Recruiting in a tight labour market
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What is ‘economic inactivity’, and why is it important?
What is Economic Inactivity?
Defined by the Office for National Statistics (ONS), economic inactivity is measured as “people not in employment who have not been seeking work within the last 4 weeks and/or are unable to start work within the next 2 weeks.” It is often given as a percentage of the working population, for example, in our monthly employment stats reaction for December 2022, economic inactivity represented 25.2% of people aged 16-64 in the North East. This occurs for a variety of reasons. Here are some common examples for why people are economically inactive
| Studying | Being a Veteran | Disabilities |
| Ill Health | Language Barriers to Accessing Jobs | Retirement |
| Long-Term Inability to Access the Job Market | Caring Responsibilities | Holding a Criminal Record |
Post-pandemic, we have seen an increased rate of economic inactivity- most concerningly from those who left work during the pandemic and have never returned. The main age group in which this occurred was those between 50-64.
North East
In the North East, the economic inactivity rate is significantly higher than the national average. When you consider the above reasons for why people are economically inactive, in relation to the North East you can begin to see why this is. For example, as per the Levelling Up whitepaper, the North East has the highest re-offending rates at 30%. Additionally, the North East also has the lowest regional life expectancy, which puts a strain on both ill health and caring responsibilities. This creates a lot of complicated issues for the regional labour market.
Why is Economic Inactivity an Issue?
As many businesses know all too well, the labour market is incredibly tight, meaning that it is very demand-driven. For businesses experiencing labour shortages due to this, economic inactivity results in losing potential jobseekers that could add value to their workforce.
The measures some businesses are having to take to try and combat the 1.2 million unfilled vacancies across the UK are creating even more pressures, in an already-turbulent business climate due to rising energy costs and inflation. The ONS reported that over three months to October 2022, regular pay excluding bonuses grew by 6.1%- the highest rate of growth we’ve seen outside of the COVID-19 pandemic period. For many businesses, they simply won’t be able to offer higher salaries, and run the risk of not being able to attract the skilled workers they need.
The challenge businesses are going to have to overcome in the short term, is how can they incentivise economically inactive people to return, or begin participating, in the labour market?
What can be done?
There are measures that employers can take to try and tackle reasons for economic inactivity, and reap the benefits of reaching an untapped labour market.
A notable cause of labour market tightness is that many people over 50 who quit work during the pandemic, haven’t returned to work. Whilst some were in a lucrative enough position to retire early, others would consider working again, but only under certain conditions. 58% of people aged 50-64 who left work during the pandemic say they would consider returning to work.
A significant amount of those people said that flexible working hours, good pay, and the ability to work from home are all important factors when considering a return to work. We know that currently, the North East has the lowest proportion of people working from home in the UK, so there is a real opportunity to tap into this market. We have suggested more ways to attract and retain talent as part of our Good Work Toolkit, which uses examples of best practice. In the North East, we already have many businesses such as Nexus , who are passionate about taking a proactive approach to recruitment and retention.
That being said, for many businesses in times of recession- especially SMEs- we recognise that implementing measures to attract and retain workers would add more strain to already tight cashflows. We know from our Quarterly Economic Survey (Add hyperlink Depending if the new one is out by then or not) that staffing costs are one of the largest concerns for businesses in the North East. To mend the regional labour market, and reduce economic inactivity, the Government has said they will conduct a review of the causes, and make policy accordingly to address them.
A measure employers can take to reduce the strains of a tight labour market, is looking to future workforces as a solution. The Strategic Development Network have tools to provide businesses with support and guidance in getting involved with further education- particularly new schemes like T Levels.
If you are interested in how to get involved with T-Levels, the Department for Education and the Strategic Development Network have provided us with webinars covering a range of topics.
Additionally, the Department for Education is hosting a webinar on onboarding apprentices, particularly for SME’s on the 11th of January. We recognise apprentices have a huge role to play in developing businesses’ talent pipeline. We’ll share any future materials with interested members where possible. Employers can also sign up to receive information from the Government website as and when it’s released on apprenticeships.
Smaller businesses who don’t have the capacity, or labour available to create apprenticeships or technical education, may want to take advantage of their local schools and colleges. Offering work experience, or even visiting local schools can help promote your businesses’ visibility. Through our extensive membership network, we can help direct businesses to fantastic organisations that can help with this.
What is The Chamber Doing?
As a Chamber, we are keen to explore ways in which we can address skills gaps and the tight labour market caused partially by economic inactivity. The largest, most comprehensive piece of work we’re doing to help discover skills gaps, and what needs to be done to fix them, is our Local Skills Improvement Plans (LSIPs). Commissioned by the Department for Education, the two LSIPs we have been allocated cover the Tees Valley and North of Tyne areas. We’d encourage any member that wants to feed into this work, to get in touch.
We also run our Education, Employment, and Skills Forum, which we use to discuss training provision and tapping into the labour market further. We are keen to use this as a space for connecting businesses to the education landscape; be it through networking or insightful guest speakers.
Similarly, last year we established our closed Future Leaders Forum. This is composed of multiple young professionals- many of which work with apprentices and trainees- with a remit of generating an awareness of opportunities for young people, and discussing the challenges they face. We are hoping that going forward, the Forum can be used to identify, and overcome barriers young people and their employers face, regarding both recruitment, and career progression.
Finally, as always, we will be advocating for Levelling Up, devolution, and infrastructure improvements through relevant Government channels. Whilst the above measures can make tangible, positive impacts to businesses, we recognise that a lot of the causes of economic inactivity are out of any single businesses’ control. We know the young labour market, although valuable, faces regional obstacles. We also acknowledge the need for gaps to close in health outcomes and transport infrastructure, between the North East and the rest of the country. We welcome any member’s contribution to offer your thoughts on what needs to be done, and how your business is being impacted, to further inform our future policy work.