Why are Britain’s over-50s really leaving the labour market?

Older workers have been leaving the UK workforce because they are choosing to retire early, not because of ill health, according to new analysis that could force a reappraisal of the challenges facing the economy.

A sharp post-pandemic rise in economic inactivity — people who are neither working nor looking for work — is an acute concern for UK policymakers, because it has added strain to a tight labour market where many employers are struggling to recruit.

The Bank of England fears this will make high inflation persist for longer if employers end up paying higher wages and raising prices further as a result of tightening Labour supply. The bank will on Thursday announce its latest decision on interest rates alongside new forecasts for the UK economy.

Jonathan Haskel, a Bank of England policymaker, said last month that changes in labour market participation were “emerging as the key economic legacy of Covid in the UK” and would hold back growth.

Many analysts have pointed to a sharp rise of around 160,000 since the end of 2019 in the number of 50-64 year olds who said they were not working due to long-term sickness as a likely explanation.

Huw Pill, BoE chief economist, said last month that the pandemic effect on health was “probably a key driver” of inactivity, arguing that long Covid, worsening NHS waiting lists, rising mental health issues and the need to care for family members at home all weighed on labour supply.

However, new analysis of official data by the Institute for Fiscal Studies think-tank counters this narrative. It found that the recent rise in health-related inactivity was concentrated among people who had already been out of the labour force for at least five years.

The figures published monthly by the Office for National Statistics show only the number of people who are inactive, and the reasons they cite for being inactive, whereas the IFS used data that tracks people over time, which allowed the researchers to dig deeper.

Most of those people in their 50s and early 60s who had recently left the workforce — the key age group driving the rise in inactivity — said they were not working because they had retired.

“Fundamentally, people are leaving work for retirement at a greater rate than they used to. At the same time, people already out of the labour force seem to be sicker and saying they are out of work because of that,” said Jonathan Cribb, an associate director at the IFS and author of the research.

The findings challenge the prevailing idea that ill health is the main explanation for the post-pandemic shrinkage in the UK’s workforce.

It also suggests that policymakers may need to be realistic about the extent to which those who have recently left employment are likely to return — unless forced to by financial pressures, with inflation running at 10.1 per cent in September, its highest in 40 years.

So far, there is little evidence of older people “unretiring” despite the surge in inflation. Cribb said past experience suggested that only 5 to 10 per cent of those who had retired ever returned to the labour force, noting that many had already paid off their mortgages. But, he added, it was “impossible to predict” how people would respond to the cost of living crisis.

Yet the IFS finding does not alter the case for the government and employers to do far more to accommodate the needs of an ageing workforce and help those with chronic conditions to hold down jobs.

Even if ill health did not drive the recent wave of early retirement, it appears to be a growing factor that is preventing many older people working as much as they would like.

Haskel argued that the ONS survey understated the extent of the problem, precisely because it identifies only those who cite sickness as their primary reason for economic inactivity. He also pointed to large numbers of people still employed but unable to work full-time because of ill health.

A report by the think-tank Demos, published on Wednesday, illustrated the ways in which health conditions — combined with other factors, such as a poor workplace culture or lack of flexibility from managers — can nudge people into taking early retirement.

“It’s clear there are lots of people who are not choosing to leave work but feel they have to,” said Andrew Phillips, a researcher at Demos, whose study involved interviews with former office workers and public sector staff, who had struggled with health conditions ranging from serious mental illnesses to arthritis, cardiovascular problems or menopausal symptoms.

Demos called for the government to work with employers to boost access to occupational health services, tackle ageist recruitment practices and redesign jobs to better accommodate workers’ needs.

Other labour market experts have said that the government should put less energy into hounding benefits claimants to work more, and more effort into redesigning employment support services to help older people who have left work but do not claim benefits.

Making it easier to work with long-term health conditions will be important, regardless of the reason people left their jobs initially, according to Tony Wilson, director of the Institute for Employment Studies, a consultancy, who noted that people with health problems might persuade an existing employer to give them the flexibility they need, but not a new one.

“One in five people has a work-limiting disability or health condition,” he told a committee of MPs last week. “Once you are out of work and you have a health condition; it is blooming hard to get back in.”