UK labor shortages are ‘the shape of things to come’, gentlemen warn

Labor shortages fueling inflation and squeezing funding for public services could be the “shape of things to come” for the UK economy, the House of Lords economic committee has concluded.

Early retirement of people in their 50s and 60s has been the main reason behind an increase of over half a million in the number of adults of working age who are neither in work nor looking for work, according to a report published by the committee for Tuesday.

This post-pandemic increase in economic inactivity has been unique to the UK. In almost every other developed economy, the employment rate has returned to its pre-pandemic trend – or even exceeded it – as the effects of the Covid shutdowns faded.

A smaller workforce represents a serious economic challenge, because it makes it difficult for employers to fill jobs; adds wage pressures that may cause high inflation to persist; holds back growth, and reduces the tax revenue available to finance public services.

Economists have puzzled over the causes of Britain’s shrinking workforce, with some pointing to a rise in long-term illness and disability among the working-age population, while others blame Brexit for stifling the flow of EU workers who used to fill many lower-paid roles.

But the committee’s investigation found that while these factors had contributed, the biggest driving force behind the exodus from the workforce had been early retirement by people who could afford it and neither wanted nor expected to return to work.

Population aging was a bigger factor than most people realised, the committee said – a trend previously masked by women staying in work longer, but which will now continue to weigh on the labor supply.

Lord George Bridges, the committee’s chairman, said this meant policymakers could not count on labor market dropouts to return to work, or the workforce to grow at its pre-pandemic rate in the future.

“There is a nagging concern that this is the shape of things to come,” he said. “We can’t assume that many of these people can come back.”

However, Lord Bridges also acknowledged that some people who had left their jobs since the start of the pandemic may need to look for work again because of the cost of living crisis.

Inflation in the UK was 10.7 per cent in November, after falling slightly from 41 in October.

There are early signs of economic pressures forcing people back into the workplace, with the latest official data showing the number of inactive over-50s had fallen in the three months to October.

An Office for National Statistics survey examining worker motivation, published on Monday, found that 72 per cent of adults aged 50 to 59 who had left paid work since the pandemic considered returning in August – up from 58 per cent when asked in February.

However, the ONS survey also confirmed the committee’s conclusion that most people aged 50-65 who had left paid work had done so by choice. Fewer than one in ten said they had traveled for health reasons.

Retirement, lifestyle choices and the pandemic were the most common reasons given, with significant numbers also citing stress, caring responsibilities or feeling unappreciated or supported in their job.

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