UK lags developed nations on post-Covid employment recovery

The UK is set to be the only country in the developed world with employment still below its pre-pandemic level at the start of 2023, according to a new analysis.

A rise in the number of people taking early retirement, worsening health problems and lower international migration have all contributed to a persistent post-pandemic increase in the number of working-age adults who are neither in a job nor looking for one.

This rise in economic inactivity means the workforce has shrunk, with 600,000 more Britons out of work than before coronavirus hit, even though unemployment is at a record low.

Although Britain has historically had one of the highest employment rates in the OECD group of countries, it is rapidly slipping down the international rankings, falling from sixth to 12th place in two years, a report published on Thursday by the Institute for Employment Studies think-tank showed.

The UK’s working-age employment rate stands at 75.5 per cent, down from 76.5 per cent at the end of 2019. The one percentage point fall means the labour market’s post-pandemic recovery is weaker than in any country except Switzerland and Latvia, the consultancy said.

Across the EU, employment rates are on average 2 percentage points higher than before the Covid crisis. Since employment is recovering rapidly even among the other laggards, the UK is on course to be the only developed country with lower employment than before the pandemic by the start of 2023.

The IES said there was concern over the sharp rise in the number of people who had fallen into long-term inactivity, and had not worked for several years — many of them suffering from ill health, suggesting long Covid could have cut the workforce by 30,000.

With labour shortages likely to persist due to demographic pressures, this makes it all the more important to improve support for those who want to return to the workforce.

“There’s been a lot of focus on why so many people have left the labour force since the start of the pandemic, but the most important question now is how we help people get back,” said Tony Wilson, director of the IES, which is launching a long-term project on ways to improve employment support.

New polling commissioned by the IES found that just one employer in six had used the government’s Jobcentre Plus service to fill vacancies in the past two years. Only one in five jobseekers used the service, compared with more than half a decade ago — and of those, only a third thought it had helped them find a job.

Most people who are out of work would not be able to access government support through this service, since it focused on benefits claimants who are obliged to look for work, not those inactive but living on their own resources.

The IES also highlighted the UK’s relatively poor performance in boosting employment among older people and the disabled. If the UK did as well as the best-performing countries in the OECD at this, there would be almost a million more people in work, with an employment rate higher than 80 per cent, the research found.