This month’s labour market statistics show relatively stable headlines, with a slight increase in employment, a slight fall in unemployment and similar rates of inactivity compared to the previous quarter. These stubborn trends underline that we will need to see significant reforms to make jobs more secure, and to provide more support to those at risk of exiting work and those who have already left if labour market participation is to recover in the future.

At 74.5%, employment rates remain lower than they were last year and has this month barely recovered to pre-Covid 19 levels. With over one in five (22.2%) of the working age population being economically inactive, meaning out of work and not looking for work, labour market participation remains a substantial concern. Particularly problematic is the extent to which long term sickness drives people to stay away from the jobs market. The number of those those who are out of work due to long term sickness peaked after the Covid-19 pandemic and remains at near record levels of 2.8 million. Fewer people in work mean fewer vacancies are filled, but also lower disposable incomes for households and generally a drag on the economy. These trends build over years and this also means they aren’t shifted easily. They require substantial and long-term policy action.

Clash of the generations, except for inactivity

Younger and older generations may differ in their experiences of the labour market in various ways, but when it comes to being out of work and not looking for work, it appears there are some parallels.

Employment figures for young workers tend to be the bell weather of wider labour market trends. Those aged 18 to 24 years old tend to be the first ones to lose their jobs in a crisis and can have enduring struggles with unemployment. It is therefore instructive to track any trends among this age group.

Although we are now some years on from the acute phase of the pandemic, today’s statistics signal there are ongoing challenges for young people who are entering the labour market for the first time. In this quarter, employment among 18-24 year olds increased, but remains 88,000 lower than last year. Furthermore, there are approximately 212,000 fewer young workers in jobs than there were prior to the pandemic (December-February 2020). On the positive side, economic inactivity among this group fell this quarter, although it remains higher than last year and substantially higher than pre-pandemic figures (245,000). This is partly driven by the uptake of full-time education, but also as we know by long term sickness such as mental health issues.

Young workers aged 18-24: employment up on the quarter but still lower than last year (-88k) and pre-pandemic (-212k). Inactivity among this group is falling but remains higher than last year (123k) and pre-pandemic (245k). Partly driven likely by uptake of education, but also as we know by long term sickness – among this young group particularly driven by mental health issues.

Figure 1: Change in economic inactivity between 2020 and 2024, 18-24 year olds

Source: Work Foundation calculations of ONS (Office of National Statistics) data (13 August 2024) using Dataset A01, table 2: Labour market by age group (seasonally adjusted).

When we look at older counterparts, we find that for those aged 50-64 years old, employment increased slightly on the quarter and on the year. Simultaneously, there is an increase in inactivity on the quarter and on the year. Overall, there are approximately 310,000 more people in inactivity in this age group than prior to the pandemic. For this age group, exit from the labour market tends to be driven by early retirement and most concerningly, health problems.

Government’s long road to revitalising the UK labour market

The new Government is grappling with a workforce that has become smaller and sicker since the beginning of the previous Parliamentary term. In response, they have introduced a ‘Back to Work’ plan and an employment rights agenda that could significantly benefit many workers. However, these challenges are deeply entrenched and will not be resolved overnight.

Government is rightly focusing on a pan-governmental approach, addressing interconnected issues such as health, employment support and childcare. Yet, given the scale and complexity of the problem, these efforts will require considerable time and resources.

The proposed Employment Bill could play a crucial role in improving workers’ rights and making work more viable and attractive. However, to effectively encourage people back into the workforce, there must be a strong emphasis on job quality. Without secure jobs that provide reliable income, people are likely to continue cycling in and out of temporary work and unemployment, limiting the impact of employment support measures. Ensuring that these new rights, along with existing ones, are properly enforced will be key, and the new Fair Work Agency must be empowered with the necessary authority and resources to elevate labour market enforcement across the UK.

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