TRADES UNION CONGRESS – WRITTEN EVIDENCE ULS0028 – UK LABOUR SUPPLY

Employment, Unemployment and Inactivity

The pandemic and subsequent lockdowns caused a significant disruption in the UK labour market, leading to a rise in unemployment and inactivity. This followed over a decade of stagnant wage growth and deteriorating working conditions. While there has been a limited recovery from the pandemic shock to the economy, it has served to highlight many underlying weaknesses in the labour market.

While the employment rate has risen in the past year, it remains below its pre-pandemic peak. This has been driven by a rise in economic inactivity rather than a rise in unemployment. Inactivity remains significantly above pre-pandemic levels. Meanwhile the unemployment rate has fallen to 3.6 per cent, the lowest it has been for almost 50 years.

Workers have been leaving the labour market into inactivity. This has been driven in some part by significant increases in long-term health problems, and early retirement of older workers. But a rise in inactivity is not unusual given the circumstances of the last two years. Employment shocks, such as recessions, usually lead to cyclical increases in inactivity. Workers leave the labour market, only to return when labour market conditions improve. The chart below shows how reduced employment rates during recessions (most obviously in the early 1980s, early 1990s, late 2000s and the pandemic) coincide with increased inactivity rates.

There has been much talk about the ‘tight’ labour market due to the relatively high number of job vacancies. While vacancies remain elevated, they are dwarfed by the rise in redundancies during the pandemic and lockdown. A high vacancy rate is a natural response to the economy re-opening from the pandemic as businesses return to normal levels of operations.

Inactivity – demographics, occupations, and reasons

Older workers have been most likely to leave the labour market into inactivity. It is important to consider the demographic and other factors behind this.

BME workers are less likely to retire early than their white counterparts. Just 17 percent of BME people who are economically inactive aged 50-65 have retired, compared to 40 percent of economically inactive white people. This reflects a wide ethnicity gap in average pension wealth. Instead, those that do leave the labour market early typically do so because of poor health, and more than twice as likely to do so because of caring responsibilities.

Comparing reasons for economic inactivity between White and BME workers, aged 16-64

Workers in manually intensive jobs are also at a far greater risk of being forced out of the labour market early. Those working with heavy machinery and in ‘elementary occupations’ like cleaning or security are particularly vulnerable, closely followed by people in caring and other service occupations and retail and customer service. Together these occupations account for just three in ten jobs in the labour market, but almost six in ten people who leave the labour market come from these sectors. This is particularly worrying as workers in these industries tend to be relatively low paid, and therefore have low levels of personal and pension savings.

In terms of age, the rise in economic inactivity has been driven by older workers, especially those in the 50+ age range who are disproportionately leaving the labour market before they reach state pension age. The number of people aged 50-65 who were not actively looking for work increased by over 200,000 between 2019 and 2021. After a slight decline in the four quarters from summer 2021, it has increased significantly in the last few months.

This is a reversal of long-term trends that have seen men and women extend their working lives over the last 25 years and can be damaging for both older people as they are at increased risk of having to rely on inadequate working age benefits, as well as the wider economy which is experiencing skills and labour shortages.

Illness, injury or disability continue to be the main reasons for people aged 50–64 being economically inactive in the labour market, affecting 39.1%, or 1.4 million people. The number of people in this age group stating retirement as a reason for not seeking work is 33.4%, or 1.2 million. Nearly 760,000 people aged 50–64 are actively seeking work or are inactive but are willing to work – a fall from 810,000 in 2021.

According to recent data from the Office of National Statistics, those leaving the workforce prematurely were increasingly likely to cite stress or mental health as a key factor. Among those who would consider returning to work (58%), the most important factors when choosing a paid job were flexible working hours (32%), good pay (23%), and being able to work from home (12%).[1]

Older women have historically had higher rates of inactivity than older men. Although this gap has closed in recent decades there are still over 660,000 more women than men aged 50-65 who are economically inactive. While these men are more likely to be retired or in ill health than women, the greatest difference is in the rates of inactivity because of caring responsibilities. The proportion of women in this age group who have left the labour market for this reason (17 percent) is more than twice as high as the proportion of men (7 percent).

