Andrew Carter is the Chief Executive of Centre for Cities.
In his speech on Friday, Jeremy Hunt set out four ‘E’s as part of his vision to get Britain growing again.
One of those Es was for employment. In particular, he set out his goal to get those currently economically inactive, which has increased in recent years, into work.
While he’s right to identify the issue though, his solutions are unlikely to bring inactivity down in the parts of the country most affected by it.
It’s worth first saying that not all inactivity is necessarily a problem. Those that are students or have retired early, for example, are likely to be economically inactive through a positive choice.
What is more of an issue is those that are involuntary inactive – because they’ve got a health problem, say, or because they’ve become discouraged. Adding this group to those that are classed as unemployed gives a so-called hidden unemployment rate for places across the country.
The geography of this involuntary inactivity problem is particularly alarming, and there is a clear North-South divide to it. Centre for Cities’ Cities Outlook 2023 report, published today, shows that nine of the top ten cities or large towns for hidden unemployment are in the North of England, while eight of the bottom ten are in the South.
Blackburn and Middlesbrough head this list. When including the involuntary inactive their unemployment rates increase from around six per cent to over 20 per cent. By contrast, in places such as Reading and Basildon the unemployment rate increases from three to eight per cent.
In many of those northern cities and large towns this is more than just a short-term problem. Increases in inactivity levels since the pandemic have received lots of attention in recent months, and rightly so.
However, in some of the places that have seen inactivity levels jump the most, like Hull and Barnsley, an increase in inactivity is concerning not in and as of itself, but because it compounds already high pre-pandemic levels.
Health has been widely discussed in recent months as a factor in rising inactivity rates. It is currently the main reason for why people are outside the labour force. There are clear regional divides here too. In Newport and Sunderland, for instance, more than 40 per cent of inactive people are not seeking work because of long-term sickness, against less than 15 per cent in Aldershot and Norwich.
Less has been said about how inactivity relates to the strength of the local economy. Hidden unemployment is particularly high in places that are economically weaker. Skills, for instance, play a key role: weaker economies in the North have a higher share of the working-age population with low qualifications, and those people face a disadvantage in the labour market.
It is also a demand issue. The economy is weak, which means the demand for workers is limited and there are few jobs available. Since the likelihood of finding work is lower (leading to higher unemployment), the incentives to stay active in the labour market and look for a job are reduced too (leading to higher inactivity).
Most northern cities account for a higher share of Britain’s hidden unemployed than their share of job postings. In aggregate they accounted for 16 per cent of vacancies but 21 per cent of Britain’s unemployed in 2022.
Contrary to what the national story has focused on recently, in those places it is a job shortage, not a labour shortage, that drives inactivity up.
The solutions that the Chancellor set out on Friday to address this challenge don’t speak to this job shortage problem. He is right to help people overcome mental illness or tackle prejudices where these stop people getting a job – and this approach is likely to be effective in a strong economy, such as Milton Keynes.
But in a place like Middlesbrough it will mean little if there isn’t a job available for someone to take up.
And this isn’t just a local issue. The high hidden unemployment rates in the biggest cities outside of London, most notably Manchester, Glasgow and Birmingham, weigh heavily on the national figures.
As Hunt himself noted, improving the performance of these places – that should be some of the most dynamic local economies in the country – would add, by his calculations, five per cent to the national economy every year. That would go a long way to tackling this inactivity challenge too.
This is where levelling up becomes so important. Thursday marks the one-year anniversary of the Levelling Up White Paper, which itself took two years to publish. It is not unfair to say that very little has happened since then. The diagnosis in the paper was a good one, with health, skills and lack of high-paid jobs all shown to be problems. But this has not been followed up with sustained policy delivery.
The Chancellor’s speech on Friday was understandably big-picture in its approach. These figures on hidden unemployment underline once more the scale of the challenge that policy makers face in both bringing people back to work and narrowing subnational divides.
If Hunt is going to achieve his goal of reducing economic inactivity and to show some progress on levelling up, big-picture now needs to be followed with micro detail next
Andrew Carter is the Chief Executive of Centre for Cities.
