The government’s recent ‘Get Britain Working’ white paper restated their ambitious target to get 80% of 16-64-year-olds into work. According to official statistics, around 75% of 16-64-year-olds are in work, so hitting this target would mean 5% of 16-64-year-olds moving into work, around 2.2 million people.1
For the government, moving 2.22 million people into work would likely reduce current fiscal headaches by increasing tax revenue and reducing welfare spending. The extent of the savings would depend on who is brought into work. OBR estimates suggest that moving 400,000 people who are out of work due to ill health into work could save around £10 billion through higher tax revenue and lower benefit spending.3 For a sense of scale, raising the basic rate of income tax would raise approximately £6 billion.
Increased employment rates could also benefit many people. There are 3.3 million 16-64-year-olds who are not in work but say they would like to be. Bringing some of this group into work would make significant progress towards the government’s target. There are a further 7.4 million 16-64-year-olds who are neither working nor want to work. It is worth remembering that raising the employment rate is not an unalloyed good: many of this 7.4 million are studying full-time, or are doing unpaid care work, or simply prefer a lower income out of work than the higher income they could achieve in work. And for others work may not even be possible, particularly for those with significant disabilities. However, the government may be able to remove some of the barriers to work for some in this group of 7.4 million potential workers too.
How might the government achieve its aim? The rest of this piece explores what we can learn from history and international examples.
Table 1 shows that employment rates increased substantially in the fifteen years before the pandemic. Employment rates initially fell from 73% in 2004 to 70% in 2009 due to the financial crisis, but then grew strongly to reach 76% in 2019. Almost all the increase in employment rates since 2004 is due to rising employment rates for women. Between 2004 and 2019, the female employment rate increased from 66% to 72%, while the male employment rate only increased slightly from 79% to 80%.
Two trends explain most of the improvement in employment rates. First, many women who previously had been out of work due to caring responsibilities in the home moved into work. Second, fewer people were out of the workforce due to retirement, partially due to the increase in state pension age for women from 60 in 2009 to 65 in 2019 (and then 66 in 2020).4
Since 2019, we have seen weaker performance in employment rates. Official statistics suggest that the employment rate has fallen by around 1 percentage point since 2019, primarily due to an increase in people who are not looking for work due to long-term illness – from 5.0% to 6.6% of 16–64-year-olds. Alongside this, there has been a dramatic rise in the health-related benefits caseload from 7.5% of the working age population in 2019 to 10% in 2023.5 Not all health-related benefit claimants report being out of work due to ill health. Some claimants work (around 15%), and some claimants report not working for other reasons.6 The causes of this rise in health-related inactivity and claims to health-related benefits remain unclear.
That said, there are serious concerns about the post-pandemic Labour Force Survey, on which employment and economic inactivity statistics are based. Alternative sources suggest the employment rate has returned to its pre-pandemic peak of 76% rather than falling to 75%. Even if this is true, it represents a slowing of employment growth relative to pre-pandemic trends.
Table 1. Percent of 16-64-year-olds by labour market status, 2009-2024
Date | Employed | Unemp-loyed | Inactive (Total) | Economically inactive, by main reason: | ||||
Looking after family/home | Long-term illness | Student | Retired | Other | ||||
Jul-Sep 2004 | 72.9 | 3.6 | 23.5 | 6.4 | 6.1 | 4.5 | 3.6 | 3.0 |
Jul-Sep 2009 | 70.6 | 6.1 | 23.3 | 5.9 | 5.5 | 5.5 | 3.8 | 2.6 |
Jul-Sep 2014 | 72.9 | 4.8 | 22.3 | 5.7 | 5.0 | 5.8 | 3.2 | 2.7 |
Jul-Sep 2019 | 75.7 | 3.2 | 21.1 | 4.8 | 5.0 | 5.6 | 2.7 | 2.9 |
Jul-Sep 2024 | 74.8 | 3.4 | 21.8 | 3.9 | 6.6 | 5.8 | 2.5 | 3.0 |
Source: Author’s calculations using Labour Force Survey.
Going forward, the Government cannot count on the strong employment rate growth of the 2010s returning. The fall in unemployment during the 2010s is unlikely to be replicated, as we are already at close to record low levels of unemployment. There were big changes in the state pension ages for women aged 60-64 in the 2010s which will not occur again in the next decade. The trend towards fewer people (mostly women) not working due to caring responsibilities has continued through the pandemic, so this may be one trend which continues to push employment up – though the rate of inactivity due to caring responsibilities has reached very low levels so there is a limit to how much further declines can realistically contribute. Moreover, if the rise in inactivity due to ill health continues that will put downward pressure on the employment rate; in such a scenario it would be difficult for the government to achieve its 80% employment rate target without policy intervention.
One constant over the last twenty years is significant geographic differences in employment rates. Figure 1 shows employment rates across different local authorities in Great Britain. Almost a third of local authorities already have employment rates of 80%, while one in six have employment rates below 70%. These differences are the result of both differences in population characteristics across areas and the jobs on offer across areas. Bringing employment rates in the bottom half of authorities up to the average (median) would increase the employment rate by around 3 percentage points - more than half of what is required to hit the government’s target.7
Lessons from abroad
One way to find a path to an 80% employment rate is to learn from the four countries who have already achieved it. Figure 2 shows that the UK currently sits towards the top of the international employment rate league table. But there remains a sizeable gap between the UK’s employment rate of 75% and the top four countries who have achieved an 80% employment rate: Iceland, Netherlands, New Zealand and Switzerland (referred to from now on as frontier countries). So, how have they achieved this?
