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

Regaining balance

As restrictions ease and many businesses across the UK welcome customers back through their doors, there is hope that the economic recovery is beginning. But jobs and our communities may take longer to bounce back.

Newsletter from 16 April 2021

As of Monday, people in England were once again able to get a haircut, visit ‘non-essential’ shops and enjoy a pint or two at their local. While going to the pub required wrapping up warm against the chilly April air, the partial relaxation of Covid-19 restrictions will have come as a relief to many ­– particularly those working in parts of the economy most hurt by lockdown.

For many pubs, cafes and restaurants, only being able to serve people outside will mean running at a loss for some time, while other venues will have to remain closed due to a lack of outdoor space. Nonetheless, this easing of social distancing rules represents another step along the government’s roadmap out of lockdown, providing a welcome boost to both business and public morale ­after a long and difficult winter.

Working hard but hardly working

This week at the Economics Observatory, we took another look at jobs, work and pay. On Wednesday, Jonathan Wadsworth (LSE) reflected on the past 12 months in the UK labour market, as revealed by the latest Labour Force Survey (LFS) data. These show that although the overall unemployment rate in 2020 was only slightly above the five-year trend, far more people were laid off and far fewer people left their job compared with previous years. Similarly, new hires showed a marked decline, particularly the recruitment of younger people.

Perhaps the most alarming number is the fall in actual hours worked. The LFS data indicate that there have been 3,800 million fewer ‘hours worked’ since the crisis began. This is equivalent to the entire workforce doing nothing for nearly four weeks.

Seasonal hours worked (millions)

What these findings illustrate is how much less dynamic the labour market has become. This issue is reflected in the final chart in Jonathan’s piece, which shows how house moves ­– often an indicator of people starting new jobs or getting promotions – are again notably down compared with recent years. The pandemic is not only changing the way people work: it is also changing where they work and how they structure their lives around their jobs.

House moves

Driving change

‘Gig economy’ workers have been hailed by many as the unsung heroes of lockdown. Since January, Uber drivers have been safely shepherding people to and from vaccine appointments and Deliveroo cyclists have delivered a staggering 71 million orders to people unable to visit their favourite restaurants.

This week, Simeon Richards (University of Bristol) looked at how the gig economy might change following the Supreme Court’s ruling that Uber drivers should be classed as workers rather than self-employed. He highlights how this decision may force Uber to change the way it operates, perhaps taking on fewer drivers but paying them more.

Simeon explains that the effects of this legal decision will become clearer once further lockdown restrictions are eased. For example, changes in demand for rides could affect  how many ‘gigs’ are available at a given time, and this will shape the overall earnings available for drivers.

In terms of the wider gig economy, other providers – like Ola, Lyft or Just Eat – may soon have to follow in Uber’s footsteps if they want to attract and retain workers. What is clear is that these companies, once able to benefit from cheap and flexible labour, are now under the watchful eye of regulators. How the industry will change as a result remains to be seen.

Trust works too

For all the tangible changes brought about by the pandemic – from how we work to how we shop and socialise – perhaps one of the most significant effects lies in something we can’t see.

Yesterday, we posted a piece by Ronald MacDonald (Glasgow University) on how coronavirus has affected the strength of our communities and society as a whole – what economists and other social scientists call ‘social capital’. The intensity of the bonds between people can have a significant influence on healthcare, inequality, productivity and economic growth – and these networks have been tested to the limit by Covid-19 and lockdown, forcing people apart and dampening connections across communities, firms and sectors.

Ronnie identifies two important long-term trends in social capital: declining trust in the government; and the rising use of social media – and it was this fractured setting that provided the backdrop to the pandemic. Reading the article, what strikes me was how in an effort to distance ourselves from each other in the interest of public health, we may have deepened rifts between communities. If increasing social capital is key to economic growth, then a huge part of the post-Covid-19 recovery will rest on rebuilding trust.

Trust in national government (top panel) and use of online social networking (bottom panel)

So however minimal, the return of some social freedoms this week may have a greater positive effect than first meets the eye. While the boost in spending is important – particularly for businesses that have been shut for months – it may be that the return of social interactions is just as important to the country’s recovery. After all, rebuilding the economy starts with rebuilding communities, one step at a time.

Observatory news

  • This week, we took part in the Royal Economic Society’s annual conference, contributing to a session on effective communication by economic researchers. And Observatory lead editors Diane Coyle and Tim Besley both featured in the conference’s informal ‘lunchtime chats’, alongside former Bank of England governor Mervyn King, Foreign Office chief economist Rachel Glennerster and economics Nobel laureates Angus Deaton and Jean Tirole. To watch Observatory lead editor and founder, Rachel Griffith, deliver her Past President’s Address, click this link.
  • On Tuesday, we are teaming up with the International Public Policy Observatory (IPPO) to host a joint roundtable on skills development and retraining following Covid-19. The event offers an excellent opportunity for us to continue answering questions on how best to address the challenges the pandemic has posed to jobs, education and training. To find out more about the IPPO, sign up to their regular updates here.
Author: Charlie Meyrick
Photo by Emma Shulzhenko on Unsplash
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