BEERG Newsletter – UK: Joblessness threat grows

Robbie Gilbert writes: The unemployment level tells us a lot about the state of a country’s labour market. But it does much more than that. It also carries deeper and broader messages about the state of the economy, the health of that society and the stability of its political architecture. 

Many eyes have been looking to the unemployment figures to tell us how countries are doing now, in the wake of Covid-19 and the lockdowns introduced to slow its spread. There is no previous experience of lockdowns to offer us any guidance.  

In Britain, the advent of a firmly pro-Brexit administration in December, and its proclamation of January 31^st as ‘Brexit Day’, brings the latest jobless figures under particularly close scrutiny. On 19^th May we saw the first figures for 2020. They were better than expected. The unemployment rate was 3.9%, close to its lowest level since 1975. Meanwhile, the employment rate – the proportion of people of working age in employment, stood at 76.1%, the highest since modern records began in 1971. But there’s a problem here. In the first place, there’s a time-lag in the data. 

These figures cover the period January to March. While the figures suggest little or no immediate jobs impact from Brexit (we’ll come back to that question later), they do not tell us anything about the effect of coronavirus. The lockdown measures in Britain were not announced until 23 March.  We are now two months on from the introduction of Covid-19 measures. The official jobless figures released this month tell us nothing, though we know from the media that many people have been ‘furloughed’. 

The House of Commons Library has put out a useful Briefing Paper on the impact of Covid-19 on the labour market to throw more recent light on what is really going on. It summarises data from a range of sources; and it is not good news.

1. Unemployment has already risen steeply. The latest official figure for unemployment, covering the first quarter, was 1.35 million. In April 2020, however, 2.1 million people claimed unemployment related benefits, some 850,000 more than in March. It is difficult to be sure of the precise numbers, because major changes to the UK’s social benefits structure are underway with the roll-out of the Universal Credit, replacing various payments, including Unemployment Benefit (‘Jobseekers’ Allowance’); but clearly this is a massive jump in just one month.  
2. The number in employment has started falling. Tax data shows that between March and April this year, the number of paid employees fell by 1.6% or over 450,000.
3. There were an estimated 637,000 vacancies in the UK in February to April 2020; this is 170,000 fewer than the previous quarter and the largest quarterly change, up or down, since the current time series started twenty years ago.

Two measures have been introduced by the British government that are aimed at providing assistance to businesses and their workers hit by the recent coronavirus control measures. The aim in both cases is to help people remain employed until some future date by when it is hoped that the economic activity will have recovered sufficiently so that they can resume their previous work.

• The biggest of these is the government’s Coronavirus Job Retention Scheme (CJRS). It went live for claimants on 20 April. By 17 May, 8 million jobs had already been furloughed. That represents one in four of all UK employees (33 million).
• The second measure is aimed at the self-employed. Self-employment covers some 5 million people, or 15% of all employment. This measure, the Self-Employment Income Support Scheme (SEISS) did not open for applications until 13 May. Within just 4 days no less than 2 million claims had been lodged.

The House of Commons Library report notes where coronavirus and the measures have had a disproportionate effect. The social impacts are very unevenly spread and many disadvantaged groups and communities are among those hardest hit.

• 15% of UK employees work in a sector that has largely or entirely been shut down. 
• 32% of businesses continuing to trade reported decreasing working hours. The accommodation and food services sector, alongside the arts, entertainment and recreation sector have the largest number of firms cutting working hours. NB 11% reported that they were increasing working hours, presumably for non-furloughed employees.
• Low-paid workers are more likely to work for shut down sectors and less likely to be able to work from home.
• Workers on zero-hours contracts and temporary workers, are – like the self-employed – particularly impacted.
• Women, young workers, BAME workers and those with disabilities are amongst those most badly hit.

The report reviews several forecasts for unemployment. Forecasters’ findings vary dramatically, but all of those reviewed predict ‘a significant increase’.

• The Bank of England expects unemployment to climb to above 9% this year. That would be over 3 million people
• The Treasury advises that the average of independent forecasts for 2020 was 6.9%, and the average by the fourth quarter of 2021 would still be 5.4% or 1.9 million
• The National Institute, NIESR, project unemployment rising to 10% in the second half of 2020, before slowly falling back thereafter to current levels.

BEERG COMMENT:

The House of Commons Library paper makes no mention of Brexit.  Before Covid-19 hit, the UK economy was already at threat from the consequences of Brexit. The official unemployment figures indicate that these have been slower to emerge than some had expected. That may well be because Britain has not yet really left the EU. 

Despite the fanfare following the rather arbitrary selection of 31 January 2020 as ‘Brexit Day’, the UK continues at present to be treated for most purposes as if it was still a member state. The real crunch date will be 31 December 2020 – unless Boris Johnson can be persuaded to change his mind and agree an extension, which seems even more unlikely now given his obstinacy during the latest ‘Durhamgate’ saga.  

From the first day of 2021, the UK will no longer have free access to the 445 million consumers in the EU. Instead, it will be trading with the 27 countries under more difficult WTO rules. These countries currently account for almost half of the UK’s trade; and any hopes of rapidly replacing that through new trade deals with countries across the rest of the world must have been seriously prejudiced by the impact of coronavirus, the effects of which will still be felt across much of the world by that date.

The other imponderable here is what will actually happen to the 25% or so of the UK workforce currently on furlough. Some other countries are used to these bridging arrangements, designed to ease the troughs and peaks experienced in recessions and recovery. The UK (like the US) is not. Will this innovation turn unemployment’s covid-19 trough into a blip? Operating in a less regulated labour market than applies in other major European countries means that, absent these furlough procedures, UK employers would have been more likely to shed workers and sooner in the downturn; but they would also be more likely to take on more workers and sooner in the upturn. 

Will employees furloughed by employers in the UK be welcomed back to their previous jobs? By no means all of them. Businesses are reviewing their future structures right now, and all the signs are that many expect to resume with lower numbers, sometimes much lower. The crunch could come as soon as August, when the Government aims to change the furlough rules to compel a higher financial contribution from the current employer. That could lead to a tidal wave of redundancies. 

All in all, as we write, the outlook for jobs in the UK is not a bright one. One forecaster, the Resolution Foundation, anticipates that the impact of a continuation of current social distancing requirements alone, or their reintroduction after a flare-up of Covid-19, could lead to unemployment in the UK hitting between 14% and 21%.  It all looks set to pose major economic, social and political challenges for Brexit Britain.

From BEERG Newsletter Issue #20 – May 28, 2020