Employers must attract and retain economically inactive people

Employers must replace the outdated master/servant relationship with a bold and multi-faceted strategy to attract and retain economically inactive people, according to new research by employment law, HR and health and safety firm AfterAthena. 

A White Paper by Elizabeth Judson, head of client experience at AfterAthena, part of Napthens Group, explains the reasons, causes and impact of economic inactivity in the UK and the multi-faceted approach required by employers to reduce it and boost their performance and the economy.

Entitled Addressing Economic Inactivity: A Strategic Guide for UK Employers, Elizabeth’s White Paper cites the Labour Force Survey (LFS) by the Office for National Statistics (ONS) showing that the number of economically inactive people in the UK aged 16-64 in June 2024 was more than 9.4m, compared to 9.049m in the same period of 2023 and 8.8m in June 2022.

The Office for Budget Responsibility (OBR) reported that the UK had one of the lowest rates of economic inactivity among the G7 group of wealthiest nations before the pandemic, and while it has risen in the UK and USA since then it is still being below the average for the European Union.

Since the pandemic, inactivity amongst those aged over 16 rose by 830,000, including an increase of 310,000 among those aged over 64, according to the OBR. However, while the pandemic encouraged more people to enter or remain in education rather than seek work or take early retirement, the major rise in economic inactivity was because of the number of people citing long-term sickness or disability rising by 350,000 to 2.5m in the fourth quarter of 2022.

Elizabeth quoted research including by Donald Houston, professor of regional economic development at the University of Birmingham, who said the emerging long-term post-pandemic picture showed a ‘marked deterioration in the health of the working age population driving up economic inactivity’.

Such economic inactivity causes lower productivity as the economically inactive have lower disposable income and therefore spend less.

The fall in labour supply increases pressure on wages and a subsequent rise in inflation and means there’s a larger proportion of the population being reliant upon welfare systems.

Employers face challenges in recruiting and retaining staff - leading to unfilled positions, increased workloads for existing employees, higher labour and operational costs, falling productivity and unfulfilled expansion plans. 

The social impact includes higher public spending via greater reliance on benefits, inequality, a mismatch between outdated skills and demand, people feeling disenfranchised and negative effects on mental and physical health.

Elizabeth explains that the pandemic ultimately accelerated the pace of change in the workplace - with workers demanding better conditions including more autonomy and flexibility, enhanced benefits and development opportunities, investment in environmental, social and governance (ESG) and greater diversity, equity and inclusion.

She said: “The changes that employers need to make to move from an historic and outdated approach to the employer/employee relationship, to creating a relationship more suited to the modern workplace and which meets the needs of 21st century workers, requires a complete change in strategy and outlook.

“The traditional view of the employer and employee master/servant relationship is no longer working. Employers who are willing and able to be bold and rethink how they engage with people to secure the skills they require, are those that will be most successful at attracting talent from within currently economically inactive and also retaining existing employees.”

Effective strategies for employers to attract inactive workers, include:

• health and wellbeing - because long-term sickness is the main reason for economic inactivity, programmes including comprehensive health insurance can help keep people from being economically inactive
• mental health support - counselling, stress management, days off, private medical insurance and employee assistance programmes
• ergonomic workspaces
• wellness schemes
• a supportive and inclusive culture
• regular surveys and feedback
• leadership training
• flexible working - freelance, part-time and contract work to attract a wider range of people and allow staff to better manage their work/life balance
• competitive salaries, benefits and career progression opportunities
• apprenticeships and internships and partnering with universities, colleges and vocational schools

To support such strategies by proactive employers, Elizabeth noted that the government can also introduce policies to encourage inactive workers back into the workplace via:

• improved conditions for low-wage workers, including improved transport infrastructure to increase their mobility and financial incentives to relocate
• enhanced unemployment benefits to support workers during transitions between jobs
• Universal Credit improvements
• collaborative bargaining to encourage more positive relationships between employers, staff and trade unions
• investment in the NHS - particularly important because of the high number of economically inactive people citing poor mental health
• labour market flexibility - including helping workers to transition between sectors by recognising transferable skills and providing retraining schemes
• increased support for disabled people - Baroness Sherlock noted during a House of Lords debate in 2024 that disabled people are almost twice as likely to be unemployed and three times as likely to be economically inactive as the non-disabled, but more likely to want a job.

Elizabeth concludes: “Ultimately, reducing economic inactivity is a strategic imperative that benefits employers, employees and the wider community.“By embracing the strategies in this guide UK employers can make a significant impact, fostering a more inclusive, dynamic, engaged and collaborative workforce.”