Why should we pay attention to economic inactivity?
Inactivity is an indicator of the state of the labour market that measures how much of the population is not in work and is not ready to start work in the near future. It is typically calculated within the working-age population (aged 16-64).
Some inactivity is expected. For instance, students over age 16 are considered inactive, but it is generally agreed that education is a “good” reason not to be in the labour market.
Other types of inactivity may indicate barriers to the labour market that prevent people from paid work. Those not in work may suffer ill effects from being on low incomes, and may require more from the government in the form of benefits and other support.
What are the trends in inactivity?
Economic inactivity among working-age people (16-64) has risen in the UK since the start of the pandemic after years of falling rates. This trend has raised concerns that long-term ill-health (and possibly long Covid) are keeping people out of work.
Chart 1: Inactivity rates, Scotland vs. rUK, 2010-2022
Source: Labour Force Survey
Notes: Inactivity is expressed as a percentage of the population aged 16-64. Quarterly estimates are seasonally adjusted using a moving average.
However, trends in working-age inactivity in recent years look quite different in Scotland compared to the rest of the UK (rUK) (Chart 1). While rUK inactivity was falling from the financial crisis to the beginning of 2020, Scottish inactivity stopped falling at the end of 2015 and has hovered close to 22% since.
By the end of 2022, Scottish and rUK rates of inactivity had converged at about 21.5%.
A note on data
The main source of labour market trends in the UK is the quarterly Labour Force Survey (LFS) and the related Annual Population Survey (APS), both collected and published by the Office for National Statistics (ONS).
Quarterly LFS data is appropriate for tracking national trends within broadly-defined groups, but the sample size is too small to look at more specific groups within Scotland (e.g., trends among those who are aged 16-64 and inactive due to ill-health). For that reason, we use the LFS for broader quarterly trends and the Annual Population Survey (APS), a related survey with a much larger sample size, to analyse annual trends among smaller groups in Scotland.
In this article, we also use LFS data to examine changes in reported health problems among inactive people. Although the APS would be preferred, the public-use APS does not currently contain detailed information on health problems. These figures should therefore be used with caution.
How much of the change in inactivity is caused by ill-health?
A recent Resolution Foundation report highlights three key reasons for the rising number of inactive people in the UK: a rise in the population of over-65s relative to the rest of the population; an increase in flows into early retirement among those under 65; and increased ill-health amongst the working age population.
The last of these is the most concerning, particularly for Scotland. A greater proportion of Scottish inactivity is attributable to health problems than is the case for rUK (Chart 2).
Chart 2: Inactivity from ill-health by gender, Scotland vs. rUK
Source: Labour Force Survey
Notes: Inactivity from ill health is expressed as a percentage of all inactivity among those aged 16-64. Quarterly estimates are seasonally adjusted using a moving average.
The proportion of inactivity attributable to ill-health has risen sharply for Scottish men in the last few quarters, and for Scottish women to a lesser extent since around 2018.
A recent IFS report analyses Labour Force Survey data that links the same people over two adjacent quarters (e.g., January to March and March to June). Their work shows that for the UK overall from 2019 to the present, new inactivity from ill-health among older workers (50-64) comes primarily from people who were already inactive for another reason.
Trends in available data for Scotland seem to follow a similar pattern, although flows into inactivity due to ill-health from other forms of inactivity are volatile in the annual data (Chart 3). From 2019-2021, a growing proportion of new inactivity due to ill-health among those 16-64 came from those who were already inactive for other reasons, rather than from people moving from labour market activity (employment or unemployment) into inactivity.
These reasons include education, retirement, and family caring responsibilities. The sample size is not large enough for us to comment on which types of inactivity are most likely to precede a transition to inactivity due to ill-health.
Chart 3: Previous employment status of persons newly inactive due to ill-health, Scotland
Source: Two-year longitudinal Annual Population Survey
Notes: The x-axis represents the second year the respondent was surveyed, e.g., the total 2014 column represents people who became inactive in 2014 but were not inactive in 2013. The number of people in each category is expressed as a percentage of all newly inactive people among those aged 16-64.
How much of this new ill-health is due to Covid?
It is difficult to attribute rising ill-health as the cause of inactivity to the effects of Covid-19. This difficulty is mainly because most surveys that ask about health problems do not offer guidance to respondents on how to respond if they suffered from long Covid. Furthermore, information on ill-health is not available in the public-use APS data, limiting the sample size for analysis.
Those suffering from long Covid may report it as Not otherwise listed, which has been increasingly reported since the start of the pandemic as the main health problem for inactive people living in Scotland (Chart 4).
Chart 4: Health problems among inactive people, Scotland
Source: Labour Force Survey
Notes: The number of people with a given main health problem is expressed as a percentage of all inactive people. Autism was added as a possible response from 2020Q1. Miscellaneous includes skin conditions, allergies, diabetes, and epilepsy. The omitted group is those reporting no health issues. Quarterly estimates are seasonally adjusted using a moving average.
Significantly, a rising proportion of inactive people report mental health as their main health problem. Although reported mental health as the main problem grew faster between 2020 and 2022, it has risen steadily from the main health problem from about 10% of inactive people living in Scotland in 2010 to over 15% in 2022. Scotland is not the exception, either; there is a trend of rising mental health problems over the last few years across the UK.
Some of this is likely attributable to the pandemic. Studies have documented an increase in mental health problems in both early lockdown and the second wave, partially as a result of social isolation.
Increases in mental health problems after the lockdowns may be explained by other stressors, including the cost-of-living crisis.
The pandemic does not, however, explain the longer-term divergence of inactivity rates in Scotland vs. rUK, nor the steady rise of mental health problems among inactive Scots.
What does this mean?
There are two issues at play.
The first is a more acute problem, where more research is needed to understand the long-term physical and mental health effects of Covid-19.
The second is uncertainty about the long-term contributions of ill-health to economic inactivity among people living in Scotland who are inactive.
A recent FAI report documents extensive long-term health inequalities in Scotland that contribute to a host of other socioeconomic outcomes, likely including poor labour market outcomes. In the long-term, these poor labour market outcomes in turn further reinforce health inequalities.
In the future, we hope to conduct more analysis on health inequalities and employment status, including the effects of unequal access to healthcare on inactivity trends in Scotland. This work may shed light on the extent to which health policy can improve macroeconomic labour market trends.
Authors
Hannah is an Associate at the Fraser of Allander Institute. She specialises in applied social policy analysis with a focus on income, poverty, and inequality.
Ciara is an Associate Economist at the Fraser of Allander Institute. She has a broad research experience across different areas including poverty and inequality, the voluntary sector, health, education, trade, and renewables and climate change. Ciara has an MSc in Applied Economics (Distinction) and a first-class BA Honour’s degree in Economics and Finance, both from the University of Strathclyde.