Almost a million workers missing in under-performing regional labour markets

Closing the ‘jobs gap’ among groups furthest from the labour market would put Chancellor on track to meet his target of getting two million more people into work

Raising employment rates among groups who are furthest away from the labour market up to the level seen in the best performing areas of the UK would help around 900,000 more people into work, according to a new briefing published today (Sunday) by the Resolution Foundation.

The report – published as part of its investigation into realising full employment in our times, to be launched tomorrow – analyses the gap in employment rates between different groups of workers in the three best performing areas of the UK (the East of England, South East and South West) and the worst performing areas (which varies for different groups).

It finds that employment among ‘high participation’ groups of workers – prime age (30-49 year old), highly qualified, non-single parent and non-health-limited – is consistently very high throughout the UK (averaging over 91%). There is a ‘jobs gap’ of just 3 percentage points between the best and worst performing areas.

However, the regional jobs gap is significantly larger among groups who tend to find it hardest to enter employment. The report finds that:

• Among groups with ill-health or a disability there is a 19 percentage point gap between the employment rate in the best performing areas (54 per cent) and the worst performing part of the country (35 per cent in Merseyside);
• Among the lowest qualified group there is an 18 percentage point gap between the three best performing areas (65 per cent) and Inner London (47 per cent); and,
• Among single parents, an 18 percentage point gap exists between the three best performing areas (68 per cent) and Northern Ireland (50 per cent).

The Foundation says that closing these jobs gaps could raise employment by around 900,000. This boost, together with the one million people who the OBR expects to join the workforce over the course of the Parliament due to population growth – would help the Chancellor achieve his target of increasing employment by 2 million by 2020.

The report adds that the potential gains may be higher still because the employment rates among those groups with below average levels of participation in the jobs market in the top performing parts of the country can themselves be improved over the coming years.

The Foundation says that boosting employment among such individuals, including those with disabilities or ill-health for example, would improve prospects for the individuals and have clear benefits for the wider economy. It argues that targeting policy in this area should be a key focus as part of the Chancellor’s drive towards full employment.

The report notes that while success in meeting the government’s current employment target would put the UK on course to achieve the highest employment rate among G7 countries, an even more ambitious target would be needed to join the top ranks among all advanced economies.

The UK’s current employment rate among 15-64 year-olds (the measure used for international comparison) of 72.6 per cent – already its highest level since comparable records began in 1999 – is still some way below pre-crisis employment peaks in Denmark (78.2 per cent) and the Netherlands (77.7 per cent), as well as the post-crisis peak in Sweden (75.2 per cent).

Based on these international examples, the Foundation says that an employment rate in the mid- to high-70s could serve as a testing target for full employment. Over the course of its investigation the Foundation will continue to refine the full employment target, alongside identifying the public policy measures needed to move towards such a goal.

The report also finds that there may be some trade-offs in securing full employment. For instance, helping marginalised groups into work may have a short-term negative impact on the headline productivity measure (output per hour worked) if they are initially less productive on average than the existing workforce. However, the Foundation says that the long-term gains associated with getting more people into the labour market should outweigh any short-term blips in productivity.

David Willetts, Executive Chair at the Resolution Foundation, said:

“Britain already has a strong performance on jobs. But we can do even better. Our weakest regions should perform as well as the best in getting marginal groups into work. Above all we need to do better at boosting employment for people with disabilities or long term health problems.

“Achieving full employment, which the Chancellor is right to target, will boost economic output and raise living standards by strengthening workers’ ability to secure stronger wage growth.”

Matthew Whittaker, Chief Economist at the Resolution Foundation, said:

“Our jobs performance has been one of the UK’s big successes stories in recent years, though pay and productivity growth have fared much less well.

“But It’s important to recognise that further increases in the employment is not a given. Instead it will require government to set the right macroeconomic conditions, alongside pulling the right policy levers to stimulate job creation. Securing full employment is a realisable goal and would bring millions more people into the workforce. It’s a big prize worth focusing on.”

Paul Gregg, Professor of Economics at the University of Bath, said:

“The UK is already very close to full employment among those with no barriers to work. But among groups such as the low-skilled or those with ill-health and disability, far more must be done to support people into work.

“Raising employment levels towards those of the best performing regions of the UK could help almost a million more people into work and put the government on track to reach its ambitious employment target.”