The UK financial system has an issue with its over 50s: following the COVID pandemic, they’ve been leaving the labour pressure en masse, inflicting complications for companies and the federal government. Roughly 300,000 extra staff aged between 50 and 65 at the moment are “economically inactive” than earlier than the pandemic, main a tabloid paper to dub the issue the “silver exodus”.
Being economically inactive implies that these older staff are neither employed nor searching for a job. After all, it might merely be that staff saved extra in the course of the pandemic and might now afford to retire in consolation sooner than deliberate.
But when older staff have been postpone work on account of well being dangers or lack of alternatives, it might imply the financial system is being disadvantaged of doubtless productive staff – which might price the state in varied methods. So what’s occurring?
Making sense of the exodus
In our newest analysis, which has simply been made obtainable on-line as a coverage briefing word, now we have taken the deepest dive but into rising financial inactivity among the many over-50s and what it means for the financial system utilizing the newest UK Labour Power Survey (LFS) information.
Surprisingly, the silver exodus is just not concentrated within the richest segments of society – regardless that one may anticipate that they’d be essentially the most in a position to retire. As a substitute, it’s primarily a center to lower-middle revenue phenomenon. As proven within the charts under, the biggest rise in inactivity post-pandemic is coming from staff within the lower-middle revenue bracket (incomes roughly £18,000 to £25,000 per 12 months of their most up-to-date job). In every chart, the road exhibits the proportion of employed staff aged 50-65 who turned economically inactive one 12 months later.
Staff beccmoing inactive (%) by revenue quartile
There may be additionally different proof to help the view that the rise in inactivity is concentrated within the lower-middle a part of the revenue distribution. For instance, there was a bigger rise in inactivity amongst individuals who hire, somewhat than personal, their very own houses, and amongst these in decrease paid industries and occupations. There has additionally been a smaller rise in inactivity amongst extremely educated staff.
What jobs are older staff leaving, and why?
The industries with the biggest share rises in inactivity among the many over-50s are wholesale and retail (40% rise), transport and storage (+30%), and manufacturing (+25%). In the meantime, the occupations with the biggest share rises are course of plant and machine operatives (+50%) and gross sales and customer support occupations (+40%). To place this in context, the comparable share rise for over-50s for the entire financial system is 12%.
A number of elements probably clarify these variations. The sectors in query have been in long-term decline earlier than the pandemic, they usually have been additionally hit onerous when COVID arrived. Staff might need thought of it unlikely that they’d get their job again in a declining sector, and will have chosen to retire somewhat than searching for one other job or retraining.
These are additionally sectors with excessive ranges of social contact the place it’s not potential to make money working from home, so maybe some older staff selected to resign out of concern for his or her well being. Taken collectively, the message is that the rise in inactivity has been pushed by older staff perceiving decrease returns from persevering with to work: why hold working in a low-paid job in a declining and pandemic-afflicted a part of the financial system?
Will they arrive again to work?
It isn’t unusual for staff to turn into economically inactive following a recession, as a result of discovering a job is difficult and other people can turn into discouraged. That is what occurred after the worldwide monetary disaster of 2007-09, as an example.
It could possibly be that staff in right this moment’s exodus will resume trying to find a job when the financial system improves, however there are not any indicators of this occurring. The rise in inactivity amongst over-50s is already 3 times increased than it ever was after the final monetary disaster.
A number of details additionally counsel that these folks actually don’t ever need to come again to work. The entire rise in inactivity is coming from staff who say they don’t desire a job and assume they may “undoubtedly” by no means work once more. Their predominant causes are retirement and illness, though the info reveals that the rise in inactivity on account of illness began a minimum of two years pre-pandemic and was not a lot affected by the pandemic itself. In different phrases, a want to retire is admittedly the principle cause for the rise in inactivity.
It’s value mentioning that earlier than the pandemic, the variety of retirees was falling as staff had been retiring later in life. This was pushed by will increase within the state pension age, which rose from 65 to 66 from 2019-20. The rise in retirements that now we have seen throughout and after the pandemic is partly the emergence of an underlying pattern that was hidden whereas the state pension age rose.
Implications and coverage challenges
This unprecedented rise in inactivity among the many over-50s poses important challenges for the financial system. It comes at a time when the federal government is having to cope with rising resignations amongst different age teams, labour shortages, the rising price of residing, and the evolving results of Brexit. Given their comparatively low revenue, these retirees might additionally probably face monetary difficulties later in retirement and add stress to authorities spending. What then will be executed to halt and even reverse the silver exodus?
Yu Ping Chen
The rise in inactivity is just not within the lowest-income components of society, the place the federal government concentrates its efforts to incentivise work by means of the advantages system. The federal government may subsequently take into account extending these incentives, akin to Working Tax Credit, to achieve lower-middle class folks to try to encourage them to return to work.
Maybe the cost-of-living disaster will pressure the over-50s again into work, partially fixing the UK’s labour shortages. However fixing one downside with one other is just not more likely to make anybody – staff, companies or the federal government – any happier. Tough days subsequently lie forward.
Carlos Carrillo-Tudela receives funding from the UK Financial and Social Analysis Council (ESRC), award reference ES/V016970/1. He’s affiliated with CEPR, IZA and CESIfo.
Alex Clymo receives funding from the UK Financial and Social Analysis Council, award reference ES/V016970/1.
David Zentler-Munro receives funding from the UK Financial and Social Analysis Council, award reference ES/V016970/1.