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The Paradox of Record Unemployment in the United Kingdom

Updated: Nov 29, 2023

Deep Dive Article

Credit: Wikimedia Commons

Anyone who finds themselves scrolling aimlessly through Twitter this week is bound to come across at least one Tory politician or another, ringing bells and singing praise to the new government. But what is the cause for celebration? It’s nothing less than the announcement that unemployment has hit the lowest recorded rate since 1974.

Now, on paper, this sounds great. And by all means, unemployment hitting 3.5% is cause for some celebration. But just like every cloud has a silver-lining, every rainbow has its rain. While Conservative spin doctors have brandished this as an effortless success of the Truss government, the reality is a tad gloomier.

The reality is the number of economically inactive workers has risen significantly. The economic inactivity rate – which measures the proportion of people aged between 16 and 64 neither working, nor actively looking for work – increased to 21.7% in the 3 months leading up to September. Likewise, the number of those inactive because they are suffering from long-term illnesses hit a record high of nearly 2.5 million this month.

The Office for National Statistics (ONS) Head of Labour Market and Household Statistics, David Freeman, said the number of inactive workers has continued to rise steadily over the last few months. The diminishing labour pool coincides with a slight reduction in job vacancies, which fell to their lowest rate since late 2021, in the June – August period of this year.

So, what does this precarious combination result in? An ever more restrictive labour market. The number of vacancies fell by an estimated 46,000 in the past three months, but this isn’t necessarily good news for most companies. Most businesses are still struggling to fill their open positions. Companies have struggled with the enormous labour shortage for the past 2 years, with most companies offering increased salaries and better benefits packages to try and entice potential workers. In this candidate driven market, wages rose by annual 5.4% in the last year – evidence of the scramble for talent. However, with inflation rising by 9.9% in the same period, companies are unable to keep up, and are facing a monumental challenge.

Many companies facing the culmination of soaring energy bills, a relentless labour market, and skyrocketing inflation are simply opting not to fill their vacancies. This is inevitably limiting growth and restricting the operating abilities of many businesses. So, while unemployment dropping to 3.5% sound impressive, one must simply dig a bit deeper to see the reality. The number of inactive workers aged 16-64 has risen to almost 9 million. This is the leading cause for the reduction in unemployment.

The situation may worsen considerably. With over 2.5 million people out of the workforce owing to illness, the crumbling NHS presents serious cause for concern. The ever-deteriorating standard of the NHS, crippled by a decade of austerity, has had a huge impact on the workforce. A new paper from the health policy think tank, The King’s Fund, has shown that of 34,000 nurses who left NHS England in the past 12 months, over 2/3 were under 45 years old. Similarly, 52% of nurses recorded feeling unwell because of work-related stress. The migration of young talent has created an almost brain drain situation in the NHS. Pat Cullen, Chief Executive of the Royal College of Nursing said:

“The exodus from jobs we love, can’t continue. Services are unsafe.”

With the NHS continuing to deteriorate in performance, the number of workers becoming economically inactive due to sickness could continue to rise considerably. So how does a government that is promising to slash benefits for those not working fit into this picture? Ben Harrison, director of the Work Foundation at Lancaster University lashed out at the Truss government, saying:

“If the prime minister is to be true to her word on ‘taking tough decisions’, her administration should drop the rhetoric on benefit claimants needing to work harder and instead focus the full power of government to support those who have dropped out of the labour market, including those not receiving universal credit.”

The Prime Minister’s heavy-handed top-down approach to the economy, laid out in Kwasi Kwarteng’s “mini-budget”, is not what the country needs at this critical juncture. Whilst the lower rate of unemployment may present an easy political win for the Conservatives, they must provide some genuine support for those unable to work. The time-old ‘pull yourself by your bootstraps’ mentality, espoused by politicians since the 19th century, is not an adequate response today. Yet, Conservative Chair, Jake Berry this week echoed this mentality with his ridiculous advice to those on the breadline to simply “cut their consumption or get higher salaries”. Why didn’t the millions in absolute poverty, unable to feed their children, just think of that themselves?

Ultimately, the number of workers leaving the workforce should be a cause for concern. If the labour pool continues to shrink, it will inevitably fuel higher inflation, which has already been fanned by Liz Truss’s enormous tax cuts. The government is seemingly fighting this issue with one hand tied behind their back. The Truss government can claim the unemployment level as a temporary win, but they must be prepared to target the root cause of the diminishing workforce and be willing to spur growth from the ground up. The economy can only grow when the entire workforce is being championed, not just those at the top.


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