Finding ‘the lost workforce’ is the way to boost growth

Given Germany’s reputation for punctuality and efficiency, you’d think its population would have a strong work ethic, which makes this statistic all the more surprising: German workers are absent from work at least 15 days a year, according to the country’s IAB data centre, and some estimates put the total nearer 20. This compares with the UK where the total of days lost per year to absenteeism averages eight.
Sickness absences in Germany, the highest in post-reunification history, have risen largely due to a combination of increased respiratory infections following Covid and deteriorating mental health. This is impairing economic growth and exacerbating labour shortages, while heaping extra pressures on businesses and co-workers. According to reports in Germany, around 10 per cent of production line workers are absent from some carmakers, costing them millions.
Yet we shouldn’t indulge in too much schadenfreude about this. In the UK 2.8million people of working age say long-term sickness means they are unable to work or look for employment, according to the Office for National Statistics. Along with students, they make up a growing share of the 9.3 million people who are officially classed as “economically inactive” because they are neither employed nor looking for a job. The total has risen from 8.4million pre-Covid.
This lost workforce has been dubbed a “participation crisis” and “worklessness”. Fixing it will take decades, the City grandee Lord Rose of Monewden warned recently. But as a nation we cannot afford to wait that long if we want to boost growth.
A report from the Institute for Employment Studies out on Wednesday says that the UK is experiencing the biggest contraction in labour force since the 1980s, costing public finances at least £16 billion a year.
The institute’s commission on the future of employment support is calling for “the most significant reforms to our approach to employment support” since the creation of Jobcentre Plus in 2001. Among the proposals are digitising job centre access, better employment support and ending compliance culture in job centres.
Meanwhile, German-based employers such as Tesla are offering a bonus for taking fewer sick days. These attendance payments can be problematic, not least because they incentivise presenteeism for those under the weather, which could spread infection. However, they provide fuel for the worklessness debate as a fightback builds.
The UK could also benefit from studying what other developed countries, where employment is growing strongly, are doing. We are at a juncture where the government should canvass for more expert views to tackle the problem, including from the Bank of England, and back the best solutions or the UK will be worse off for the foreseeable future.
How’s this for an export success story? One pound in every four spent at Pret a Manger, the British sandwich-to-coffee chain, is now outside the UK and global sales topped £1 billion in 2023. Pret opened 81 new branches in 2023, more than half of them outside the UK in countries including India, Greece, Spain and the US. The new shop openings have helped Pret double in size three years ahead of schedule.
How has it done it? Pret prides itself on using fresh ingredients and making salads and sandwiches in shop kitchens but it also adapts its menu in international markets to reflect local tastes. In the US Pret often uses burrata cheese instead of mozzarella, and lobster instead of crayfish. There’s also more turkey on the menu. In Delhi, you can go for a Sriracha chicken wrap.
It is also striking more deals with franchisees, a model that has long worked for the mighty McDonald’s. New York has become the capital for Pret customers outside the UK, with the highest sales after London, thanks to a franchise partner, Dallas International. Pret looks set to gobble up more market share, with nearly 150 new openings planned this year globally.
For now, there is clearly strong appetite from customers all over the world. The question is will its winning formula endure, or it is over expanding? The outlets are certainly ubiquitous in London but it bodes well that this is a company that likes to innovate all the time. Some things don’t change, however. You can still get a Pret filter coffee for a pound. I just asked but my local had run out and I was offered an americano instead. Now that’s service.
It must be hard to be a stock market darling and lose your sparkle, particularly one with the glamour of THG, which owns Cult Beauty and MyProtein. Matthew Moulding’s beauty and nutrition group has seen shares collapse more than 90 per cent since its float in 2020, making it vulnerable to a potential takeover. The company is finally taking steps to rectify this situation by looking at whether to spin off Ingenuity, the technology platform, which despite its strong promise, has been a drain on cash at other parts of the business. The demerger would take place at the same time as a planned restructuring of how the company’s shares are listed on the LSE.
For shareholders, the hope is that the share price will start rolling once the cash generative rump of THG has its new listing. It would be a victory for the activist investor Kelso, which has long called for a break up of THG. In a vote of confidence that a re-rating will restore some lustre, the broker Peel Hunt rated the stock as a buy on Tuesday. Yet the shares fell on the interim results. This highlights that investor confidence in THG has been well and truly sapped. CEO and co-founder Moulding clearly believes in the company’s inner beauty and Kelso has already praised the proposed changes as doing “the right thing”, but time will tell whether others will buy in. A demerger is the best shot at getting them to.