The prize for tackling health-related economic inactivity

Blog posts

23 Nov 2023

Daniel Muir, Research Economist (Fellow)

Follow @daniel_muir_36

This blog was originally published on the website of Adzunaone of the largest online job search engines in the UK.  

Health related economic inactivity is arguably the biggest social and economic challenge facing today’s labour market. Economic inactivity due to long-term ill health has risen dramatically in recent years, up by 500,000 people since before the pandemic. And there is little sign of this trend slowing down, especially as the population continues to age.

There are likely to be a number of reasons for this trend, including people waiting longer for health treatments; a deterioration of general health during the pandemic; the impacts of long Covid; a lack of access to appropriate employment support; and changes in workplace practice or employer attitudes around health and disability.

The chart below shows the dramatic rise.

Graph 1

Further analysis by IES shows that virtually all of the growth (to mid-2022) could be accounted for by people who were already out of work before the pandemic began, so appears to be less explained by people with long-term health conditions leaving work than by those with long-term conditions being unable to get back in. The resulting shrinkage in the labour force is contributing to acute labour and skills shortages – with more than a million unfilled vacancies and fewer unemployed people than there are jobs available – which is holding back growth and may be adding to pay pressures particularly in the private sector as well as recruitment and retention problems in public services.

It’s therefore unsurprising that this issue has drawn significant attention among labour market commentators and policymakers in recent months and years.

It is also anticipated that combatting health-related worklessness will be one area of focus in the chancellor’s Autumn Statement.  

Benefits of tackling health-related economic inactivity

What then might the potential benefits to the Treasury (including increased tax receipts, reduced benefit payments, and reduced healthcare costs) and society (including multipliers associated with increased earnings, spending and output, and improvements in health and wellbeing) as a whole be from tackling the issue of health-related economic inactivity? Let’s do a VERY VERY rough cost benefit analysis type exercise.

Looking at the latest data from the Labour Force Survey (July 2022 – June 2023), there were 2.7m people of working age (16-64) that are economically inactive and not looking for work due to long-term ill health (note that this is not the same as the chart above, which is based on the main reason for their economic inactivity). Naturally, not everyone with a health condition and disability is able to work, and those that can’t shouldn’t be forced to do so – rather, they should receive the support they need to live a decent quality of life.

So, let’s focus instead on those who might be able to work in the future – 566,000 of the 2.7m above think that they will definitely or probably work in the future. Among these individuals, the two main types of health condition are mental health conditions (nearly 70% report having depression, bad nerves, anxiety or other mental illnesses) and musculoskeletal conditions (37% report having problems relating to arms, hands, legs, feet, neck or back).

How might we value the benefits of one of these individuals moving into work? There are a few tools out there that are publicly available.

The Greater Manchester Combined Authority unit cost database collates estimates from research of the value to society and the Treasury of outcomes relating to crime; education and skills; employment and economy; environment; fire; housing; health; and social services.

Public Health England have also published research investigating this, alongside a tool for estimating the Return on Investment from individuals moving into employment.

Both of these are based on research that is somewhat out of date now, particularly when considering the transition to Universal Credit. As such, these figures might not accurately reflect the true value of what were interested in: the personal tax allowance is much more generous to those in low paid work under Universal Credit, which would decrease the fiscal benefit, for instance. But for simplicities sake, lets use the figures from GMCA’s unit cost database.

In there, the estimate of the benefit to the Treasury of an Employment and Support Allowance claimant (arguably the most applicable equivalence to the type of individuals we are talking about) moving into sustained employment for a year is £14,578 per person, and £16,322 to society as a whole. Of the 566,000 individuals in the above group, 268,000 (47.5%) were claiming Universal Credit. Suppose that with the right support, 67,000 (25%) of these individuals were able to enter sustained employment in a year (80% of this group have previously worked, so this is not entirely implausible), that would lead to a total benefit to the Treasury of £976m in the year, and of £1.094bn to society as a whole.

