Workers (Economic Affairs Committee Report) - Motion to Take Note

Part of the debate – in the House of Lords am 12:28 pm ar 8 Chwefror 2024.

Danfonwch hysbysiad imi am ddadleuon fel hyn

Photo of Lord Skidelsky Lord Skidelsky Crossbench 12:28, 8 Chwefror 2024

My Lords, I add my thanks to the noble Lord, Lord Bridges, for his consummate chairmanship of the committee that produced this report, and on which I had the privilege of serving.

We are faced with a great British mystery: The Case of the Missing Workers. It is an especially British mystery. In all developed countries, workers were furloughed during 2020-21 as industry was locked down, and when it reopened, they went back to work—except in the UK. There were 560,000 people who stayed at home—“excess retirees”. There is a striking table on page 13 of our report which shows how the UK was simply out of line with what happened in similar countries. Today, the excess inactivity number is still over 400,000, and is mainly people in their 50s.

Why is this a problem? A reduction in labour supply limits growth and produces inflation through higher unit costs. It puts us in the slow lane for economic recovery. However, there is a sub-mystery within the mystery: a shortage of labour is normally associated with a booming economy. You can hardly call our economy in the last couple of years a booming one. It has not exactly been shrinking, but it has certainly been stagnant. That is another issue that needs attention; I will come back to it.

The inquiry was about why the inactivity rate shot up post Covid. I cannot say that we made decisive progress in unravelling this mystery, and there are a couple of reasons why. The first, as the noble Lord, Lord Bridges, pointed out, is the inadequacy of the statistics. The statistical basis to come to firm conclusions was simply not there. More important was the complexity of the causes—what doctors call the comorbidities. There are so many comorbidities here that it is very difficult to say what causes what.

We learned a number of distressing facts, chief of which is that Britain is the sickest nation in Europe, with life expectancy now falling and with the worst access to healthcare of any European country. Deteriorating health and health provision pre-dated Covid and could not have been the main driver of the spurt in inactivity rates that we experienced after the lockdown ended.

We also have more flexible pension provision than other developed countries, allowing earlier retirement, but until the pandemic we had a lower inactivity rate than countries like us; we worked more hours, days and weeks of our lives than our European counterparts. So better pensions cannot be the explanation for the spurt in inactivity. Similarly, population ageing cannot explain short-run effects and Brexit has not reduced the net flow of immigrants, so it cannot explain overall labour shortage, although it can explain shortages in particular sectors such as hospitality and agriculture.

So we are left with unexplained lifestyle choices. I quote from paragraph 81 of the report:

“It is possible that people got used to different habits and ways of working during the COVID-19 pandemic, which prompted them to reflect on their careers”.

Indeed that is possible, but the unanswered question is why we should have been so much more reflective than the Germans, French or Americans.

There is also the question that we skirted around: how many premature retirees would like to return to work if they could? Our report took the view that retirement was a positive, not reluctant, choice and would not be reversed by increasing the aggregate demand for labour, but I am quite sceptical about this. It is plausible that people choose not to work because they are discouraged by persistent insufficient demand for their services and just leave the labour market. Retirement, for those who can afford it, is an alternative to unemployment benefit. Labour supply cannot be separated from labour demand; in other words, it is a macroeconomic and not just a microeconomic problem.

To start in another place, why should the rising inactivity rate pose a challenge for the economy? We are talking about the human activity rate. The challenge to the economy is not that there is a shortage of labour but that there is a shortage of machines to replace the jobs being evacuated. The report hints at this when it says that some sectors are destined to shrink unless they are “replacing labour through automation”. So one can say that the problem with the economy is that inactivity is growing faster than innovation or, to put it another way, people are leaving the workforce faster than they are being rebranded. This is a long-term problem, which Covid-19 might have speeded up. But one has to dig deeper.

The report cites a survey by Phoenix Insights, which suggests that British workers aged 50 to 64 dislike their jobs more than the same cohort in Germany and the United States: 58% in the UK like their jobs, compared with 74% in America and 73% in Germany. In other words, people retire early or work less not just because they are financially able to but because they do not like their jobs. This brings out a fundamental truth: we work not just because we have to but because it gives meaning to our lives. This is something that economists, who treat work as a disutility, have never understood.

The case of doctors is one of the most popular. There is an acute shortage of GPs—doctors of working age are leaving the profession faster than new doctors are entering it—because they have lost their sense of vocation. Doctors tell you this all the time.

The revelation that so many people dislike their jobs has opened up a field of inquiry beyond the scope of our short report. The question we asked was: where have all the workers gone? I suggest that the subject of a subsequent committee report should be: where have all the decent jobs gone?