- Jonathan Cribb, associate director
- Institute for Fiscal Studies, London
Two concerning economic and social trends in the UK emerging from the covid-19 pandemic are the fall in employment of people aged 50 and over and the increase in sickness levels in the population. The drop in employment has not been caused by rising unemployment (when people are generally searching for work), but rather by rising “economic inactivity” (when they generally are not).1 These declines have not occurred in most industrialised nations with a notable exception of the US.23 A natural conclusion might be that the two trends are related. But a closer look at the data implies that—in 2020-21 at least—these issues have been quite distinct.
In Autumn 2022, almost 27% of people aged 50-64 were economically inactive compared with less than 25% just before the pandemic. This might not sound like much, but it is striking considering the near continuous declines in inactivity seen in this age group since the early 2000s.4 This decline has been partly driven by of the rise in state pension age for women (and more recently men).5
At the same time, the percentage of people aged 50-64 who say they are out of the labour force owing to ill health is increasing substantially.4 Other metrics also point to increasing poor health. The proportion of the population saying that they have a health condition that limits their daily activity has been rising since 2017 and has risen sharply since early 2019.6 The number of people applying for and receiving disability benefits has jumped.6 So too has the number of people on NHS waiting lists.7 All these trends are concerning. But, at least so far, they do not seem to have driven an uptick in economic inactivity.
Instead, there seem to be two distinct issues.48 First, people in their 50s and 60s have increasingly moved out of paid work and into retirement. The fact that the generation currently at or approaching state pension age have more wealth than any generation before them and high rates of homeownership is likely to have facilitated this.910 Second, worsening health—on a number of metrics—means that more people of these ages are now reporting themselves as being out of work for health reasons. But three quarters of the increase in health related inactivity is among people who had already been out of work for at least five years (because, for example, they were unemployed, looking after family, or even retired). This means that generally the increases in long term sickness have not been driving up economic inactivity since the pandemic.1
To what extent could this story, of two distinct trends, change in the coming months and years? It will likely evolve, bringing the issues closer together. Some of the rises in economic inactivity happened almost immediately when the pandemic struck. Other people lost their jobs when the furlough scheme was made less generous and never looked for another one. There were other big spikes in retirement as we emerged from the pandemic and the furlough scheme was ended completely.
Worsening health in people in their 50s and 60s is known to be one of the key reasons for falling employment rates as people age.11 Unhealthier people might leave work earlier, and are unlikely to return to work, pushing inactivity rates up further (though other factors might act to limit such a rise).
Either way, for a government wanting to tackle rising economic inactivity, which depresses tax revenues and worsens labour shortages, there are unlikely to be easy levers to pull. Encouraging retired people or those out of work for health reasons back into work, particularly full time work, is notoriously difficult. But the cost of living crisis could encourage some of those further from pension age back to work if they find their standard of living sufficiently eroded. A longer term worry for policy makers is that these trends will conflict with the government’s desire to extend working lives as a response to demographic and ageing pressures on the public finances.
Conflict of interest statement: JC is an associate director at the Institute for Fiscal Studies. This article draws on research at IFS funded by the Economic and Social Research Council. He has received research grants for research in this area in recent years from the Centre for Ageing Better, Nuffield Foundation, and the Joseph Rowtree Foundation. In each case, research was circulated to the funders for comments before wider circulation. However, ultimate editorial control was retained by the authors.
Provenance and peer review: Commissioned; not externally peer reviewed.