Why more Britons are choosing not to work


(BLOOMBERG) – Britain is leading much of the world when it comes to people dropping out of the workforce, despite a historic squeeze on living standards.

That shortage of staff is now causing chronic problems, from travel chaos at airports to coffee chains that have to close shops temporarily as workers strike for better pay, which officials fear will only drive inflation to fresh 40-year highs.

“I’ve not seen anything like this in my experience,” said Mr Olivier Blanchard, the 73-year-old former chief economist at the International Monetary Fund.

There are 360,000 fewer people working than before Covid-19 in February 2020, due in part to a 450,000 jump in inactivity – those under 65 who neither have nor want a job. Against pre-coronavirus crisis trends, Britain is short of a million workers and, for the first time ever, employers are advertising more job vacancies than there are people looking.

Mr Tony Wilson, director of the Institute for Employment Studies, said it was “the tightest labour market on record”.

The Organisation for Economic Cooperation and Development this month warned the British government that “a prolonged period of acute supply and labour shortages could force firms into a more permanent reduction in their operating capacity”, effectively shutting down parts of the economy because there are no workers.

Despite Britain’s exit from the European Union, the problem is not migration. The number of foreign nationals working in Britain is 265,000 higher than at the end of 2019. There are 640,000 fewer Britons in employment.

That fall is due to two trends: Britons choosing to quit work altogether and long-term sickness. How can people afford not to work when life is getting more expensive? Mr Blanchard puts the shortage of workers in the United States down to direct cash handouts during the pandemic, which are providing a financial cushion as they have yet to be spent.

The British equivalent would be the 290,000 aged between 50 and 64 who left work early, many of them graduates with jobs in the professional and technical sectors. They didn’t get cash handouts as in the US, Canada and Japan but they did amass much of the £200 billion (S$340 billion) of “accidental savings” built up in lockdowns as they could not spend their wages.

“We’ve had a shock which allowed people to assess how nice it was to work from home,” Mr Blanchard said. “This has led people to think differently. It’s like the integration of women in the labour force during World War II. They had to work and then they continued to work. These are events that change the way people think. I think they are permanent.”

Stress, and Covid-19’s lingering effects, may explain the 90,000 rise in inactivity since the pandemic among those in the prime of their working lives, aged 25 to 50. Half of the increase in inactivity, 225,000, is among those aged 16 to 64 who are “long-term sick”. Many have declared mental health issues and the national data estimates 376,000 people have had Covid-19 symptoms for at least two years.

Mr Matthew Whittaker, chief executive at Pro Bono Economics, said young women account for the majority with mental health problems. Mr Tony Wilson, director of the Institute for Employment Studies, has crunched the welfare data and found “a staggering increase in those aged 25 to 49 and assessed as too ill to work”.

Those dynamics raise tricky questions for the government about work incentives. Chancellor of the Exchequer Rishi Sunak initially tried to sharpen those incentives, providing little support for poor households while cutting payroll taxes for those on low pay and telling them the best way to deal with the cost of living crisis was to get a job. Last month, he reversed tack and increased support for the eight million most vulnerable households to £1,200 to top up benefit payments to help with soaring energy bills. He also committed to lifting benefits next year by a forecast 9.5 per cent, the biggest annual increase since 1991.

Mr Whittaker said it was plausible the combination of welfare, one-off cost of living support and the promise of an inflation-busting benefit rise next year may deter some people from rejoining the labour force, particularly as statutory sick pay is not as generous.

He added: “If you are living with long Covid or have other health issues, you may ask yourself, ‘Do I go back to work with a sceptical employer?’ If the mental health problem is self-declared, there is the question of whether the employer will accept that. People may be doing these sums in their heads.”



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