Questions and answers about coronavirus and the UK economy
Questions and answers about coronavirus and the UK economy

How do Covid-19 redundancy numbers compare with previous UK downturns?

The latest UK redundancy numbers are bad, but they’re not really a record high as they don’t account for changes in the size of the workforce over time. Today’s redundancy rate is still off the dark days of the 2008 downturn – and not remotely close to the experiences of the 1980s.

The Employment in the UK: November 2020 report from the Office for National Statistics (ONS) is being much discussed in the media for suggesting that redundancies are at a ‘record’ level. Well yes – but mostly no.

We forget that the UK population has been growing steadily for the last 25 years, so the workforce is bigger now than it was 25 or even ten years ago. We wouldn’t (or certainly shouldn’t) compare the numbers unemployed in, say, Luxembourg with those in the UK, simply because the populations are so different.

We should always use rates of things when making comparisons over time, not levels of things. In other words, it is important to net out any population differences over time (or between countries or regions). When we do that, today’s redundancy figures, while not at all good, look less stark.

Compared with the start of the 2008 recession, the UK workforce (in employment) now is around 33 million. That’s four million bigger (or it was at the start of 2020). That’s about 12% or one-eighth bigger. So there are more people potentially ‘at risk’ of being made redundant.

Take a look at the chart below. The left panel duly replicates the ONS redundancy numbers. They are indeed at a ‘record’ high at around 330,000 for the three months to the end of September 2020. But they take no account of the size of the workforce at risk.

If we net out population change over the past 12 years, the right panel shows that we are not at a record high. Redundancy rates in the 2008-11 recession exceeded 1% of the workforce at their peak. Current redundancy rates are around 0.9% of the workforce. So it is bad, but it has been worse.

Figure showing redundancies

In fact, there are reasons to think that even the 2008-11 recession was not as bad as previous downturns with regard to redundancies.

While the data series (the quarterly Labour Force Survey) on which the ONS bases its calculations does not extend to the 1990 or 1980 recessions, the Department of Employment’s Employment Gazette – the 1980s precursor of the ONS labour market statistics of today – contains a report of the yearly number of redundancies throughout the 1980s downturn. Copies of the gazette now reside in a dusty archive somewhere, but it is possible to see that the number of redundancy payments peaked in 1981 at 810,000. The cumulative count for 2020 so far is 550,000.

The employed workforce in 1980 was around 25 million. That means a yearly redundancy rate in excess of 3% (divide 810,000 by 25 million). While some caution is needed – since these data are compiled in very different ways – it seems we are thankfully still some way off the dark days of the 2008 downturn and not remotely close to the experiences of the 1980s.

Lesson one is that we sometimes forget the (recent) past all too easily. Looking back to recent history helps to put things in perspective.

Lesson two is that it is almost always better to compare using rates not levels of things. Putting things into context is probably a lot better for assessing where we are (if making for less than lurid headlines).

Author: Jonathan Wadsworth
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