Why have older workers left the labour market?

Economic inactivity, which refers to people who are not working and not looking for work, is above pre-pandemic levels in the UK. The rise in economic inactivity is mainly because older workers have left and not returned to the workforce.

This Insight discusses the rise in economic inactivity among older workers, the reasons for it and whether they will return to work.

How many people are not looking to return to work?

Data from the Office for National Statistics (ONS) shows that, in November to January 2023, 412,000 more people aged 16 to 64 were economically inactive than in January to March 2020, before the pandemic. In November to January 2023, 8.9 million people aged 16 to 64 were economically inactive, that is, 21.3% of people aged 16 to 64.

The Financial Times reports that the UK is the only developed economy where inactivity kept rising after the initial pandemic shock.

In its inquiry on economic inactivity, the House of Lords Economic Affairs Committee highlighted that rising inactivity can pose “serious challenges”. It may lead to higher inflation as employers raise wages to attract workers, reduce growth by constraining output, and worsen public finances through lower tax receipts.

Recent findings, including by the ONS, show that rising inactivity among 50-to-64-year-olds accounted for 68.5% of the total rise in economic inactivity among 16-to-64-year-olds since the start of the pandemic.

In November to January 2023, 3.5 million people aged 50 to 64 were out of work and not looking for work, compared to 3.3 million people of that age in January to March 2020. This is a rise of 280,000 people. The inactivity rate for those aged 50 to 64 rose by 1.7 percentage points, from 25.5% at the start of the pandemic to 27.2% in November to January 2023.

This rise comes after years of falling economic inactivity among this age group before the pandemic, back to levels last seen at the start of 2016. The fall was in part due to the pension age rising for women.

Why are older workers leaving work?

There are two main explanations for the rise in economic inactivity among older workers: they chose to retire early or they are unable to work for health reasons.

From October 2021 to September 2022, 137,700 more 50-to-64-year-olds gave short- or long-term illness as the main reason for not working and not looking for work, compared with April 2019 to March 2020. 154,400 more people cited retirement as the main reason for not being in work and not looking for work.

The Health Foundation and the Institute for Employment Studies have argued that the main reason for the rise in economic inactivity has been worsening health, exacerbated by difficulties accessing care and delays in treatment.

The Institute for Fiscal Studies (IFS) says, however, that the rise in inactivity has been driven by older workers leaving their job for non-health related reasons, such as retirement.

In its inquiry on economic inactivity, the House of Lords Economic Affairs Committee concluded that, while sickness was a “contributing” factor, early retirement was the “key driver” among older workers.

For many people, the IFS said, early retirement may have been “a lifestyle choice”. It found that, during the pandemic, people had appreciated time at home and made extra savings.

Demographic differences

Comparing men and women

Economic inactivity has risen among both men and women since the start of the pandemic. In November to January 2023, there were 131,000 more men and 151,000 more women aged 50 to 64 not in work and not looking for work than in January to March 2020.

Comparing reasons for men’s and women’s economic inactivity from October to December 2022, women were more likely to cite looking after their home or family. Men were more likely to say retirement or health were reasons.

Comparing age groups

Comparing economic inactivity levels in October to December 2022 to the same period in 2019 shows the rise was driven by people in their late 50s and early 60s. There are 15,500 fewer 65-to-69-year-olds who were not in work and not looking for work in 2022 compared to 2019.

Sickness or disability were the most frequent reasons for not working and not looking for work given by people in their 50s. Retirement was the most common reason given by people in their 60s.

Will older workers return to work?

The ONS surveyed 50-to-65-year-olds on two occasions in 2022. In February, 53% said they would not return to work. In August, 42% said the same. Those in their 60s were less likely to say they would return to work than those in their 50s (44% of those aged 60 to 65 compared to 72% of those 50 to 59).

ONS data from November to January 2023 shows the economic inactivity among 50-to-64-year-olds has decreased by 0.1 percentage points from September to November 2022. The IFS notes a “sharp and statistically significant uptick” in older workers re-joining the workforce”. The change, it says, may be due to the “cost of living crisis”.

The reason people give for their economic inactivity matters because it may have implications for whether they might return to work.

If sickness and long waiting lists are the main reasons among older workers, then better access to healthcare treatment and more support from employers could help them return to work.

According to the IFS, however, people who are becoming sicker had already left work for other reasons, so increasing access to healthcare and employer support may measures may not lead to a reversal of economic inactivity.

Convincing those who retired early to return to work may be more difficult. The majority of retires express no desire or expectation to work. The Bank of England highlights, however, that the pandemic is unlikely to affect future retirement decisions, so its effects will “fade over time”.

In the Autumn Statement 2022, the Chancellor announced that Department for Work & Pensions would review workforce participation, due to report back in 2023.

Further reading

• House of Commons Library, UK Labour Market Statistics, February 2023
• House of Commons Library, Coronavirus: Impact on the labour market, August 2022
• House of Commons Library, Will more economic inactivity be a legacy of the pandemic?, February 2022

About the author: Felicia Rankl is a researcher at the House of Commons Library, specialising in areas of building regulations, planning and economic inactivity.

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