The UK economy has a problem with its over-50s: following the COVID pandemic, they have been leaving the workforce en masse, causing headaches for businesses and the government. About 300,000 more workers between the ages of 50 and 65 are now “economically inactive” than before the pandemic, prompting one tabloid to dub the problem the “silver exodus.”
Being economically inactive means that these older workers are neither employed nor looking for work. Of course, it could simply be that workers saved more during the pandemic and can now afford to retire comfortably earlier than planned.
But if older workers have been thrown out of work due to health risks or lack of opportunity, it would mean the economy is being deprived of potentially productive workers, which could cost the state in a number of ways. So what’s going on?
Make sense of the exodus
In our latest research, which has just been made available online as a policy briefing note, we’ve taken a deeper dive into the rise in economic inactivity among the over-50s and what it means for the economy using the Labor Force Survey. Latest UK (LFS) data.
Surprisingly, the exodus of silver is not concentrated in the wealthiest segments of society, although one might expect them to be the most fit to retire. Instead, it is primarily a middle to lower-middle income phenomenon. As shown in the graphs below, the biggest increase in inactivity after the pandemic comes from workers in the lower middle income bracket (earning roughly £18,000 to £25,000 per year at their most recent job). In each graph, the line shows the percentage of employed workers aged 50 to 65 who became economically inactive one year later.
Workers who become inactive (%) by income quartile
There is also other evidence that supports the idea that the increase in inactivity is concentrated in the lower-middle part of the income distribution. For example, there has been a greater increase in inactivity among people who rent, rather than own, their own homes, and among those in lower-paid industries and occupations. There has also been a smaller increase in inactivity among highly educated workers.
What jobs are older workers leaving and why?
The industries with the largest percentage increases in inactivity among those over 50 are wholesale and retail trade (+40%), transportation and warehousing (+30%), and manufacturing (+25%). Meanwhile, the occupations with the largest percentage increases are machine and process plant operators (+50%) and sales and customer service occupations (+40%). To put this in context, the comparable percentage increase for 50+ for the entire economy is 12%.
Several factors potentially explain these differences. The sectors in question were in long-term decline before the pandemic, and were also hit hard when COVID hit. Workers may have considered it unlikely that they would get their job back in a declining industry, and may have chosen to retire rather than seek another job or retrain.
They are also sectors with high levels of social contact where it is not possible to work from home, so perhaps some older workers chose to resign due to fears for their health. Taken together, the message is that the rise in inactivity has been driven by older workers receiving lower returns from continuing to work: why keep working a low-paying job in a declining, pandemic-affected part of the economy? ?
Will they go back to work?
It is not uncommon for workers to become economically inactive after a recession, because finding work is difficult and people can get discouraged. This is what happened after the global financial crisis of 2007-09, for example.
It could be that the workers in today’s exodus will resume looking for work when the economy improves, but there is no sign of this happening. The rise in inactivity among those over 50 is already three times higher than ever after the last financial crisis.
Several facts also suggest that these people really don’t want to go back to work. All of the increased inactivity is coming from workers who say they don’t want a job and think they’ll “definitely” never work again. Its main reasons are retirement and illness, although the data reveals that the increase in inactivity due to illness began at least two years before the pandemic and was not greatly affected by the pandemic itself. In other words, the desire to retire is really the main reason for the rise in inactivity.
It’s worth noting that before the pandemic, the number of retirees was declining as workers retired later in life. This was driven by increases in the state retirement age, which rose from 65 to 66 between 2019 and 2020. The increase in retirements that we have seen during and after the pandemic is in part the emergence of an underlying trend that has been hidden. while raising the state retirement age.
Political implications and challenges
This unprecedented rise in inactivity among those over 50 poses significant challenges for the economy. It comes at a time when the government is grappling with rising resignations among other age groups, labor shortages, rising costs of living and the revolving effects of Brexit. Given their relatively low incomes, these retirees could also face financial difficulties later in retirement and increase pressure on public spending. So what can be done to stop or even reverse the exodus of silver?
The increase in inactivity is not in the lower-income sectors of society, where the government concentrates its efforts to encourage work through the benefits system. Therefore, the government could consider extending these incentives, such as work tax credits, to reach lower-middle class people and try to encourage them to return to work.
Perhaps the cost-of-living crisis will force the over-50s back to work, partially solving the UK’s labor shortage. But solving one problem with another is not likely to make anyone, workers, business, or the government, any happier. Therefore, difficult days are ahead.