As stated, this is a very rough exercise that is highly simplistic and based on a huge number of assumptions, some of which are outdated or not at all representative (no doubt they will have conducted far more detailed research into this using the employment, income, tax, benefit and health expenditure data that they have access to). BUT this does provide an idea of the magnitude of the figures around this issue, and why it is of such interest to policymakers.

What, then, can be done to help support people with long-term health conditions and disabilities get into work? Here are some of the options available:

Provide funding for policies and programmes that work…

Nationally-commissioned employment support is limited, with the Work and Health Programme supporting only around 40,000 disabled people per year between 2018 and 2022, and the Intensive Personalised Employment Support (IPES) programme for disabled people benefiting just 6,000 people since December 2019. And many organisations involved in the provision of services are concerned about funding gaps, especially around the end of the European Social Fund, which has been important in enabling wider reaching support for disadvantaged groups including those with health conditions or disabilities. The UK Shared Prosperity Fund, its post-Brexit replacement, is narrower in scope, scale and flexibility.

In a world with ever tightening financial constraints on the public purse, policy and practice more than ever needs to be evidence based – identifying policy and practice that works through robust research and then providing the necessary funding is key.

Individual Placement and Support is a well evidenced intervention with numerous high-quality studies finding it to be effective in achieving employment outcomes for groups with high needs including health conditions or disabilities, and some evidence points to employment resulting from IPS leading to improved health. The Health-led Employment Trials are the largest trial of IPS that has been seen internationally, with over 9,700 individuals across West Midlands Combined Authority and Sheffield City Region with mild-to-moderate health conditions participating.

The recently published evaluation by IES and partners found that were significant positive impacts on entry to sustained employment in two of the three trial groups as well as positive impacts on health and wellbeing, although evidence around the quality of work and whether this effected health were less convincing. Assessing whether interventions such as IPS are affective, and then scaling up their provision should they be will help support those with health conditions or disabilities enter the labour market, providing benefits to society as a whole.

Consulting organisations and experts at the forefront of tackling the challenges faced by individuals with health conditions and disabilities, as has the Commission on the Future of Employment Support in its call for evidence, is key to identifying policies and practices that will work. For example, CDI had called for the expansion of the Mid-Life MOT, which will provide employees space for the consideration of the role played by health in their current and future labour market activity.

…and avoid measures that do not

As well as delivering employment support, Jobcentre Plus administers the main benefits for adults below State Pension Age including Universal Credit, and monitors whether individuals are meeting their conditions of receiving benefit (particularly those related to looking for work) and administers sanctions for non-compliance. While there is some evidence that Jobcentre Plus and more specialist support for people unemployed for longer have been effective in reducing benefit claims and increasing employment, there has been growing evidence that the negative consequences of conditionality and sanctions for many of those further from work has outweighed any potential benefits.

The UK has among the strictest conditionality regimes in the developed world, and among the most punitive sanctions rules. This can undermine relationships between work coaches and jobseekers, as well as contributing to poverty and destitution, poorer wellbeing and less secure employment. The focus on rapid job entry rather than finding the right job can lead to poor quality job matches, job insecurity and higher turnover in work – which combined with relatively weak alignment with skills and careers support may be contributing to pay inequalities and weaker productivity.

Baumberg Geiger (2017) in their review of international evidence on benefits conditionality for disabled people, suggest that the impact of conditionality on disabled people is likely to be more negative than on non-disabled people, for whom the evidence suggests on the whole that sanctions increases job entry but often to low-quality jobs and also increases the number of people not claiming benefits who are not in work. And whatever evidence there is for the impacts on disabled people suggests that these are either zero or negative with regard to work-related outcomes, as well as leading to destitution and negative impacts on mental health in the absence of other support.

