The path to full employment requires a greater focus on inactivity

If you ask most people where jobs growth comes from they will probably point to reductions in unemployment, that is, people looking for and available to work. Somewhat surprisingly, however, during normal times most new entrants come from ‘economic inactivity’, a group that reports being unavailable for or not actively seeking work for a variety of reasons including health, retirement, family responsibilities and study (the majority of entrants from inactivity are not students, however).

With the economic recovery now entrenched and unemployment approaching what is judged to be the equilibrium level, we are arguably closer to ‘normal’ than at any point in the past eight years. Therefore, as we’ve argued in our current project defining full employment and describing the economic and policy conditions likely to move us towards it, achieving further increases in the number of people in work means an explicit focus on inactive groups including disabled people, the low qualified, single parents and older people.

Crucially, this requires a different approach. The economically inactive are less likely to be subject to benefit conditionality than the unemployed or to be engaging with back-to-work support for benefit recipients, and they may have more prominent barriers to entering the workplace. While it remains important to focus on the ‘push’ factors associated with welfare receipt – particularly with the extension of Universal Credit conditionality to over 1 million new claimants, many of them inactive second earners – strengthening ‘pull’ factors and breaking down barriers take on increasing significance.

Encouragingly, some ‘pull’ factors should improve naturally in a tightening labour market. Sustained wage growth and the offer of quality jobs are more likely as labour becomes scarcer, in turn inducing people further from the jobs market to invest the time and effort required to move into work, therefore boosting labour supply.

But it’s important to ensure that signals of quality are coming from the right places. Our analysis shows that people entering work from inactivity are most likely to move into part-time roles – 69 per cent do, compared to 41 per cent of previously unemployed job entrants, and only around a quarter of the existing workforce. Mothers and older workers moving into work from inactivity are particularly concentrated in part-time jobs. And this tendency to work part time appears likely to reflect a preference rather than a constraint – part-time workers who were previously economically inactive complain of underemployment less than either previously unemployed part-timers or the existing part-time workforce. In sum, encouraging ‘low activity’ groups to join the workforce would appear to require strong signals of quality from the part-time and flexible jobs market in particular.

This conclusion is echoed in new research published today by Timewise, which highlights the unmet demand for quality, well-paid jobs offering flexible or part-time hours from both workless adults and people currently working below their skill level, particularly parents, disabled people and older workers. Timewise recommends a range of actions to stimulate the flexible hiring market including support for employers around job design, reporting of part-time-full-time pay gaps, and leveraging the role of government as an employer and recruiter at the national and local levels.

So full employment – now an explicit government priority with soon-to-be statutory obligations to report progress towards this goal – means reducing inactivity, which in turn means improving flexibility. These are common goals at this time of year, but unlike so many New Year’s resolutions, we need to persevere to get to a labour market at full health.