Unemployment is not participation

The United Kingdom’s participation puzzle is now older than most of the commentary about it. After the pandemic, a large group of people did not come back into the labour force. Long-term sickness is the headline reason in the survey. Early retirement is part of it. So is a benefits system, an NHS waiting list, and a set of jobs that do not look worth the commute.

Macroeconomists talk about this as a supply shock. Fewer people available to work means potential GDP is lower, which means the same level of demand is more inflationary. That is one reason the Bank spent 2023 and 2024 raising rates even as employment looked, on some measures, “strong”. Strength that comes from a smaller labour force is not the strength you want.

The politics likes simple fixes: more conditionality, more childcare, more waiting-list surgery. Each of those can matter at the margin. None of them is a switch. Inactivity that is about chronic illness does not reverse because a Budget speech tells it to. Inactivity that is about pay and transport might.

From a regional desk the pattern is obvious. Places with poor health, weak private-sector wage paths and thin public transport have higher inactivity. Places with professional services and expensive housing have people who cannot afford to leave the labour force even when they are exhausted. National averages wash both facts into a single rate.

If participation recovered while vacancies were falling, unemployment would rise and wage pressure would fall further. That would be a cyclical gift to the MPC and a human cost in the claimant count. If participation stays low, Britain will go on running a hot-looking labour market on a smaller base, and we will keep importing workers for the jobs that still exist while wondering why measured productivity is stagnant.

There is no weekly indicator that settles this. The honest publication schedule is slow: inactivity by reason, health waiting lists, and the quality of jobs on offer in the places where inactivity is highest. We will keep putting those numbers next to the unemployment rate until the latter stops being used as a synonym for the former.