How has Covid-19 affected economic inactivity in Northern Ireland?

Rates of economic inactivity have historically been high in Northern Ireland compared with the UK average. The pandemic led to increasing numbers of people out of work and not seeking employment across the country, but the impact was particularly acute in Northern Ireland.

For several decades, Northern Ireland has had higher numbers of people who are not in work and not looking for a job compared with the UK average and with other UK regions. Economic inactivity is currently 29% in Northern Ireland, but only 21% for the UK as a whole. The higher rate is due to sickness, disability and a large proportion of students.

In recent years, there has been some convergence, whereby the different between Northern Ireland and other parts of the UK has reduced. This occurred particularly in the aftermath of the global financial crisis of 2007-09.

But this pattern has been reversed by the Covid-19 pandemic. Economic inactivity has risen in the past year in all constituent nations of the UK, but the increase has been greatest in Northern Ireland.

This was driven by growth in the proportion of working age adults who are inactive due to sickness or disability and, to a lesser extent, by increases in the proportion of working age adults who are students.

How do rates of economic inactivity compare across the UK?

Economic inactivity in Northern Ireland has been much higher than the UK average for some time (see Figure 1). Over the last 30 years, the difference has been particularly stark compared with rates in Scotland and England, although the gap did close a little following the global financial crisis.

Rates of economic inactivity in Northern Ireland were not much higher than in Wales in the early 1990s. But over time they have improved substantially in Wales, but not in Northern Ireland. In 1992, the inactivity rate in Wales was 0.9 percentage points lower than that in Northern Ireland. But by 2021, the difference had grown to 5.7 percentage points.

Wales has seen the most substantial fall in the rate of inactivity in recent years, a drop of 19%. Over the same period, the rate only fell by 2% in Northern Ireland. As a result, current rates in England, Scotland and Wales no longer differ considerably from one another, leaving Northern Ireland as the sole outlier.

Figure 1: Economic inactivity, 1992-2021

Source: Labour Force Survey, Office for National Statistics (ONS)
Note: Economic inactivity rates are for those aged 16-64 and are annual seasonally adjusted.

Why are rates of economic inactivity so high in Northern Ireland?

Despite economic inactivity historically being high and a concern for the Northern Irish economy, there has been little research in this area. Looking at the reasons behind inactivity and how these compare within and across regions offers some insights (see Figure 2).

A large proportion of the inactivity in Northern Ireland is due to long-term sickness. The proportion of individuals experiencing this is larger than in England, Scotland and Wales.

This type of economic inactivity is particularly concerning, as these people are unlikely to move into employment (OECD, 2009). Further, Northern Ireland has the worst employment gap for people with disabilities in the UK (Department for Work and Pensions, 2021).

Figure 2: Economic inactivity by reason

Source: ONS, author’s calculations

It is not all bad — Northern Ireland also has a larger proportion of working age people who are inactive because they are students. It also has a lower share of working age individuals who are retirees. This reflects, at least to some extent, the younger population in Northern Ireland compared with other parts of the UK.

How has inactivity on grounds of sickness/disability changed over the pandemic?

Economic inactivity on grounds of sickness or disability is higher in Northern Ireland than in the other devolved nations (see Figure 3). Most concerning is the divergence that has occurred in the last decade or so around this.

Economic inactivity on grounds of sickness in England, Scotland and Wales was falling prior to the global financial crisis, before flatlining. While the pattern before the recession was similar in Northern Ireland, inactivity rates have been steadily increasing since 2012.

Rates in Northern Ireland went from 7.8% in 2012/13 to 9.8% in 2021/22, a rise of 25%. The other constituent nations experienced increases of less than 10% over the same period.

Overall, this has led to considerable divergence, which meant that going into the pandemic, rates of inactivity on grounds of sickness or disability in Northern Ireland were already much higher than the rest of the UK.

In 2018/19, 8.5% of the working age population in Northern Ireland were inactive on grounds of sickness or disability compared with 5% in England, 6.8% in Scotland and 7.2% in Wales.

Figure 3: Proportion of the working age population who are inactive on grounds of sickness or disability

Source: ONS, author’s calculations

How has the pandemic affected rates of economic inactivity?

Looking at inactivity rates between 2019 and the most recent data (2021/22) gives some sense of the impact of Covid-19. In England, Scotland and Wales, the rate of economic inactivity increased by between 1% and 3%. In Northern Ireland, it rose by 11%. This has returned the level to what it was in the early 2000s, despite reaching a historic low in 2019.

The proportion of the working age population inactive due to sickness or disability has increased by more than 10% across the UK. But the largest increase was in Northern Ireland, at 15%.

The proportion of working age students has also grown. Between July 2018 and June 2019, 6.7% of those aged 16-64 in Northern Ireland reported as students, compared with 7.9% in the most recent year (July 2021-June 2022). This equates to an increase of 17%. The pattern has not been mirrored in other regions where the increases have been much more modest, at approximately 2%.

The proportion of the working age population looking after the home or family fell over the course of the pandemic. This is striking given concerns about women being forced out of the labour market due to a lack of childcare options. The fall was considerable in Northern Ireland and England, but smaller in Scotland and Wales.

Similarly, there was an increase in the proportion of retirees over the period of the pandemic in Northern Ireland and England, but a drop in Scotland and Wales. The fall in Wales was considerable – a decrease of 15%.

The fact that shifts in economic inactivity over the pandemic period have been similar in England and Northern Ireland is notable given that the Northern Irish economy is usually much more in tune with the economies of Wales and, to a lesser degree, Scotland.

How might policy-makers reduce rates of economic inactivity in Northern Ireland?

Economic inactivity is a nuanced issue. For example, students are inactive as they are investing in their education, the merits of which are well documented. Recent work finds substantial wage premiums for educational qualifications in Northern Ireland (Smyth et al, 2022).

Inactivity on grounds of caring responsibilities – while proportionally lower than in other regions – remains an area of concern in Northern Ireland, particularly given the levels of poverty.

Northern Ireland is one of only a few developed countries in the world that does not have a specific childcare policy in place, despite the 2011-15 Programme for Government committing to the development of one. This pledge was reiterated in the New Decade, New Approach Agreement (2020).

Improvements in the provision, quality and affordability of childcare, and also care more generally, would not only reduce economic inactivity among those who are looking after homes and family members, but may also reduce early retirement and other forms of inactivity.

For example, grandparents may often retire earlier or reduce their hours to provide care for grandchildren. It may also have knock-on effects for poverty levels in Northern Ireland if more people are in work.

Evidence is sparse on how the Northern Irish Executive could reduce inactivity on grounds of sickness or disability. International studies suggest that a weak labour market determines disability rates, with health being a secondary factor (Duggan and Imberman, 2009; Benítez-Silva et al, 2010).

But this has been found not to hold for Northern Ireland (Devlin, 2021). In Northern Ireland, high rates of disability are due to some reason other than what can be accounted for, such as individual characteristics, health and the strength of local labour markets.

Potential reasons include that in Northern Ireland, there is less stigma attached to having a disability or not working due to sickness or disability. Alternatively, it could be that there is a long-term legacy effect from the conflict in Northern Ireland that is leading to higher rates of disability and an inability to work (French, 2021).

Conclusions

It is of crucial importance to the Northern Irish economy to establish whether the divergence in inactivity rates from the UK average, and the rise in inactivity due to the pandemic, are here to stay or if they are short-term trends.

Regardless, Northern Ireland has historically had higher rates of inactivity on grounds of sickness or disability and a low rate of employment among those with a disability. This suggests that there is much to do to expand labour market participation among individuals with disabilities.