Policy challenge: Tackling economic inactivity, building skills, and supporting good jobs
This page focuses on the challenge of addressing the interlinked issues of economic inactivity, skills, and good quality employment and provides links to our relevant evidence resources. We also provide links to external content. We will be updating this page as we add new content or as government policy is announced.
What are these and why do they matter for local growth?
The local labour market matters for business growth and the living standards of workers. This page focuses on economic inactivity, skills, and good jobs, because they are important for local outcomes and a focus of current UK policy debates.
More people in work, and higher productivity from those workers, will – all else equal – increase GVA.
The economically inactive are out of work, but not searching for employment (this differentiates them from the unemployed, who are searching). People may be economically inactive because they have other responsibilities, like studying full-time or caring for someone, or because they are unable to work due to illness or disability. Reducing the number of people who are economically inactive, and thus raising the proportion of the population in employment, is good for economic growth.
Skills matter because they are associated with higher productivity. More highly skilled workers tend to produce more per hour worked, or to produce more valuable goods and services, which means more GVA and higher growth. This is good for the local economy and good for the individual worker if their increased productivity means higher wages. For the unemployed or inactive, developing new skills, or receiving training on how to find work, may be important for opening new opportunities.
While reducing economic inactivity and improving skills matter for growth, the quality of jobs also matters for wellbeing (and because quality may affect economic inactivity and investment in skills). Worse employment conditions that cause stress, physical degradation, or low wellbeing, may push people out of employment, or keep them unemployed or inactive. Higher skills may help an individual secure better employment but supporting skills development of workers may itself also be a marker of good employment practice.
For an example of one area where differences in skills can affect the quality of work, you can read our blog on making sense of services, which explains why higher-skilled services can mean higher wages for workers.
The UK policy context
Following the COVID-19 pandemic many countries saw large increases in economic inactivity. Whereas these rates have fallen back towards pre-COVID levels for other countries, higher economic inactivity rates have persisted in the UK, at around 22% of the working age population (as of June 2024). Most of this increase appears to be due to long-term illness. Even before the COVID-19 pandemic, inactivity due to long-term illness in the UK had risen steadily since the 1990s. Addressing inactivity is a priority for policymakers and the Government have announced that they will introduce “work, health and skills plans for the economically inactive, led by Mayors and local areas”.
The Government has also introduced a new Employment Rights Bill to Parliament. This will (as introduced on 10th October, before amendments) include provisions for a right to a minimum number of hours in employment contracts and to request flexible working arrangements, make parental leave a right from the first day of employment and remove the current 2-year period during which new employees have fewer rights around dismissal and replace it with a shorter and more protected probationary period. The Government have opened consultations on these proposals.
More broadly, the Government have indicated that their national industrial strategy and green prosperity plan will focus on providing high-quality jobs.
The interim report of the Health Foundation-run Commission for Healthier Working Lives sets out the context of rising ill-health and its impact on economic inactivity.
For more on the importance of skills in the UK economy, this blog on skills disparities and productivity summarises the Bridging the gap report, which is part of The Economy 2030 Inquiry, a joint Centre for Economic Performance and Resolution Foundation project.
RESOURCES
Our resources
Building skills
Our skills resources cover evidence on apprenticeships and on employment training (which includes training for people both in and out of work).
Apprenticeships aim to improve individual employment prospects and wages by providing in-depth and structured on-the-job skills training. They are traditionally offered to young people at the start of their careers, as an alternative to higher education. Employers may also benefit from having more productive workers. Our evidence review on apprenticeships summarises evidence of their economic impacts.
Employment training can include a range of interventions, from accredited programmes to job search advice. Again, the aim is to improve the skills of the recipients of the training, to reduce their likelihood of being unemployed and to increase their wages.
Supporting people to re-enter and progress in work
Our in work progression toolkit on in-work support looks at policies which aim to increase employment duration and wage progression. In practice, these types of intervention are typically targeted at those who have recently (re-)entered work, so can help address economic inactivity by keeping people in employment. In general, the evidence suggests that while these programmes can increase employment and wages, effects vary and are not always positive. However, there is some evidence that when they are effective, they may be more so for disadvantaged groups. Additionally, strong financial incentives for workers to take part in programmes appear to be important for their success.
Supporting and encouraging better employment conditions
There are a range of approaches local government can take to encourage better employment practises and provision of good jobs. We have evidence that looks at:
Fair employment policies: these are voluntary measures that employers put in place to try to improve the wellbeing of their employees, and include examples like paying a living wage, stopping use of zero hours contracts, and providing more training opportunities. Our evidence briefing considers the potential economic impacts on employees, employers, and the local area, and provides guidance for local policymakers on how to think through these effects.
High involvement management practices: these are policies adopted by businesses which aim to increase employee involvement in management decision making, and to equip employees with the skills and autonomy to identify improvements in firm processes. Our toolkit on these policies looks at the evidence of their impact on wages and job-related outcomes for employees.
Public procurement: increasingly public procurement is used as a policy lever at the local level, to try to generate wider benefits. This can include using procurement to encourage fair employment policies, or provision of training opportunities. Our evidence briefing on local procurement gives guidance on how to think through the local effects of using public procurement in this way. Our rapid evidence review on local procurement summarises impact evaluation evidence on the effectiveness of procurement for bringing wider benefits.
Improving take-up of programmes
One barrier facing interventions to support people who have been economically inactive for some time into work may be that groups targeted by such interventions could be harder to reach.
Our toolkit on increasing take-up summarises evidence on design elements for programme outreach that can help support higher engagement by target populations.
The report Low Pay Britain, part of the Economy 2030 project, sets out wider evidence around work quality in the UK, and ideas for improving the situation at a national level.
The Health Foundation’s evidence hub has explainers on the determinants of ill health, including the relationship between work quality and income and health. The hub also includes a dashboard which provides health data for all local authorities in England: https://www.health.org.uk/evidence-hub
Balancing health and economic priorities can be a challenge, especially where outcomes may clash. Taking a health in all policies approach – considering the health impact of all policies and examining and mitigating when an intervention in one space might contradict wider health objectives – is advocated by many organisations in public health, including the WHO. You can read more about this approach in a Health Foundation report here. Taking this approach requires a good understanding of how an intervention’s activities may impact a range of outputs and outcomes. Our guide on using logic models outlines one approach to breaking this down.
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