However, across the entire age spectrum, the number of workers becoming economically inactive due to caring responsibilities has fallen significantly in response to the pandemic. This may be due to increased levels of home-working and flexible working arrangements. Previous TUC analysis found that home-working has tripled since before the pandemic. This has been well-received by workers, who are broadly in favour of this development. And a survey by the Office for National Statistics shows that 24% of businesses intend to use increased homeworking as a permanent business model going forward. However, there has been evidence to suggest that a disproportionate burden has been placed on women to carry out caring responsibilities and housework while balancing home-working.

However, the ability to work from home varies significantly by sector, During the height of the pandemic in 2020, 62 per cent of workers in the information and communication industry worked from home, compared to 19 per cent of transport and storage workers. Workers in the highest paid industries were the most likely to work from home[2]. This contrasts with key workers who mainly worked outside the home during the pandemic. Four out of ten of these workers earned less than £10 per hour[3].

There is also a regional component, with workers in London (57 per cent) more likely to work from home compared to those in other regions, such as the West Midlands (35 per cent). Further analysis from ONS shows the percentage of workers in some areas was considerably lower, for example only 19 per cent of workers in Wolverhampton did any work from home in 2020[4].

There has also been an increase in inactivity at the younger end of the age spectrum. This can partially be explained by the growing number of young people delaying joining the labour market to stay in education. Indeed, in 2022 a record number of school leavers went to university. However there remains a worrying trend of those not in employment, education or training (NEETs). While the number of women who are NEETs has fallen steadily, this has been more turbulent for young men. The number of young men who were NEETs rose rapidly during the pandemic and remains high.

However, while inactivity has increased, the number of people working longer hours is also increasing. There has been a fall in part-time work and a significant rise in those working full-time. In addition, the number of people working two jobs has increased over the past two years, with Royal London finding that 1.2 million workers in the UK were working two jobs. This reflects the rising cost of living, with CPI inflation currently standing at 10.1 percent.

There has also been speculation that inactivity has been heightened as workers face health conditions but struggle to get treatment. The TUC has been investigating the impact of Long Covid in particular. We undertook an online, non-representative, survey of those experiencing Long Covid in the summer of 2021. Over 3,500 people who had had Covid-19 responded: around 3,300 of whom self-reported having Long Covid. The majority of these were key workers (79 per cent); people who faced higher levels of exposure to Covid-19 while keeping the country running during the pandemic.  

Almost three in 10 respondents (29 per cent) had been experiencing Long Covid symptoms for 12 months or more.  Workers reported experiencing a range of symptoms. On average each respondent reported having nine of the 21 Long Covid symptoms we asked about and described the severity of their cumulative impact. Nine out of ten respondents experienced fatigue, with other common symptoms centred around problems with brain fog (72 per cent), shortness of breath (70 per cent), difficulty concentrating (62 per cent) and memory problems (54 per cent). Over four in five respondents (83 per cent) reported experiencing at least one of a range of pain-related symptoms with around one third (32 per cent) experiencing depression.  

Respondents also described the poor treatment that they experienced at work because they had Long Covid. Over half (52 per cent) had experienced some form of discrimination or disadvantage. Workers were faced with disbelief and suspicion, with around one fifth (19 per cent) having their employer question the impact of their symptoms and one in eight (13 per cent) facing questions from their employer about whether they had Long Covid at all. Respondents were also concerned about what the future might hold for them at work given the amount of sick leave they had been forced to take due to their Long Covid symptoms. For around one in six respondents (18 per cent), the amount of sick leave they had taken had triggered absence management or HR processes and one in 11 respondents (9 per cent) had used up all of their sick leave and had been told there would be negative consequences if they took more. One in 20 respondents (5 per cent) had been forced out of their jobs because they had Long Covid.[5] 

Labour market “tightness” is not leading to wage growth

A “tight” labour market is significant as several key bodies, including the Bank of England, expect this to drive wage growth. In reality, we are seeing real wages plummeting, and no clear link between labour market tightness and wage growth. Unionised workers are winning pay rises where they are enter into industrial disputes, but employers are reluctant to raise wages otherwise. Real wages in July 2022 were £87 a month less than at their peak in 2008.

