The number of people ending their working lives by reaching the State Pension Age (SPA) is set to reach a record high over the coming decade, but it will be more than matched by record numbers of people starting their working lives by turning 22, leading to the UK workforce get younger even while the population ages.
Big welcomes and long goodbyes – the 24th report for The Economy 2030 Inquiry, a collaboration with the LSE, funded by Nuffield Foundation – examines how big demographic shifts taking place over the coming decade will affect the UK economy, and its labour market in particular.
Discussions about demography tend to focus on the growing fiscal pressures the UK will face this decade from an ageing population – such as the £24 billion increase in State Pension spending and £52 billion increase in health spending by 2030-31 compared to 2022-23 levels.
These are big pressures, say the Resolution Foundation, not least as funding them could push taxes up, not down, over the coming decade. But they are not the only big change coming this decade.
The 2020s will be marked by a steady rise in the baby boomer cohort retiring. The number of people reaching this milestone is on course to surpass 800,000 a year for the time ever in 2028, and to continue rising after that.
However, this mass exit of workers will be more than matched by a rising number of job entrants – a product of the 2000-2010 millennial baby boom. The number of people hitting 22 – an age at which most people enter the labour market – will start rising again from the middle of the decade, and is on course to surpass 900,000 a year for the first time in decades in 2032. As a result, the UK workforce will actually get marginally younger by the early 2030s, even as the population as a whole ages.
The Foundation notes the people entering and exiting the labour market can cause big changes in the size of different job sectors. This mass career entry and exit in the 2020s could therefore drive huge change in the UK jobs market, do so in a way that doesn’t necessarily cause job losses, and create new opportunities for nascent industries who will have a large pool of early-career young workers to draw from.
The surge in young workers at the end of the decade could also make the labour market more dynamic, as young people (aged 18-29) are more than twice as likely to voluntarily move jobs as older cohorts.
The other big economic change that an ageing and rapidly retiring population will drive is how people spend their money. Assuming that spending patterns for different age groups remain constant, changes in the size of different age groups – for example, a bigger share of recent retirees – will increase overall non-housing spending by 3.8% between 2019-20 and 2030. The amount spent on private healthcare could rise by 6.7%.
Alongside changes in spending on private health, age-related shifts in the population will in turn drive a labour market boom in the sector. The Health Foundation estimates that an extra 488,000 healthcare workers, and an additional 627,000 social care workers, will be needed to keep up with demand.
Less discussed but equally significant, however, will be the consumption boom in recreation and leisure, where population changes could increase spending by 4.5% over the course of the decade. That’s because – contrary to popular perception – older people now spend a greater share of their income on recreation and leisure than younger cohorts do.
Having started the 2020s with a pandemic-driven crash, the hospitality sector could end the decade with a retiree-driven boom, says the Resolution Foundation.
Concluding, the report notes that while policy makers need to confront the huge challenges that an ageing population will bring about in the 2020s – notably what rising pension and healthcare spending pressures will mean for the tax take – they also need to look at the opportunities that Britain’s changing demography will bring.
These opportunities include making the most of rising health and hospitality spending, and ensuring that the record number of young people entering the labour market at the end of the decade have the education and skills required to succeed in their careers.
Molly Broome, Economist at the Resolution Foundation, said: “The changing size and shape of Britain’s population will have a profound effect on its economy over the coming decade. And while the fiscal pressures that a rapidly ageing population brings are well known, major changes to the jobs we do and how we spend our money are less well understood.
“The coming decade will be marked by mass exits from the labour market as the original baby boomer generation retires. But there’ll be an even bigger mass entry in the labour market, as those born in the millennial baby boom start to come of age. These two trends will spark big changes in our jobs market.
“The retirement of baby boomers will cause a huge boom in healthcare spending – and create over a million extra jobs by the end of the decade. But it will also spark a boom in the hospitality sector, as this generation are the real spenders when it comes to eating out and socialising.”
