An exodus of rich professionals from jobs is driving Britain’s crisis of low participation in the labor market, according to new research that lays bare the challenge of plugging widespread worker shortages.
The Resolution Foundation found that a jump in people taking early retirement disproportionately comes from highly-paid workers over age 50, making it more difficult to persuade the group to return to work.
The figures underscore the task Prime Minister Rishi Sunak’s government faces in finding enough workers to power the economy. Ministers are looking at ways to push people back into jobs, but the nation remains one of the few to suffer a drop in its labor force since the pandemic struck.
“We need to reboot progress on getting people into work, but we’re not going to achieve it by persuading the recent Covid cohort of older workers to ‘unretire’,” said Louise Murphy, economist at the Resolution Foundation.
The Resolution Foundation expects economic inactivity for adults aged 15 to 75 — those not seeking work or in a job — to rise from 29.5% to 30.8% by 2030 without action. That would be the highest rate for more than 20 years.
Two-thirds of the older professionals that left the labor market own their house outright, making it harder to persuade them to take up a job, it said. In contrast, the foundation said that in lower paid occupations, the numbers moving from employment into retirement are falling as soaring inflation triggers the tightest squeeze on living standards in generations.
“Labor market returns by older workers are rare and get rarer as time since exit passes,” the report said. “These facts suggest that returns to the labor market by the ‘Covid cohort’ of early retirees will be relatively rare and, most importantly, insensitive to policy changes.”
The problem will be worsened by the number of people aged 65 and over rising by 2.5 million from 2020 to 2030 as the population ages.
Ministers should focus on older workers, mothers and those with a disability in trying to boost participation rates, the foundation said. The UK government should consider rolling back pension freedoms and overhauling childcare support to prevent a further increase in economic inactivity, it said.
The rise in economic inactivity has made Britain’s jobs market even tighter, reversing years of progress and complicating the Bank of England’s task of containing wage and price pressures. More early retirees, long-term sickness and students have fueled the shrinking of the workforce, in contrast to many other European countries where employment has risen since the pandemic.
--With assistance from Andrew Atkinson.
©2023 Bloomberg L.P.