Industries which have high levels of vacancies are often those in which unions have been reporting poor pay and conditions for years. Accommodation and food services has by far the highest vacancy ratio at 7.7 vacancies per 100 employees. This is well above the average of 4.2. This is also the industry with, by far, the highest proportion of jobs paid below the real Living Wage at 69.7% in April 2021, well above the 17.1% overall average.[6] Zero hours contracts are also most prevalent in accommodation and food services, covering 26.4% of the workforce compared to 3.2% of all workers.[7]

Low pay and poor terms and conditions go a long way to explaining the heightened vacancy levels in sectors like hospitality, social care and the arts. Industries with lower pay tend to have more vacancies. The charts below shows that this was true before the pandemic, and remains true now. In turn this means that industries with low pay and poor terms and conditions are most susceptible to labour shortages. It is imperative that these industries make improvements to pay and working conditions in order to attract workers.

However, we are not seeing the kind of wage growth we need to in sectors which are struggling to recruit. The chart below shows that industries with bigger increases in the vacancy rate are not putting up pay any more than other industries. If vacancies were driving pay growth you would expect to see positive correlation, rather than the weak negative correlation that has emerged.

Instead, real pay is declining faster than at any point on record, falling by 4.0% on CPI and 6.0% on RPI. Nominal pay growth is 5.2%, more than wiped out by inflation. These figures refer to the change in May-July 2022 relative to the same period a year before.

And this real pay collapse is taking place across every industry in the economy. The biggest collapse is in arts and entertainment, where real pay is declining by 11.8 per cent despite some of the highest vacancy rates.

High rates of vacancies are not leading to employers putting up wages. Instead, workers are having to fight for pay rises. Where unionised workers are engaging in disputes we are seeing some examples of good pay awards. These industries need to improve their terms and conditions, but are reluctant to do so unless pushed to by trade unions. The conditions for collective bargaining need to be improved so that employers respond appropriately to signals from the labour market.

Examples of Recent Union Pay Deals

Source: LRD Payline

Recommendations

Labour supply issues should be addressed through better pay, stronger workers rights, a long term skills strategy and support for workers at risk of leaving the labour market.

Better pay

A plan for wage growth

The government must deliver:

• A macroeconomic approach which boosts demand and creates growth
• A plan to strengthen and extend collective bargaining across the economy including introducing fair pay agreements to set minimum pay and conditions across whole sectors
• A life-long learning and skills strategy to fill labour shortages, boost productivity and so workers can update their skills throughout their working life
• Corporate governance reform to prioritise long-term sustainable growth, rather than short-term focus on shareholder returns
• Industrial and trade policies to promote good jobs and ensure that businesses compete on a level playing field
• Making decent jobs a requirement of all government spending and procurement.

A plan for a £15 minimum wage

• The government and Low Pay Commission should set out a plan to achieve a £15 minimum wage.
• The government should set a target for the national minimum wage to reach 75 per cent of median wages.
• The government should deliver a return to normal pay growth. Wages need to grow by at least 3.8 per cent a year, as they did from 1997-2010.
• The Low Pay Commission should chart a prospective path to £15. The path should be underpinned by a return to pre-crisis wage growth of at least 3.8 per cent a year.

Strengthen worker’s rights

Collective Bargaining

To ensure that more workers can benefit from collective bargaining:

• Unions should have access to workplaces to tell workers about the benefits of union membership and collective bargaining (following the system in place in New Zealand).
• We need new rights to make it easier for working people to negotiate collectively with their employer, including simplifying the process that workers must follow to have their union recognised by their employer for collective bargaining and enabling unions to scale up bargaining rights in large, multi-site organisations.
• The scope of collective bargaining rights should be expanded to include all pay and conditions, including pay and pensions, working time and holidays, equality issues (including maternity and paternity rights), health and safety, grievance and disciplinary processes, training and development, work organisation, including the introduction of new technologies, and the nature and level of staffing.
• The government should establish new fair pay agreements, where unions and employers negotiate across sectors to set minimum standards, starting with hospitality and social care. New Zealand is currently legislating to introduce this system, widespread across Europe, into its labour market.[8]
• Government must also repeal the Trade Union Act 2016, which frustrates workers’ efforts to defend their jobs, pay and conditions, and should not proceed with regulations designed to allow agency workers to strike break.

