Why has the UK’s workforce shrunk more than the rest of our European neighbours?
Most of our fellow European neighbours experienced sharp contractions in the size of their workforces in the first half of 2020 in response to Covid-19 restrictions, with subsequent labour shortages as they reopened their economies. In many countries, the number of workers recovered to pre-pandemic levels within a year or two and has continued to grow.
The UK is the only major European economy, alongside Italy, whose workforce remains around or below its pre-pandemic level. It is possible that the lack of a sharp drop in the UK could be partially explained by the ‘furlough’ scheme in the UK to protect jobs and the shrinkage in the size of the workforce lasted longer in the UK than in most other European countries. Furthermore, when it came, recovery was weaker.
Impact of Government support schemes
The 'furlough' scheme in the UK played a significant role in supporting workforce retention during the pandemic and paid 80% of wages across all sectors that were unable to fully operate due to Covid-19 restrictions, allowing businesses to keep their employees on the payroll.
In contrast, other European countries relied on insurance-based unemployment and disability benefits systems to provide income protection for a period. While these systems allowed people to leave the workforce during lockdown temporarily, they also ensured that individuals had a protected job to return to once restrictions were lifted.
The difference may have contributed to the slower recovery of the UK's workforce compared to other European countries.
An aging workforce
The UK's workforce contraction started before the Covid-19 pandemic, primarily driven by the aging of the workforce. As the late 'baby boomer' groups moved into their late 50s and early 60s, rates of withdrawal from the labour market due to poor health and retirement rose sharply.
This demographic effect led to a smaller cohort of prime working-age individuals in the UK and may have hindered its recovery compared to other European countries.
The ongoing effect of a healthcare system at capacity
High Covid-19 infection rates and capacity constraints in the UK's National Health Service could have played a role in the slower recovery of the workforce.
The UK experienced relatively higher infection rates during the pandemic, resulting in more severe health impacts on individuals and prolonged absences from work.
Additionally, ongoing capacity constraints in the NHS limited the healthcare resources available to support individuals in returning to work, prolonging their treatment and recovery periods.
The knock-on from Brexit
The uncertainty surrounding Brexit may have led to cautious hiring practices among businesses, resulting in a slower recovery of the workforce.
Furthermore, changes in immigration policies and reduced access to European talent may have contributed to labour shortages in certain industries, further affecting the recovery of the UK's workforce.
Ever-present Immigration pressure
Overseas workers play a vital role in filling skill gaps and driving innovation across various fields, including, healthcare, engineering, and technology. Restrictive immigration policies risk hampering recruitment efforts and slowing down advancements in these critical areas.
The minimum earning threshold for new Skilled Worker Visas will rise by nearly 50%, from £26,200 to £38,700.
Additionally, visas for roles on the Shortage Occupation List will no longer be obtainable if paid at 80% of the “going rate.” This could significantly impact workers in crucial fields.
The impact of these changes extends beyond individual workers. Organisations relying on overseas talent may face disruptions in planned projects and find it harder to attract international experts, particularly in niche areas.
Start-ups and SMEs with constraints might struggle to meet the new salary requirements, hindering the innovation and growth that the government claims it is trying to foster.
A new government
The incoming government has been clear that growth and prosperity will be their core goal. But only businesses can deliver this for them, and a partnership is necessary.
Working with businesses to make sure the new deal for workers is delivered in a way that businesses can adopt, and which supports the agility workers and employers need, is key.
There can be no successful industrial strategy that does not have a stable workforce strategy at its heart.
