Economic Contraction

Sharp rise in early retirement leads to shrinking UK workforce

According to a new analysis from the Institute for Fiscal Studies, the sharp increase in the number of people leaving the labor force in the UK is largely due to older workers choosing to retire earlier.

Almost half a million fewer people were in paid employment in the UK in the first quarter of 2022 than before the Covid pandemic, according to research published by the think tank on Thursday.

This contraction in the size of the workforce – largely due to higher economic inactivity among young and older workers – is one of the main reasons why the Bank of England fears that the labor shortages fuel wage growth and fuel inflation.

Official data released earlier this week showed that students – many of whom stayed in school when job offers dried up at the start of the pandemic – are now returning to the job market, but there is no had such a comeback among older people who stopped working.

The IFS said this increase in economic inactivity among 50-69 year olds was mainly due to people leaving work to retire. This suggested that people were making a “lifestyle choice” reflecting changing priorities and preferences, with relatively few of them being forced out of their jobs due to layoff or health problems at long term.

His analysis showed that older workers had become more likely to leave their jobs, regardless of their education, occupation and whether they worked in the public or private sector. There was also little difference between those working in sectors with severe labor shortages and those with relatively few vacancies.

However, those aged 50-69 were more likely to leave the labor market if they were already working part-time or self-employed – and were “in some sense closer to retirement”. The IFS said those who could work remotely were also slightly more likely to quit, perhaps because the changing nature of the job made it less appealing.

Bee Boileau, research economist at IFS, said this suggested “a more positive story” than some other explanations given for the rise in inactivity, with little evidence to suggest large numbers of people were being victimized. chronic health problems or a lack of job opportunities.

However, Luke Price, senior evidence manager at the Center for Aging Better, said that even when vacancies are high, many older people leave the workforce due to the age culture in the workplace and recruitment practices, and “a shortage of employers creating jobs with sufficient flexibility to attract older workers”.

Whether voluntary or not, the rise in inactivity is a sharp reversal of the trend of the years before the pandemic, when successive increases in the legal retirement age led many people to continue working. Longer. The IFS said this could therefore have “substantial” consequences for public finances.

The think tank says older workers who have left since the start of the pandemic are unlikely to return, although a similar exodus seen in the United States is reversing, with increasing numbers opting for the “non-retirement” as inflation rises and the value of investments falls.

Jonathan Cribb, associate director at the IFS, said the rise in economic inactivity among older workers is likely to persist in the UK as “historically very few people leave retirement and return to paid work”.