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

Work in progress

Uncertainty about the next stage of the pandemic and the economic recovery persists. Many people’s jobs hang in the balance – and new strains of the virus threaten the path to ‘normality’.

Newsletter from Friday 4 June

A year since we launched the Economics Observatory to answer pressing questions about coronavirus and the economy, the news headlines remain dominated by the pandemic. There are concerns over new variants of the virus that causes Covid-19, debates on whether to ease international travel restrictions and doubts about current plans to end all social distancing measures later this month.

At the heart of these uncertainties are continuing worries about our lives and livelihoods. Across the country, many people’s jobs have been radically changed by the pandemic, suspended by the threads of the furlough scheme or simply wiped out altogether. For some, decisions about travel rules, safe capacity in sports and entertainment venues or whether to return to the office will have very real consequences.

Lessons from history

This week at the Observatory, we have taken another look at the world of work. On Tuesday, Tim Hatton (University of Essex) explored how the UK labour market has fared in recessions and recoveries, presenting historical analysis dating back to 1870.

By looking at data from the past 150 years, Tim identifies a number of differences in how employment levels are affected by changes in economic output, comparing periods of recession with periods of recovery. Three findings stand out:

  • The industries and regions that experience the strongest growth during recoveries are rarely those that lost the most jobs during the previous recession.
  • Workers laid off during the deepest recessions often lose job-specific skills, making it harder for them to find new work in the recovery.
  • And during downturns, firms seem to retain more of their skilled workers than is actually needed – which means that during the subsequent recovery, output growth outstrips growth in employment.

Tim suggests several lessons for the current crisis. As the worst of the pandemic continues to wane, UK output growth could be especially fast. But since the furlough scheme has ‘frozen’ links between employers and employees, there could soon be a giant mismatch between workers and firms, hampering the overall recovery.

Finally, Tim argues that younger, part-time workers are likely to face an even tougher struggle than before – an issue we have explored in depth here at the Observatory.

Post-Covid, post-furlough

On Wednesday, Jonathan Cribb and Tom Waters (both of the Institute for Fiscal Studies) investigated what kind of government support might replace the Coronavirus Job Retention Scheme, which is due to end in September. As they note, in late March this year, around 4.2 million jobs were furloughed. While this was much less than the peak of nine million in April 2020, it still represents a staggering one in seven employees.

Number of jobs furloughed

Source: HMRC, Coronavirus (COVID-19) statistics

While the hope is that many of these jobs will still exist by the autumn, for some workers, September represents a looming threat of unemployment. Crucially, those who are not able to return to their previous job once furlough ends may have to seek alternative support, at least for a while. This may mean a further surge in Universal Credit applicants, creating additional strain on the welfare state.

Jonathan and Tom highlight how the transition from furlough to Universal Credit may be particularly challenging for certain claimants, such as single people without children. Taking salary as fixed, they show that following the transition, a single individual without children who owns their own home could receive a Universal Credit payment of less than a quarter of their furlough money. In contrast, an otherwise identical lone parent living in rented accommodation will see their support fall by ‘only’ a third (because of their higher housing and childcare needs).

Lifelong learning

One way to ease the transition from furlough to employment could be through enhanced retraining programmes. To prepare the workforce for re-entry to an economy irrevocably marked by the pandemic, new skills are critical. So argue Chiara Cavaglia (LSE), Sandra McNally (Surrey and LSE) and Jenifer Ruiz-Valenzuela (LSE) in a new piece exploring which policies are best for getting people to back to work. They focus on both subsidising individuals and giving firms incentives to invest in training programmes.

Reviewing a number of options for promoting retraining, Chiara, Sandra and Jenifer conclude that a properly designed adult training policy should have multiple dimensions to help get people into good jobs, thereby alleviating poverty and combating inequality. Alongside other policies, retraining can contribute to a broader agenda of economic transformation – for example, as part of reforms to adult social care and to facilitate transition to a ‘net-zero’ economy.

Observatory news

On Tuesday, we celebrated our first birthday. To date, we’ve posted 325 articles, had over 700,000 views of our website and built an ever-growing network of academic experts and policy economists.

This work over the past year would not have been possible without the continued support and guidance of our brilliant lead editors and wider editorial board. We would also like to thank each and every one of our authors and readers for helping us develop the Observatory into what it is today.

The project was set up against the backdrop of the first wave of the Covid-19 crisis. A year in and there are still many questions left to answer about the pandemic and its aftermath, as well as other big challenges facing the country, including devolution, digital technology, food insecurity, inequality and climate change. Please continue to use our ‘ask a question’ feature – or if you have research findings you’d like to share with us, use the ‘submit evidence’ page.

Later this month, we will release the first edition of ECO – our printed magazine. The articles in our launch issue look back over a year of the pandemic – as well as setting out a broad agenda for research and policy in the Covid recovery. If you would like to receive a free copy, please click here.

Author: Charlie Meyrick
Picture by Edwin Gonzalez on Unsplash
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