Once the recent public health emergency was declared over it was assumed people would be eager to return to work. Much to the government’s annoyance, however, that eagerness to return to the office, restaurant or construction site has not materialised.

In fact, more than half a million British workers have chosen to remain on the side lines causing the economy to stumble in its attempts to get back to its feet. The government has labelled these people “economically inactive” and is at a loss for what to do about them. 

The UK is not alone in this problem. In the US 3 million people who were working before covid lockdowns have not returned to work. The problem in the US, however, can be traced back almost entirely to trillions of dollars in covid-related government giveaways that de-incentivised work. The problem in the UK is not so black and white.

Defining Economic Inactivity

The term “economic inactivity” covers people of working age (16-64) who are not currently employed or seeking employment. By contrast, those who are unemployed but seeking work are categorised as “economically active”.

As the number of economically inactive people rises the labour participation rate falls. And it is the participation rate that is used to determine the unemployment rate. This explains how you can have near record-low unemployment (as we currently do), even though a half million people suddenly stopped working. 

Causes of Economic Inactivity in the UK 

Economic inactivity in the UK is a multi-faceted phenomenon that was already gaining steam prior to covid. Some of the most cited reasons for the current economic inactivity crisis include:

Early retirement: Business closures during covid caused countless older workers to choose early retirement.
Long-term illness: Unprecedented numbers of working aged people are citing long-term health problems as a reason for not returning to work.
Discouraged jobseekers: After prolonged periods of unsuccessfully looking for work, many people simply give up.
Disability: The number of working-age people citing disability as their reason for not working has risen by 2.3 million in the past 10 years.

The Effects of Economic Inactivity

The half million who never went back to work after covid joined some 2.5 million who were already considered economically inactive prior to 2020. This loss of 3 million workers has had some noticeable effects on the economy. Some pubs and restaurants are not able to open 7 days a week. Airlines can’t find enough people to handle baggage, clean planes and provide security. And some factories have had to cut back production due to a lack of workers.

For all of these reasons and more the House of Lords Economic Affairs Committee recently published a report stating that the recent sharp increase in economic inactivity poses a “serious challenge” to the UK economy. So much so that the UK may be the only developed nation to experience a recession in 2023 

What’s Being Done

Some business leaders have called for PM Rishi Sunak to reduce immigration controls, claiming that is the only way out of the current predicament. The PM has resisted these calls, largely because immigration is a highly contentious political issue.

Instead, the government is looking at ways to encourage over-50s to return to work. Reform of health and disability benefit programmes are also being floated to incentivise those currently collecting long-term sickness benefits to go back to work. And tax breaks for people returning to work are also being discussed. 

It’s unknown if any of these initiatives will succeed, but since increased immigration seems off the table for now something will need to be done to fill the millions of job vacancies holding the economy back.