Early retirement 'biggest cause' of labour shortage in UK economy

People opting to retire rather than return to work following the pandemic has led to a tightening of the labour market

Retirement, increased sickness, changes to migration and the UK's ageing population have all contributed to tightness in the labour market. PA

A wave of people leaving the workforce and choosing early retirement following the Covid-19 pandemic is the single biggest cause of current shortages in the UK labour market, according to the House of Lords Economic Affairs Committee.

The committee said the outlook for the labour market was “bleak” and that the government should do more to reduce levels of inactivity in the economy.

The report by the investigative committee looked at the number of people who were not in work and not actively seeking work, compared with the number of job vacancies.

It found than an extra 565,000 people have become economically inactive since the start of the pandemic.

Titled “Where have all the workers gone?", the report highlighted that retirement, increased sickness, changes to migration and the UK's ageing population have all contributed to the current tightness in the labour market.

“We are unable to say exactly why, but a lot of people over 50 who left work or were furloughed during the pandemic did not come back,” said the chairman of the influential committee, George Bridges.

“There are a number of reasons why people left the workforce but as we kept looking it became clear that retirement was the biggest factor, the biggest change from the start of the pandemic.

“We can't hypothesise too much, but one potential explanation is that people experimented with different lifestyles during the pandemic — they were forced to stay at home or work fewer hours — and then changed their working lives as a result, even when the pandemic restrictions changed back”, he added.

People at an 'Enough is Enough' rally at Belfast City Hall, protesting against rising energy bills and the rising cost of living. PA

Cost of living crisis

However, there is some evidence that the current cost-of-living crisis is reversing the trend and some early retirees are returning to work.

Last week the latest figures from the Office for National Statistics (ONS) showed that economic activity dropped slightly in November.

The ONS said there were 76,000 people considered economically inactive over the three months to November, and that there was a fall of 49,000 in people citing retirement as a reason for inactivity.

Nonetheless, Mr Bridges said it was “critical the government does more to understand the causes of increased inactivity, and whether this trend is likely to persist.”

A representative from the Department for Work and Pensions said: “Older workers are a huge asset to our economy and jobs market. That's why we are investing an extra £22 million in employment support for the over 50s — expanding our Jobcentre Mid-Life MOT service and providing tailored support through our Older Worker Champions.”