Two age groups - 15-24-year-olds and 55-64-year-olds - can explain most of the difference in employment rates between the UK and the frontier countries.8 Figure 3 shows employment rates in the UK and the average for the four frontier countries by age and gender. While the UK employment rate for people aged 25-54-year-olds is close to the frontier, only 53% of 15-24-year-olds are employed in the UK relative to 68% in the frontier countries, a 15 percentage point gap. Similarly, 65% of 55-64-year-olds are employed in the UK relative to 77% in the frontier countries. The employment rate gaps for 15-24-year-olds and 55-64-year-olds together explain three quarters of the difference in employment rates between the UK and the frontier countries. This suggests that the most plausible route to an 80% employment rate involves increasing employment rates for older and younger workers. I discuss employment rates for older and younger workers in more detail in the following sections.
In contrast to the big differences in employment profiles by age, the gender employment gap is similar in the UK and in the frontier countries. In the UK, 71.9% of working age women are employed compared to 78.4% of working age men (a 6.6 percentage points gender employment gap). In the frontier countries, 78.3% of women are employed, compared to 85.0% of men (6.8ppts difference). Of the four frontier countries, only Iceland has a smaller gender employment gap than the UK. Closing the gender employment gap in the UK would be a big step to the 80% employment rate target but would not take the UK all the way. International examples suggest that the UK will likely need to raise employment rates for men and women, if it wants to hit the 80% target.
Why is employment lower for people near retirement ages in the UK relative to the frontier?
Table 2 shows employment rates near retirement age and normal retirement ages (the age at which you can claim a full state pension) in the different countries. In all five countries the normal retirement age is over 64, so differences in normal retirement ages are unlikely to explain the difference in employment rates. It also shows that the employment gap between the UK and the frontier countries is already wide for 55–59-year-olds, more than five years before normal retirement age.
Table 2. Normal Retirement Age and Employment Rates for 55–64-year-olds, 2023
| Country | Normal Retirement Age | Employment Rate for 55–59-year-olds | Employment Rate for 60–64-year-olds |
|---|---|---|---|
| UK | 66 | 74.4 | 55.3 |
| Netherlands | 67 | 82.1 | 67.5 |
| Iceland | 67 | 83 | 79.2 |
| New Zealand | 65 | 83.2 | 73.7 |
| Switzerland | 65 | 82.7 | 65.8 |
Source: OECD.
Instead, ill health and early retirement are likely to be the two key reasons for lower employment at older ages in the UK than in the frontier countries. Two-thirds of 50–64-year-olds who are not working have either taken early retirement or are not working due to ill health. Official statistics suggest that the rise in people not working due to ill health has been particularly stark for 55-64-year-olds. 11.3% of 55–64-year-olds were inactive due to ill health in 2023, up from 8.9% in 2019.9 If the government wants to increase employment for older people, it will likely need to take measures that reduce the number of people not working due to ill-health or encourage people not to take early retirement.
History suggests higher employment rates for older people (and particularly men) are possible. In 1975, 86% of men aged 50-64 were employed – compared to 75% now, despite significant improvements in life expectancy since 1975 (Banks, Emmerson and Tetlow, 2019).
Why is employment lower for young people in the UK relative to frontier countries?
When considering employment rates for young people, it is useful to separately consider young people in and out of education. Figure 4 shows employment rates for 15–24-year-olds for the UK and the four frontier countries in 2019 and 2023 by whether they are in education. Interestingly, the UK stands out for having low employment rates amongst young people in education. In 2023, 41% of 15-24-year-olds in education in the UK were in employment, compared to 59% on average across the frontier countries and over 70% in the Netherlands. This partly reflects differences in the education systems. In the Netherlands, 69% of students in upper secondary education (typically 15–19-year-olds) are engaged in vocational education, which typically involves 4 days in the place of education and 1 day in the workplace. The government may be able to make changes to the education system to encourage more people to work while studying, although naturally this comes with potential trade-offs with longer-term outcomes.
The UK also has lower employment rates for young people not in education, but the gaps here are smaller. 74% of 15-24-year-olds who are out of education are in work in the UK, compared to 82% on average across the frontier countries. Nevertheless, this may be a particular concern to the government as young people in education are likely to transition into productive work in future, whereas spending a significant amount of time not in education, employment or training as a young person may result in lasting scarring effects on future life outcomes. A particularly worrying trend in the UK is the increase in 18-24-year olds stating that they are not working due to ill health- from 143,000 in 2019 to 193,000 in 2023, and the related increase in young people claiming health-related benefits. Finding a way to support these young people into work could improve their future life outcomes and make significant fiscal savings.
How could the government achieve its employment target?
There are many ways the government could try to increase employment. This analysis suggests the most plausible route to an 80% employment rate involves improving employment rates for those at the beginning and end of their careers, reducing the number of people not working due to ill health, and reducing geographic inequalities in employment rates.
The government’s ‘Get Britain Working’ white paper sets out a diagnosis of the barriers to higher employment that broadly matches this analysis. They include a range of policies to try tackle these barriers including health interventions aimed at reducing health-related inactivity and a youth guarantee, which sets the aim that all 18–21-year-olds should be in education or employment. However, relative to the ambitious aim to get 2.2 million more people into work, the funding was fairly modest (£240m) and much of it devolved to a selection of ‘trailblazer’ areas. While there is a case for trialling interventions to test whether they are effective, the government will likely need to scale up interventions for them to result in significant progress towards their ambition. And of course, much of this is simply outside direct policy control: macroeconomic shocks, or changing norms around parents or women in work, or changes to the labour market from AI could all make the target much easier – or harder – to meet.