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Working backwards

For many people, Covid-19 changed their working lives – whether moving to remote work or entering early retirement. Other challenges in the labour market – including insecure work – pre-date the pandemic but persist today.

Newsletter from 23 September 2022

In recent months, various politicians in the UK have been celebrating what they see as the healthy state of the post-pandemic labour market. At 3.6%, the unemployment rate is currently at its lowest level since May 1974. And in June this year, the total number of workforce jobs rose by 290,000 on the quarter, going past its pre-pandemic level to a record 35.8 million.

But the reality is more complex. Economists have been quick to push back against the narrative that the labour market has recovered with high employment rates alone. For example, other labour market data from the Office for National Statistics (ONS) show that in May to July 2022, the economic inactivity rate – the share of people not working and not actively seeking work – increased by 0.4 percentage points on the quarter to 21.7%.

The important distinction here is that when people who are out of work stop looking for a job, they are no longer counted as ‘unemployed’ and are instead listed in the data as ‘economically inactive’. These data indicate that while the UK’s unemployment rate is low, there is a large number of people not working. What’s more, with prices rising – particularly for food and energy – many people in work are struggling to make ends meet.

With all this in mind, this week on the Observatory we looked at a number of challenges facing the UK labour market.

Late to work

On Tuesday, we posted an article by Jonathan Cribb, Bee Boileau and Laurence O’Brien (Institute for Fiscal Studies, IFS) on how employment of older workers has changed since the pandemic.

They note that since the 1990s, more and more people in their 50s and 60s have stayed in work. Indeed, the share of these age groups in paid employment increased from around 46% in 1994 to about 61% just before the Covid-19 crisis. This shift was driven mainly by women aged 60-65, whose employment rate increased by 25 percentage points.

But this trend is changing. On one side, there were large increases in employment rates among 65 year olds between 2018 and 2021 (due to the most recent rise in the UK’s state pension age). In contrast, employment rates of those in their 50s and 60s (a larger group) have fallen by around 1.2 percentage points since March 2020 – partially reversing the pattern seen since the 1990s. This change has been driven by increasing rates of economic inactivity and is not the result of rising unemployment rates for this age group. Specifically, there were over a quarter of a million more economically inactive people in their 50s and 60s between October 2021 and March 2022 compared with October 2019 to March 2020 (immediately before the pandemic).

Figure 1: Number of people aged 50-69 moving from employment to inactivity (and vice versa) and from unemployment to inactivity (and vice versa) within three months, by half-year

Source: Boileau and Cribb, 2022
Note: The vertical line indicates the final data point unaffected by the Covid-19 pandemic.

Figure 1 shows the trend more clearly. The rates at which people in their 50s and 60s are moving directly from employment into economic inactivity (top dark blue line) are higher than at any point since 2006 (just before the global financial crisis of 2007-09).

The IFS team find that these movements explain two-thirds of the overall increase in economic inactivity during this period. In short, since the pandemic, more and more people in their 50s and 60s have been quitting their jobs work and not looking for new ones.

Feeling insecure

A further recent trend in the UK labour market has been the rise of the gig economy (see here for a piece on how Covid-19 affected the gig economy, and here for a study on Uber drivers’ employment status). Another new article this week, by Rebecca Florisson (Lancaster University), asks whether work is becoming less secure.

According to The Work Foundation, ‘insecure work’ is characterised as a job where a worker is not guaranteed future hours or future work; has unpredictable pay or very low pay; or has low, or no, access to employment rights, protections and entitlements (such as sick pay or maternity leave).

Rebecca highlights that in 2021, over six million UK workers experienced ‘severely’ insecure work. Longer-term evidence shows that in the past two decades, at least one in five workers will have experienced severely insecure work in any given year (see Figure 2).

Figure 2: Change in the proportion of the UK workforce experiencing severely insecure work, 2000-21

Source: Work Foundation analysis of the Office for National Statistics (ONS) Labour Force Survey data, April-June 2000-2021
Note: The first pink shaded area highlights the global financial crisis. The second shaded pink area highlights the Covid-19 crisis.

Research shows that there are other knock-on effects. For example, workers in insecure jobs are at greater risk of job loss. They may also face increased negative health, wellbeing and employment outcomes. Studies show that this is particularly problematic for women, disabled workers and people from minority ethnic backgrounds.

Rebecca stresses that in the absence of any clear plan from government to reform the safety nets that insecure workers often fall through (such as statutory sick pay), nor to change the current classification of employment status, policy should focus on enforcing and protecting people’s existing rights.

Working remotely… or not even remotely working?

Many thought that the surge in working from home seen during Covid-19 would change people’s professional lives forever, for better or for worse.

On the negative side, the image of this new world of work was one of empty offices, deserted lunchtime cafes and an atomised workforce. With each employee hidden away in bedrooms, at kitchen tables or in converted garden sheds, urban centres would be left eerily quiet, a forgotten relic of an outdated system.

But on the plus side, free from the pains of commuting and office life, post-Covid-19 workers would be happier, healthier and more productive, able to enjoy more leisure time while businesses’ running costs quickly plummeted as commercial property rents nosedived.

But what does the evidence show has happened with remote working, what has it meant for productivity and is it here to stay?

One concern about the shift to remote working relates to the effects on productivity. This was examined in a new piece this week by Cristian Escudero and Mark Kleinman (King’s College London).

They are quick to establish that assessing the effects of working from home is not easy, as the change in working patterns has occurred alongside other negative effects associated with the pandemic (such as lower investment, an erosion of human capital and a decline in global trade and supply chains).

What is clear is that many employees were not provided with the necessary support or infrastructure for remote work, nor did many have the skills required. Similarly, productivity may have gone down due to increased distractions and communication costs.

But on the other hand, in this new way of working, greater job autonomy and self-leadership could have led to higher individual productivity. Further, some of the time saved from not commuting may now be being devoted to work-related activities, boosting output per worker.

Survey data indicate that almost half of the respondents felt their efficiency while working from home was about the same as working on company premises, while nearly 40% said their efficiency at home is higher (see Figure 3).

Figure 3: Efficiency of working from home versus working on business premises

Source: Barrero et al, 2021
Note: Responses to the question ‘how does your efficiency working from home during the Covid-19 pandemic compare to your efficiency working on business premises before the pandemic?’

Cristian and Mark conclude their piece by arguing that policy-makers should be sceptical of general claims being made about the impact of remote working on productivity, either in a negative or positive direction. Overall, research indicates that it may be necessary for employees to return to the workplace to regain pre-pandemic economic performance.

But they also stress that employee preferences and wellbeing should not be overlooked and should be considered carefully by policy-makers. To increase worker productivity in the UK, speaking with – and listening to – workers is a starting point.

Difficult times lie ahead for the country. Keeping workers on side – be that older employees, people working within the gig economy or those pushing for a remote/hybrid lifestyle – will be vital.

Observatory news

Meanwhile, this morning’s ‘fiscal event’ in Parliament will generate numerous takes over the coming days. We plan to post pieces related to many of the big issues – energy costs, inflation, taxes, bankers’ bonuses, growth and so on – drawing, as ever, on top quality, independent economic analysis and research evidence. Do submit any questions to which you would particularly like to see answers.

In case you missed the announcement earlier this week, the Festival of Economics will be returning to Bristol on Monday 14 to Thursday 17 November. We’re delighted to announce a packed programme of talks and events, details of which can be found here. Tickets are on sale now.

Author: Charlie Meyrick
Picture by Tirachard on iStock
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