Economic Participation, Employability and Worklessness
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Economic participation, employability, and unemployment are crucial for local and regional economic development, affecting a community's ability to use its workforce, individuals' access to livelihoods, and overall economic growth. Understanding these concepts is vital for building inclusive and resilient communities.
Defining Key Terms
Economic Participation: Refers to an individual's economic status (employed, unemployed and seeking work, or neither). The International Labour Office (ILO) defines "economically active people" as adults working or seeking work. The "activity rate" is the proportion of the population engaged in economic activity.
Unemployment: According to the ILO, this applies to individuals aged 16 and over who are without a job, want a job, have actively sought work in the last four weeks, and are available to start within two weeks, or are waiting to start a new job. The "unemployment rate" is the share of economically active adults who are unemployed. In the UK in December 2024, the working-age population was 41,845,200, with 32,834,000 (78.5%) economically active and 1,256,000 (3.0%) unemployed.
Employability: Encompasses an individual's ability to gain, maintain, and move between jobs, ideally securing fulfilling work (Hillage and Pollard, 1999). It is influenced by individual assets (skills, attributes), how these are presented to employers, their deployment for opportunities, and contextual factors like social circumstances and labour market conditions. Employability becomes a concern when individuals face significant barriers to work, leading to unemployment or economic inactivity.
Why Economic Participation Matters for Local Economies
Broad economic participation is a cornerstone of thriving local economies due to:
Deeper and More Dynamic Talent Pool: High participation ensures businesses have a diverse talent pool, preventing skill shortages, boosting productivity, and attracting investment.
Boosts Local Spending: Economically active residents spend money locally, supporting businesses and creating jobs, leading to a virtuous cycle of growth.
Strengthens Local Tax Base: More employed residents and thriving businesses contribute to a robust local tax base, funding essential public services.
Fosters Innovation and Entrepreneurship: A diverse and engaged population brings new ideas and experiences, linked to increased business formation and innovation.
Enhances Social Cohesion and Reduces Inequality: Economic opportunities foster fairness, reduce social friction, and build stronger, more resilient communities.
The Growing Concern About Economic Inactivity
Economic inactivity is a rising concern in the UK, contrasting with a decline in many OECD countries. Since 2021, the UK has seen the fastest growth in economically inactive working-age individuals, particularly due to long-term sickness, now affecting over 2.8 million people. Mental health conditions and musculoskeletal problems are major contributors.
The economic consequences include:
Shrinking Labour Pool and Skills Shortages: Nearly a million job vacancies remain unfilled, hindering business growth and innovation.
Fuelling Inflation: A tighter labour market increases wage pressure, contributing to inflation if not matched by productivity gains.
Stifling Economic Growth: A smaller workforce directly limits the UK's economic growth potential.
Increasing Strain on Public Finances: A larger inactive population means lower tax receipts and increased government spending on health-related welfare benefits.
Reduced Business Productivity: A PwC report found that 81% of UK businesses are negatively impacted by rising inactivity, affecting financial performance.
Types and Consequences of Unemployment
Types of Unemployment:
Cyclical Unemployment: Arises during economic downturns when demand for goods and services falls, leading to layoffs.
Structural Unemployment: A long-term mismatch between available skills and employer needs, caused by technological change, deindustrialisation, or geographical immobility.
Frictional Unemployment: Temporary joblessness experienced by individuals moving between jobs, including graduates or those seeking better opportunities.
Seasonal Unemployment: Predictable unemployment in industries with fluctuating labour demand (e.g., agriculture, tourism).
Economists recognise that 0% unemployment is neither achievable nor desirable; the "natural rate of unemployment" comprises frictional and structural unemployment.
Consequences of Unemployment for Local Economies:
Reduced Consumer Spending: A sharp drop in local spending harms businesses, especially in retail and hospitality.
Shrinking Local Tax Base: Fewer employed individuals and struggling businesses reduce the local tax base, limiting funding for public services.
Increased Strain on Public and Community Services: Higher unemployment increases reliance on social safety nets and strains health services due to links with poorer physical and mental health.
Skills Atrophy: Prolonged unemployment can lead to outdated skills, making re-entry into the job market harder and weakening the labour pool.
Erosion of Social Cohesion: High unemployment can damage community social fabric, linked to increased crime and reduced community engagement.
Framework for Analysing Economic Inactivity: Three Key Principles
Individual Barriers: These include protected characteristics (age, ethnicity, gender), caring responsibilities, full-time education, discrimination, lack of language skills, long-term health issues, mental health challenges, disability, and psychological barriers from long-term unemployment.
Institutional Factors: These encompass lack of qualifications, inflexible training courses, restrictive course entry requirements, and economic factors like low wages, job insecurity, limited transport access, and issues with retention and progression.
Multiple Barriers: Most studies show individuals face multiple, interconnected barriers to employment, highlighting the need for a "person-centric" approach to employability support.
Main Activities for Policy and Delivery
Workforce Development and Skills Training: Directly addresses structural unemployment by aligning skills with employer needs, retraining the unemployed, and upskilling those in declining sectors.
Support for Local Entrepreneurship and Small Businesses: Fosters self-employment and job creation through start-up support, providing an alternative route into the economy.
Inclusive Employer Engagement and Job Quality Initiatives: Promotes good employment practices, such as the real Living Wage and "Good Work Charters," to make work more attractive and sustainable, reducing insecure employment.
Social Enterprise and Community Wealth Building: Creates inclusive local economies by providing "transitional employment" and leveraging local procurement to retain wealth and create jobs.
Removing Practical Barriers to Work: Initiatives like improved transport infrastructure and affordable childcare remove logistical hurdles, directly helping individuals take up employment.
Practical Examples
Greater Manchester's Devolved Skills Bootcamps (England): Free, flexible courses co-designed with businesses, guaranteeing job interviews in high-growth sectors.
Skills Development Scotland's Work-Based Learning (Scotland): Expands apprenticeships to create seamless transitions from education to skilled work.
The British Library's Business & IP Centre National Network (England): Provides free access to market research, IP support, and advice, fostering new businesses and jobs.
The Greater Manchester Good Employment Charter (England): A voluntary accreditation scheme promoting good employment standards to attract and retain talent.
Transport for Greater Manchester's Jobseeker Support (England): Provides free travel for job interviews and initial employment, removing financial barriers.
Conclusion
Economic participation, employability, and unemployment are fundamental to local and regional economic development. Effective interventions require understanding these concepts, recognising multiple barriers, and implementing person-centric support. A combination of rigorous analysis, personalised support, strong employer engagement, effective training, integrated partnerships, and evidence-based practice can create labour markets that work for everyone, supporting economic growth and building resilient communities.