Upgrade rights and protections

In addition to new collective rights to enable workers to deliver decent work through their trade unions, we need a significantly strengthened set of employment protections. These must include:

• a ban on zero hours contracts through a right to a normal-hours contract and robust rules governing adequate notice of shifts and compensation for cancelled shifts
• an entitlement for all workers, including agency workers, zero-hours contract workers and casual workers, to the same floor of rights currently enjoyed by employees; these rights should be available from day one to all workers.
• a statutory presumption that all individuals will qualify for employment rights unless the employer can demonstrate they are genuinely self-employed
• penalties for employers who mislead staff about their employment status
• A ban on Umbrella companies
• Stronger collective consultation rights, including extending these to workers as well as employees and significantly stronger protection against unfair dismissal to protect against fire and rehire[9]
• Stronger flexible working rights, as set out in the section above on long-covid.
• The introduction of mandatory requirements to report on the pay gaps for Black, disabled and LGBT+ workers.
• Maintain the government’s commitments to a level playing field with European countries enshrined in the Trade and Co-operation Agreement.

Stronger enforcement

For rights to be effective, they require enforcement. To tackle the challenges faced by workers the enforcement system needs further long-term resources, to end the counterproductive relationship with immigration enforcement which scares workers from reporting exploitation, and to make use of more innovative methods of enforcement, which are becoming common in other countries. 

Government should:

• address the inadequate funding of the state-led enforcement system. The system needs further long-term resources, more inspectors, more proactive investigations and more enforcement actions. We fall well short of the benchmark established by the International Labour Organisation. To hit the ILO benchmark of one inspector per 10,000 workers, the UK would need 3,287 inspectors. There are currently 1,490. Another 1,797 labour market inspectors need to be recruited.
• Sever the ties between immigration enforcement and employment rights enforcement. Currently, there are close working relationships between employment rights enforcement agencies and immigration enforcement. Intelligence sharing and joint investigations are commonplace. Joint working should cease and a firewall between immigration enforcement and employment rights enforcement agencies should be established.
• Traditional employment relationships have become increasingly fragmented, with business strategies, such as franchising, outsourcing, lengthy supply chains and the use of labour market intermediaries enabling organisations to shirk their employment rights obligations. Large contractors should be liable for breaches of core employment rights in their supply chains.[10]

A new lifelong learning and skills strategy for all workers

The TUC is calling for a new national lifelong learning and skills strategy based on a vision of a high-skill economy, where workers can quickly gain both transferable and specialist skills to build their job prospects. Delivering this would require:

• A significant boost to investment in learning and skills by both the state and employers. People should have access to fully-funded learning and skills entitlements and new workplace training rights throughout their lives, expanding opportunities for upskilling and retraining.
• These entitlements should be incorporated into lifelong learning accounts and accompanied by new workplace rights, including a new right to paid time off for learning and training for all workers.

Support for workers at risk of leaving the labour market

Older workers

Ensuring that older people who want to can remain in the labour market requires ensuring that they feel safe at work, investing in skills, strengthening flexible working rights, and ensuring that the pensions and social security systems protect all older people against poverty.

