - Investing in tailored retraining programs for caregivers (who are mostly women) to aid return to work after long inactivity spells. ### Addressing skills shortages — findings - Percentage of businesses experiencing a shortage of workers since end-2021 has ranged between 13 and 17 percent. - Last year 80 percent of small businesses declared difficulties recruiting applicants with suitable skills. - Industries with highest shortages: accommodation, food services, and construction. - Contributing factors cited: faster-than-expected post-pandemic labor demand growth; recruitment difficulties in low-wage industries due to unattractive pay or working conditions; and the end of free movement linked to Brexit, which independent research indicates appears “to have exacerbated these existing problems employers have faced.” ### Skills and immigration policy recommendations - Enhance retraining programs and encourage more open immigration arrangements to address labor and skills shortages. - Possible immigration system refinements: - Increase the frequency of revisiting lists of shortage occupations to better respond to specific sectoral requests. - Domestic policy measures: - Retrain domestic workers through reskilling programs introduced during the pandemic to alleviate shortages. - Expected macro benefits: - These measures would unlock economic growth and tax revenues for public services and infrastructure. - A well-designed immigration system can enhance labor market flexibility and help alleviate inflationary pressures. ### Enhancing labor productivity — findings - Long-term GDP growth relies on productivity growth (total factor productivity or labor productivity). - UK average annual productivity growth between 2009 and 2019 was 0.7 percent, between 0.2 and 0.4 weaker than in the US, France, or Germany. - During the pandemic the UK slightly reduced annual average hours worked and increased productivity slightly, but not enough to catch up with those three peers. ### Productivity and skills policy recommendations - Recent initiatives to improve education and reskill the workforce: - 2021 Spending Review: use of the UK Shared Prosperity Fund to improve education and skills in struggling regions with focus on adult numeracy; Lifetime Skills Guarantee for access to education and training throughout lives; free courses at upper secondary level in economically valuable areas; skills bootcamps linked to job vacancies. - 2022 Autumn Statement and 2023 Spring budget: confirmed funding for traineeships and apprenticeships, expanded Youth Offer and work coach support, and introduced the “Supported Internships Pilot”. - Additional measures to consider: - Introduce a national work-study apprenticeship system (similar to Germany) to connect students with private firms and reduce young inactivity and ease first transitions into the labor market. - Provide additional funding for on-the-job training. - Ensure consistency over time: identify most successful programs and concentrate resources to grow them faster over the medium term. *Source: https://www.imf.org/-/media/files/publications/selected-issues-papers/2023/english/sipea2023051.pdf* --- _Source: https://www.imf.org/-/media/files/publications/selected-issues-papers/2023/english/sipea2023051.pdf_