Unemployment up, inactivity down
The big headline from the most recent labour market statistics was a rise in unemployment. At the same time, though, levels of inactivity have fallen to their lowest since the 1990s recession. Underlying this fall is a long term trend – the declining rates of inactivity among women, a decline which may be accelerating. But there are signs that another long term trend, the rise in male inactivity, may be turning.
As part of the monthly labour market figures, the ONS publish data on employment, unemployment and economic inactivity going back to 1971. An individual is economically inactive if they are not in paid work and either not looking or not able to start a job. This is different to unemployment, where an individual must be actively looking for a job.
The graph below shows the proportion of the working age population who were either unemployed or economically inactive each year since 1971. Note that for unemployment, this is different from the unemployment rate which is often used when the figures are released. That rate is expressed as a proportion of those who are economically active. We want to look at unemployment and inactivity together, so we need to look at both of them as a proportion of the whole population.
The graph is interactive. By pressing the different buttons you can look at men or women separately. By hovering over the circles on the lines, you can see the relevant figure for each year.
Looking at the whole population, the unemployment line rises quite notably in the recessions of the early 1980s, 1990s and late 2000s. The third of these rises is much lower than the previous two. Moreover, while in previous recessions the level of economic inactivity rose, this time it did not. In fact, the line seems to dip in the most recent year.
This overall figure for inactivity is a combination of two very different trends. Some of the figures are pretty amazing to look at from 2013. In 1972, 45% of women were economically inactive; that is, neither in nor seeking paid work. By the end of 2012, this level had fallen below 29%, the lowest in the series. (The most recent figures, which take us to February of this year, show a further fall to just under 28%). Unemployment among women now stands at 5%, lower than the level for men but the highest it has been for 20 years and still rising.
Looking at the figures for men, inactivity rates have been rising over the long term. In 1971, 5% of working age men were economically inactive compared to 17% in 2012. Until the recession of the early 1990s, unemployment and inactivity levels among men were quite similar, within a percentage point or two of each other. By 2012, the gap was 10 percentage points - 17% economically inactive compared to 7% unemployed.
The long term rise in male inactivity has been huge, but between 2011 and 2012 men’s inactivity rates fell. This year on year fall, while only half a percentage point, is the largest such fall in the 40 years of data. Moreover, the rise in the last decade, of around one percentage point, was much smaller than the rise in previous decades.
So the last few years have seen women’s economic inactivity falling and men’s not rising. The overall effect has been that inactivity has been quite flat before falling slightly last year. Compared to previous recessions, this is quite unusual. The recessions of the early 1980s and early 1990s both saw rises in inactivity for men and women. It is possible to discern a small rise for men this time round, but on nothing like the scale of previous recessions.
Explaining the most recent fall in inactivity rates, the ONS say that a big part of the change is the number of mothers now looking for work who were previously at home looking after their families. In fact, over the last 20 years, the number of people who were economically inactive in order to look after family fell by 800,000. The IFS further suggest that changes to the state pension age mean that women are working further into their 60s than before.
Today’s figures showed that unemployment rose last month, but given these big changes in inactivity rates, it is surprising that unemployment is not higher than it is. In previous recessions people left the labour market altogether rather than being unemployed. This time is different, and the underlying policy rhetoric is different too. The anticipated effect of the welfare reform agenda is that people who were previously inactive will start looking for work. In so doing, they will stop being inactive and start being unemployed.
For an individual, the difference between unemployment and inactivity may be quite small. But this shift in political emphasis, as well as the changing medium term picture, means that the inactivity numbers now matter as much as the unemployment stats.