In his speech on Friday, Jeremy Hunt set out four ‘E’s as part of his vision to get Britain growing again.
One of those Es was for employment. In particular, he set out his goal to get those currently economically inactive, which has increased in recent years, into work.
While he’s right to identify the issue though, his solutions are unlikely to bring inactivity down in the parts of the country most affected by it.
It’s worth first saying that not all inactivity is necessarily a problem. Those that are students or have retired early, for example, are likely to be economically inactive through a positive choice.
What is more of an issue is those that are involuntary inactive – because they’ve got a health problem, say, or because they’ve become discouraged. Adding this group to those that are classed as unemployed gives a so-called hidden unemployment rate for places across the country.
The geography of this involuntary inactivity problem is particularly alarming, and there is a clear North-South divide to it. Centre for Cities’ Cities Outlook 2023 report, published today, shows that nine of the top ten cities or large towns for hidden unemployment are in the North of England, while eight of the bottom ten are in the South.
Blackburn and Middlesbrough head this list. When including the involuntary inactive their unemployment rates increase from around six per cent to over 20 per cent. By contrast, in places such as Reading and Basildon the unemployment rate increases from three to eight per cent.
In many of those northern cities and large towns this is more than just a short-term problem. Increases in inactivity levels since the pandemic have received lots of attention in recent months, and rightly so.
However, in some of the places that have seen inactivity levels jump the most, like Hull and Barnsley, an increase in inactivity is concerning not in and as of itself, but because it compounds already high pre-pandemic levels.
Health has been widely discussed in recent months as a factor in rising inactivity rates. It is currently the main reason for why people are outside the labour force. There are clear regional divides here too. In Newport and Sunderland, for instance, more than 40 per cent of inactive people are not seeking work because of long-term sickness, against less than 15 per cent in Aldershot and Norwich.
Less has been said about how inactivity relates to the strength of the local economy. Hidden unemployment is particularly high in places that are economically weaker. Skills, for instance, play a key role: weaker economies in the North have a higher share of the working-age population with low qualifications, and those people face a disadvantage in the labour market.
It is also a demand issue. The economy is weak, which means the demand for workers is limited and there are few jobs available. Since the likelihood of finding work is lower (leading to higher unemployment), the incentives to stay active in the labour market and look for a job are reduced too (leading to higher inactivity).
Most northern cities account for a higher share of Britain’s hidden unemployed than their share of job postings. In aggregate they accounted for 16 per cent of vacancies but 21 per cent of Britain’s unemployed in 2022.
Contrary to what the national story has focused on recently, in those places it is a job shortage, not a labour shortage, that drives inactivity up.
The solutions that the Chancellor set out on Friday to address this challenge don’t speak to this job shortage problem. He is right to help people overcome mental illness or tackle prejudices where these stop people getting a job – and this approach is likely to be effective in a strong economy, such as Milton Keynes.
But in a place like Middlesbrough it will mean little if there isn’t a job available for someone to take up.
And this isn’t just a local issue. The high hidden unemployment rates in the biggest cities outside of London, most notably Manchester, Glasgow and Birmingham, weigh heavily on the national figures.
As Hunt himself noted, improving the performance of these places – that should be some of the most dynamic local economies in the country – would add, by his calculations, five per cent to the national economy every year. That would go a long way to tackling this inactivity challenge too.
This is where levelling up becomes so important. Thursday marks the one-year anniversary of the Levelling Up White Paper, which itself took two years to publish. It is not unfair to say that very little has happened since then. The diagnosis in the paper was a good one, with health, skills and lack of high-paid jobs all shown to be problems. But this has not been followed up with sustained policy delivery.
The Chancellor’s speech on Friday was understandably big-picture in its approach. These figures on hidden unemployment underline once more the scale of the challenge that policy makers face in both bringing people back to work and narrowing subnational divides.
If Hunt is going to achieve his goal of reducing economic inactivity and to show some progress on levelling up, big-picture now needs to be followed with micro detail next