Donald Houston talks though key findings of the report and policy implications of a recent City-REDI paper.
The University of Birmingham’s City-Region Economic Development Institute (City-REDI) has published a Research & Policy Briefing paper based on the main findings from a major project that I led funded by the Economic & Social Research Council.
The project, Levelling Up Labour Supply, was a two-year ESRC UK In a Changing Europe Senior Fellowship investigating geographically uneven rises in economic inactivity across the UK following the COVID-19 pandemic and Brexit (ESRC Award Ref ES/X005828/2).
The project and briefing paper examine the effects of changes in health, EU and non-EU migrants, labour force ageing, pandemic infection rates, job availability, productivity, skills and rurality in explaining changes to economic inactivity across 168 GB NUTS3 areas. International comparisons are made in trends in inactivity. Finally, policy implications are discussed in light of different drivers predominating in some places but not others, and that some places are short of workers while others are short of jobs.
Key findings
Economic inactivity – people not working and not looking and/or available for work – rose sharply in the UK following the COVID-19 pandemic. Nearly 2 out of every 100 people aged 16-64 became economically inactive in just over two years. Although inactivity has come down somewhat since, it remains above its pre-pandemic level. In contrast, all other major economies’ pandemic spikes in economic inactivity were short-lived and are now below their pre-pandemic levels.
The rise in the UK’s economic inactivity rate has been geographically highly uneven. Rural areas and peripheral towns have recorded the largest increases, particularly in northern, western and coastal areas. Economic inactivity has fallen in much of London and the southeast.
Statistical modelling of changes to economic inactivity across 168 local areas of Great Britain shows that the main drivers of rising economic inactivity at the local level are:
- poor population health going into the pandemic;
- lower economic inactivity going into the pandemic giving more potential for increase;
- the scale of increase in work-limiting health problems during the pandemic;
- the scale of increase in the proportion of the population aged 60-64.
Changes to EU and non-EU populations do not show statistically significant relationships with changes to economic inactivity at local level. However, reductions in low-skilled EU migration to some specific rural areas – particularly coastal and agricultural areas dependent on migrant labour – have affected levels of economic activity, but these place-specific effects do not get detected in overall patterns.
Changes to labour demand (jobs or vacancies) do not show statistically significant relationships with changes to economic inactivity at local level. This is in contrast to recent history since deindustrialisation and the experience following previous recessionary shocks. The COVID-19 pandemic, compounded by pre-existing poor health, a stretched NHS, Brexit disrupting migration flows and the tail of the babyboomers entering their 60s, represented a ‘perfect storm’ that hit labour supply in the UK hard, acutely so in some places.
Policy implications
The briefing paper argues that the scale of geographic unevenness in levels of, and recent changes to, economic inactivity rates means that a national ‘one-size-fits-all’ policy to tackle economic inactivity will not work in many places. There is therefore a need for greater devolution of powers and resources to design and fund relevant local policy interventions. Some places are short of workers while others are short of jobs. Health and employment interventions suggested in the UK Government’s ‘Get Britain Working’ 2024 white paper follow the national narrative and are of less relevance to areas short of jobs rather than workers.
The analysis reveals that the recent sharp increase in economic inactivity has been driven by supply-side factors (health, demography) rather than driven by demand changes (job availability). However, moving forward, the level of economic inactivity in a given locality is likely to continue to be shaped by the quantity and quality of job opportunities, as has been the case in recent history. Therefore, creating high-quality jobs is important to ensure a level of economic activity required to support economic growth and prosperity.
The briefing paper argues that local resilience to supply-side labour market shocks can be built through fostering demographically balanced and healthy populations. The local policy response needs to be tailored to the local drivers of economic inactivity. In some areas, ageing may be the main driver, while in others it may be the rise in poor health or fall in migration. For many rural areas, this may mean adequate housing supply, training and job opportunities to retain young people. For many urban areas, this is likely to require national immigration policy maintaining a balanced portfolio of skilled and unskilled migrants.
The briefing paper highlights that further research and evaluations of health and work interrelationships and interventions are required to better understand the drivers of and solutions to health-related economic inactivity in place.
Read the full paper.
This blog was written by Professor Donald Houston, Professor of Regional Economic Development, City-REDI, University of Birmingham.
Disclaimer:
The views expressed in this analysis post are those of the authors and not necessarily those of City-REDI / WMREDI or the University of Birmingham.