Britain isn’t working. I am not just harking back to Margaret Thatcher’s 1979 election campaign — which preyed on voters’ fears of unemployment. The slogan now describes the most urgent problem facing the UK economy.
It is not obvious that the country has a jobs issue when unemployment is almost at a 50-year trough, but these official figures tell only part of the story. Unemployment might be historically low, but that does not mean employment is high. The number of people in work or self employed is still 500,000 lower than the pre-pandemic level with roughly 900,000 fewer working today than the Bank of England expected in forecasts made just before coronavirus struck.
Andrew Bailey this week blamed the shrinking labour force for the persistence of price and wage increases as well as the difficulties he, as Bank of England governor, is having in bringing inflation back down. Fewer workers tightens the labour market. It also encourages companies to raise prices without fear of bankruptcy and to concede to inevitable and justified pay demands.
What is most worrying is that this is a UK-specific problem. Now that the US has managed to encourage workers back into jobs, the UK has the most persistent post-pandemic drop in employment of any G7 country. And as Tony Wilson, director of the Institute for Employment Studies, notes, Britain also performs poorly among the countries that went into the pandemic with a high employment rate.
Two questions need answering. Why have the numbers of people in work fallen since 2019 when unemployment is so low? And why has the workforce stopped growing?
The initial question is relatively straightforward. One new problem over the past year has been that the UK now has many more people, especially women, off work and long-term sick. Looking at the data, Michael Sanders, an external member of the BoE’s Monetary Policy Committee blamed the “side effects of the pandemic, for example long Covid and the rise in NHS waiting lists”. This new and UK-specific long-term sickness problem casts a dark shadow over both the government’s management of the pandemic and NHS performance, since it was given as much money as other advanced economy health services.
The other new problem category are older professional men aged between 50 and 70. For full disclosure, this includes me. No one should ever feel too sorry for people that have done well in the labour market since the 1980s, but the steep decline in participation suggests that economists, companies and governments can no longer take it for granted that older men with degrees will stay working, no matter what. If we are choosing to do something else, others in society should not mind too much, except for the difficult fact older professional men tend to be higher paid and significant net contributors to the public finances.
It would normally be more difficult to have a clear sense of the sort of people that would have expanded the labour force but have not sought work in Britain. But this time, coronavirus coincided with the end of free movement of workers from the EU and a drop in European immigration, contrasting with sharp increases seen before the Brexit referendum. Leaving the EU has therefore destroyed the UK labour market’s safety valve, leaving it less flexible and able to suck in foreign-born employees when demand is high. They now need to secure visas and many have gone elsewhere.
So, there you have it. Britain isn’t working and this is causing higher inflation, lower growth and worse public finances. Some can’t get out of bed, some can’t be bothered any longer and some can’t work here because Brexit forces them to get a visa. None of this bodes well.