Despite this, policies announced in the budget in March included a tightening of the application of job search requirements and benefits sanctions. Job search requirements for people with long-term health conditions could be left at the discretion of Jobcentre Plus work coaches without health professional input. The current conditionality regime assumes that unemployment is driven by individuals’ behaviours alone. This is not the case: an individual’s labour market outcomes are affected by various other factors which they have limited or no control over. Requirements on availability for work and engagement in job search in order to receive unemployment benefits are logical and warranted, but the adverse impacts of a highly punitive sanction regime need serious consideration.

Focus services and support on specific needs

There needs to be a much greater focus on the development of joined up services with providers of healthcare, housing and social support to identify and tackle wider barriers to employment through holistic and personalised support.

Mind advocate for a greater role for health settings within employment support, along with additional reforms to Access to Work. The Society of Occupational Medicine advocate for using the skills of Occupational Health trained professionals in a future public system support model (within or alongside Jobcentre Plus for example), playing a larger role in recommending reasonable accommodations for those in danger of falling out of work, including those with health conditions and disabilities. Canterbury Christ Church University point to evidence that mental health professionals can be part of the employment support provided to young people with acute mental health needs.

Employment services could also be further digitised, allowing better connection and support for those with disabilities and health conditions that make access to physical Jobcentre locations more difficult.

Any digital employment services should be co-designed and developed with service users to avoid unintended consequences including digital exclusion of certain groups, for instance the visually impaired, and ensure services meet the needs of end users. Hybrid modes that offer choice would maximise the potential of digitisation while maintaining universal access.

Consider devolving provision and find local solutions

Jobcentre Plus was formed in 2001 alongside the creation of the Department for Work and Pensions which formally brought together employment services and benefit administration in Great Britain. This has led to a highly centralised approach with policy, funding and commissioning generally directed by Whitehall and then directly delivered through Jobcentre Plus or centrally commissioned to private and voluntary sector providers, although in more recent years has seen some greater devolution, particularly to Scotland.

Within England, employment policy is fully the responsibility of DWP, but in two areas (Greater London and Greater Manchester) the commissioning and oversight of the Work and Health Programme was devolved, with those areas also able to make minor changes to the design of the programme. Many countries have a higher degree of devolution of employment support and public services in general, and evidence shows that in nations including Canada, the Netherlands in the USA, this has led to reduced caseloads and increases in employment.

Devolution is not a magic wand and is not always the solution, but the devolution of powers can support more joined up provision, resulting in better outcomes for individuals with more complex needs including those with health conditions and disabilities.

The implementation of the No-One Left Behind approach across LEPs in Scotland or the local Labour Market Partnerships in Northern Ireland could offer blueprints for devolution and partnership working in England too.

Place-based initiatives such as the Good Employment Charter for Greater Manchester and the West Yorkshire Fair Work Charter are also potentially effective means to drive changes in employer practice.

In Greater Manchester, employers were invited to become supporters of the Charter by making commitments regarding health and wellbeing and the other six characteristics of good employment, with supporters becoming members of the charter once they meet key criteria for all characteristics. Initiatives like these are a strong way of influencing practice among employers, but the benefits to employers of adjusting their practices need to outweigh any costs they may face in doing so (eg by making the workplace more accessible) in order for them to be effective.

Whatever the mechanism, policy needs to find a way to encourage employers to do more when it comes to considering health conditions and disabilities in their HR practices through adjustments to recruitment practices, job design, and so forth. 

Adjust incentives in current policy

The payment-by-results model of the Work and Health Programme may have encouraged ‘procedural innovations’ to deliver services more efficiently and at lower cost, however it may have inhibited more far-reaching innovation in supporting those further from work including those with health conditions and disabilities where the benefits may be uncertain and the costs significant, with providers being less likely to target their services at these groups – see these evaluations by IES and CESI on behalf of DWP.

Aligning the incentives of programmes that employ payment-by-results models to the needs of groups further from the labour market including those with health conditions or disabilities would significantly improve their outcomes.

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Any views expressed are those of the author and not necessarily those of the Institute as a whole.