Government should:

• Ensure older workers feel safe at work, by reversing cuts in funding to the Health and Safety Executive and by mobilising the 120,000 trained union health and safety reps in workplaces across the UK to help ensure that workplaces are safe, including workplaces with no existing union reps and where unions are not recognised. 
• Invest in older workers’ skills and enabling workers to access mid-life reviews to help them plan for later life, as well as making sure they are able to access any training they require. It is important that these reviews are accessible from the workplace, rather than through Job Centres as currently planned, to encourage high levels of take up.[11] There is an important role for Union Learning Representatives in delivering these reviews as workers are likely to be more open with them than their managers about skills gaps and personal pressures. The Union Learning Fund supported people to access training at work for more than 20 years and played a key role in helping older workers acquire the skills they need to sustain and build their employment prospects. The government should review its puzzling and counter-productive decision to cut the grant for the Union Learning Fund. TUC research has demonstrated that this will reduce the number of adults taking up learning and training, including many older workers.[12]
• Introduce new and stronger rights for flexible working (as set out in section one).
• Ensure that no older person faces poverty by reforming social security and pensions:
• Universal Credit: UC should be increased to 80 per cent of the real Living Wage, and the savings rule that reduces payments to anyone with £6,000 in savings and means those with £16,000 are not eligible must be reformed.
• State pension access: Those approaching state pension age who are unlikely to be able to work again due to caring responsibilities, ill-health, or long-term unemployment should be eligible for early access to their state pension.
• Pension credit: The eligibility age pension credit should be set at a lower level than the state pension age to help all older people struggling to manage on a low income.
• Labour market support: ensure that additional funding to support older workers targets those who have left the labour market as well as those actively seeking work.
• State pension age: Government should shelve plans for further state pension age increases and include responsibility for making recommendations on changes to the state pension age in the remit a pension commission comprised of employer and worker representatives and independent experts.[13]
• Auto-enrolment: Government must phase out the auto-enrolment lower earnings limit and earnings trigger that means employers do not have to auto-enrol low paid workers into a workplace pension or make meaningful contributions to their retirement savings. To ensure workers who have been auto-enrolled into schemes have the best chance of turning their pot into a sustainable income, regulators must develop default retirement income pathways that are suitable for most members, with strong governance and capped investment charges.

Workers who have experienced Long Covid

To support workers who have experienced Long Covid, government should:

• Specify that Long Covid is a disability. Many people with Long Covid are already disabled under the Equality Act 2010, but we need to extend protections to everyone by strengthening the Act by specifying that Long Covid is a disability, giving workers who experience long covid protection against discrimination.
• Provide access to Disablement Benefit for workers with long covid. The Industrial Injuries Advisory Council (IIAC) is considering prescription of Covid-19 as an occupational disease in certain sectors. An industrial disease is an illness or a condition that can arise or be caused as the result of unsafe working conditions or exposure to certain substances in the workplace. If a decision, is made to prescribe the illness in certain occupations, Long Covid patients should be made eligible to apply for Industrial Injuries Disablement Benefit (IIDB).
• Strengthen flexible working rights. Unless government acts to strengthen rights and ensure that flexibility is the default approach in a workplace, there is a real risk of stigma and discrimination associated with flexible working patterns. The government must introduce a legal duty on employers to consider which flexible working arrangements are available in a role and publish these in job advertisements, with the new postholder having a day one right to take up the flexible working arrangements that have been advertised. If an employer does not think that any flexible working arrangements are possible, they should be required to set out the exceptional circumstances that justify this decision. And they must introduce a day one right to request flexible working for all workers, with the criteria for rejection mirroring the exceptional circumstances set out above. Workers should have a right to appeal and no restrictions on the number of flexible working requests made.
• Invest in regulators including the Health and Safety Executive and the EHRC: The last ten years have seen real-term cuts of 50% to the HSE budget, with local authorities seeing their inspectorate numbers fall, too. This must be reversed to ensure safety regulators are well-equipped to investigate workplace health risks and take swift action against employers to prevent poor practice. The EHRC should receive additional ring-fenced resources to use the full range of their powers to address discrimination against workers with Long Covid.
• Provide universal access to occupational health. Only half the UK population has access to occupational health (OH), despite its known benefits. Occupational health support could play a pivotal role in supporting workers with Long Covid back into the workplace. There should be investment in expert OH advice in government, tax incentives so employers can invest in occupational health, and access to OH for GPs.

3 October 2022