4. How does UK labour market performance compare to other

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4. How does UK labour market performance compare to other

Transcript Of 4. How does UK labour market performance compare to other

4. How does UK labour market performance compare to other OECD countries?1

Key points
• The UK’s employment rate is at record high of over 75%, but it still ranks towards the middle of the OECD range, coming 13th out of 35 countries.
• The UK has improved its scores on both PwC’s Youth Employment Index and our Golden Age Index (for workers aged 55 and over) since 2007, but is only performing at around the OECD average level on these indices, as other countries have also improved.
• On a new composite PwC Labour Market Performance index, combining results from our Youth Employment, Golden Age and Women in Work indices, the UK comes 19th overall amongst OECD countries.
• The potential GDP boost for the UK from improving labour market performance to match that of Sweden2 for women, younger and older workers would be around £250bn, or 12% of GDP.
• Realising these potential gains will require a mix of policies to overcome age and gender discrimination, boost vocational training for all age groups, help with retraining older workers to adapt to new technologies, further improve childcare provision and promote flexible working. Successive UK governments have made progress on these areas over the past two decades, but our analysis suggests there is still more to be done to match international best practice and maximise the UK’s labour market potential.

Figure 4.1 – UK employment rate

% of population aged 16-64

78 76 74 72 70 68 66 64 62 60
















Source: ONS, Bank of England

The UK’s labour market performance has been remarkably strong over the past seven years, albeit at the expense of subdued productivity growth. The unemployment rate has fallen to below 4%, the lowest since the mid1970s, while the employment rate for 16 to 64 year-olds has reached historic highs of over 75%. Longer term analysis by the Bank of England shows that this has only been matched at the peak of World War II mobilisation in 1943 and at the peak of British imperial pomp in the early 1870s (see Figure 4.1).

Matching Swedish labour market performance could add up to £250bn a year to UK GDP.
John Hawksworth Chief Economist, PwC

1 This article was written by Frederica Martin with additional inputs by John Hawksworth and Mike Jakeman. 2 Sweden is chosen as the most realistic comparator for the UK as it ranks second in the OECD (and top in the EU) on our composite Labour Market Performance
index. The leading country, Iceland, is an outlier in terms of labour market performance and seems less realistic as a comparator for a much larger economy such as the UK.
UK Economic Outlook July 2019 33

Unemployment rate (%)

The impressive recent rise in UK employment rates reflect a number of factors. First, there is a long-term trend towards higher female participation in the workforce. Second, there is a more recent trend towards encouraging people to remain in the workforce for longer, particularly women, whose state pension age has risen from 60 to 65 since 2011. Third, unemployment rates have fallen sharply from their post-crisis peak in 2012 (see Figure 4.2), most notably for young people whose employment prospects were hit relatively hard by the deep recession of 2008-9.

Figure 4.2 – UK employment & unemployment (%)

Employment rate (%)



60 8 7



58 5 4



56 2 1



2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Employment rate (%) Source: OECD

Unemployment rate (%)

How much further could the UK employment rate rise? To answer this question, it is helpful to benchmark the UK’s performance against other OECD countries for key demographic groups. PwC has been doing this for some years through its Golden Age Index (for 55-69 year-olds) and its Youth Employment Index (for 16-24 year-olds) and in this article we update the analysis we published last year for these two indices. We also refer to our latest Women in Work index results, as published in March 2019, and present a new combined index covering all three sub-indices.

The discussion in the rest of the article is structured as follows:
• Section 4.1 includes comparisons of recent UK labour market performance with other OECD countries for all workers
• Section 4.2 discusses updated results for our Golden Age and Youth Employment indices
• Section 4.3 considers how the UK performs on a new combined index covering women, young and older workers
• Section 4.4 discusses the potential boost to GDP if the UK could match the labour market performance of top performers in the long term
• Section 4.5 discusses some of the policy measures that the UK could take to realise these gains
• Section 4.6 summarises and concludes.

Methodological details of our three comparative labour market indices are contained in a technical annex.

34 UK Economic Outlook July 2019

Employment rate (%) Iceland Switzerland Sweden New Zealand Netherlands Japan Germany Denmark Czech Republic Norway Estonia United Kingdom Canada Australia Austria Finland
Latvia Slovenia United States Portugal Hungary
Israel Ireland Slovak Republic Poland Luxembourg Korea France Belgium
Chile Spain Mexico
Italy Greece Turkey

Figure 4.3 – OECD employment rate (2018)
90 80 70 60 50 40 30 20 10

Source: OECD

4.1 – Comparison between the UK labour market and the OECD
Although the UK is currently experiencing record rates of employment, its performance looks more middling when compared to the rest of the OECD, ranking 13th out of 35 countries (see Figure 4.3.) The strongest performers include Iceland, which tops the rankings for the ninth year in a row, along with Switzerland, New Zealand, Germany and Japan. Although Iceland has reached an employment rate of 85%, when trying to understand how far UK employment rates could rise over the next few years, it is more appropriate to compare it to larger economies, such as Switzerland or Sweden, which rank 2nd and 3rd respectively, and have employment rates of around 80%. Japan, which has a considerably larger economy than the UK, also has an employment rate of more than 78%, demonstrating that there is still potential for the UK see employment rise further.

Although this comparison is useful for understanding the UK’s relative performance within the OECD, it is also important to put the current performance in historical context. The 2008 global financial crisis was a massive shock to the world economy and the subsequent global recession caused employment rates to fall across the OECD. Therefore, comparing current employment and unemployment rates to those in 2007 gives a useful picture of how countries are performing relative to their pre-crisis levels.

UK Economic Outlook July 2019 35
OecdWomenLabour Market PerformanceGdpOecd Countries