Trends in Economic Activity

Economic inactivity describes a range of labour market statuses. At its most basic level, it means that you are neither employed nor unemployed. However, there are a range of reasons why people might not be in employment or seeking employment.

These include because they are retired, and are therefore not in or seeking work, or because they are in full-time education. These are both generally thought to be ‘good’ explanations for economic inactivity.

In contrast, worrying reasons for economic inactivity include that people are sick, either short term or long term, and unable to be in employment or seek employment. Some have also become ‘discouraged’, and therefore given up searching for work.

Finally, some people are economically inactive because they are looking after family or the home.

Over the past two years, there has been a significant amount of interest in what has happened to economic inactivity throughout the pandemic.

To better understand these trends, this analysis looks at the data from several angles –

• The first of these is ‘why’ people are economically inactive in Scotland, and how these reasons have changed over time.
• The second is whether or not those who are economically inactive would like to work or not.
• Finally, looking at economic inactivity by age to better understand whether this helps to understand what has been happening in recent years.

Overall trends in inactivity

Chart 1 shows the longer-term evolution of economic inactivity in Scotland. A couple of things stand out.

The first of these is that the total number of people in Scotland who are economically inactive in the 2000’s was much lower than in the 1990’s but began to creep back up after the global financial crisis.

The second thing to note is the contrasting trends in male and female inactivity over this period. The number of men in Scotland who are economically inactive has been steadily trending upwards at the same time as the number of women economically inactive has been trending downwards. In the past couple of years, male economic inactivity has been growing more quickly again.

Chart 1: Headline economic inactivity, Scotland, 1993-2022

Source: ONS, LFS

Why are people economically inactive in Scotland?

The main reason for people of working age (aged 16 – 64) in Scotland to be economically inactive is because of long-term ill-health which, combined with a short-term illness, explains over 30% of economic inactivity (Chart 2).

Chart 2: Economic inactivity by reason, Scotland, October 2020 – September 2021

Source: ONS, APS

About 40% of economic inactivity is explained by people being retired or full-time students. How does this compare to the pre-pandemic period?

Chart 3: Changes in the number of people economically inactive, 2 & 5 years ago

Source: ONS, APS

Chart 3 shows how the reasons for economic inactivity have changed relative to two and five years ago. There are now over 20,000 more people economically inactive because of long-term sickness.

At the same time, there are far fewer people economically inactive because they are looking after family and or the home. On a more positive note, it seems like there are increases in the number of people who are inactive because they are in full-time education.

A related angle on the question of economic inactivity is whether those who are economically inactive want a job. Chart 4 shows these data over time.

These data suggest that there are, if anything, a smaller percentage of those economically inactive who want a job than was typical before the pandemic. Of course, given how diverse a group the economically inactive are, this might well be a symptom of other changes in the labour market rather than a sign of the health of the labour market.

Chart 4: Economic inactivity according to whether they want a job or not, Scotland, October 2004 – September 2021

Source: ONS, APS

One word of caution about Charts 2-4, is that these data relate to the year up to the end of September 2021, and therefore are almost 6 months old. A lot has happened in the interim. More timely data are available for the UK as a whole, and we will explore these shortly.

Economic Inactivity by Age

Another way to look at economic inactivity is by age. There is, of course, a degree of overlap between this and the reasons for economic inactivity that have just been considered, namely being engaged in full-time education and being retired.

Chart 5 shows the number of people in Scotland economically inactive by broad age range. Consistent with Chart 2, the largest number of working-age people who are economically inactive are aged 50 – 64.

Chart 5: Economic inactivity by age, Scotland, October 2004 – September 2021

Source: ONS, APS

Note that during the pandemic the number of younger people (aged 16 – 24) economically inactive increased through 2020 but has since dropped back. This is consistent with the pattern in UK-wide data. We are also seeing a steady increase in the number of people 50 – 64 who are economically inactive. This is clearer from looking at the economic inactivity rate among these age groups (Chart 6).

Chart 6: Economic inactivity rate, 16-24 and 50+, Scotland, October 2004 – September 2021

Source: ONS, APS

This is consistent with UK wide data, and recent ONS analysis tells us more about what is driving this more recent increase in economic inactivity among the over 50s.

Specifically, their analysis shows that this is a mixture of those 50 – 70 in employment entering economic inactivity, as well as a drop in the number of those 50 – 70 moving from inactivity into employment.

When they look at why these people are becoming economically inactive, retirement seems to be a key explanation. Digging into this further the ONS show that those in this older age group moving into economic inactivity were more likely to be in professional or associate professional occupations.

This aligns with the sectors where there are more people aged 50 – 70 moving to economic inactivity (professional and scientific, public administration and defence, etc), as well as the education level of these workers (where there have been larger increases in the number of workers with higher levels of education becoming economically inactive since 2019).

There is also a difference between male and female workers. Most starkly, ONS analysis shows that among men who are aged between 50 to 70 years of age and have a degree or equivalent level of education, flows into economic inactivity nearly doubled between 2019 and 2021. See Chart 7.

Chart 7: Percentage of workers aged 50-70 moving to economic inactivity by highest education level, Scotland

Source: ONS, Longitudinal LFS

Further analysis by the ONS shows that by far the biggest increase in flows into economic inactivity between 2019 and 2021 was by men over 60 years of age, increasing from 6.2% of workers in this age group to 9%.

Conclusions

There has been a significant amount of interest in what’s happened to economic inactivity through the pandemic. And we have seen increases in the overall level of economic inactivity in Scotland.

Unpicking this, it seems that an element of this was increased economic inactivity due to being in full-time education, as might be expected this was largely driven by younger people.

As public health restrictions unwound through 2021, there is some evidence that this element of economic inactivity dropped back somewhat, and was replaced by an increasing trend of older workers becoming economically inactive.

Recent ONS analysis for the UK suggests that much of this increasing trend of inactivity among older workers reflected an increased move towards early retirement among degree educated professionals, in particular men in their 60s. To the extent that this reflects a choice to retire early, it is difficult to be too concerned about this as a trend.

More worrying for the outlook for the Scottish labour market is the fact that we now have over 20,000 more people economically inactive because of long-term sickness than we had pre-pandemic. This may well become the key legacy of the pandemic, and in the months ahead should be a key priority for government.

This article is part of the 2022 Q1 Fraser of Allander Economic Commentary.