Too many people are no longer working

The perplexing disappearance of working-age people from the employment statistics continues to alarm economists. The jobless rate is at its lowest for nearly 50 years, in part because millions of workers have dropped out altogether. More than one fifth of the working age population is not in work or seeking jobs even as employers complain of manpower shortages.

As we report, Huw Pill, chief economist at the Bank of England, says this phenomenon, which appears to be more pronounced in this country than elsewhere, is keeping inflation high and pointing toward further interest-rate increases. Employers faced with shortages are having to pay more in salaries even as other costs soar and a recession looms that will also hit business profitability.

Mr Pill said that this amounted “a real shock to the economy” and was fuelling a wage-price spiral when the opposite might be expected in a downturn. This seems to be another legacy of the Covid lockdowns, with people who stopped working temporarily deciding they could afford to do so permanently. Thousands of better-paid older workers nearing retirement have also joined the exodus because of tax limitations on pensions. Others blame a rise in post-pandemic sickness known as long Covid, and the treatment backlog in the NHS.

The inactivity rate appears to be seriously hampering economic recovery and could worsen the recession here. This week, the Organisation for Economic Co-operation and Development (OECD) said that British households had been worst affected by the global economic downturn among richer nations. Real income declined for the third consecutive quarter across the OECD but Britain was particularly hard hit, with rising costs for food and energy.

The impact of Brexit on the economy also remains unquantifiable. Any disadvantages from leaving the single market were supposed to be more than balanced out by the UK’S greater freedom to strike trade deals and remove some of the bloc’s more stultifying regulations. However, efforts to achieve the latter have been dealt a blow by the discovery of 1,400 more laws than previously thought. Rishi Sunak promised they would all be revised or repealed within 100 days but that timetable has slipped until the end of 2023. Now there are mutterings in Whitehall that it is all too difficult. They need to build the bonfire.