It Might Look Bad – but the UK Labour Market Can Bounce Back
There might not be much to smile about in the UK economy right now, but here’s one thing: our labour market is resilient.
It’s undoubtedly been hit hard by coronavirus – the OBR predicts that unemployment will surge to 10% from a pre-pandemic low of only 4%. That’s over two million people out of work. But we went into this battle fighting fit – that 4% was significantly better than the eurozone’s 7+%, and employment was at a record high of 76.6%.
While quibblers may point out that people who work one hour a week count as ‘employed’, in reality only 1.5% of workers work under 6 hours, and the proportion in full-time work is close to the record high of 55%.
It’s true that real wage growth has been lower than these employment figures would suggest, which raises concerns about job quality and productivity, but measures of underemployment were also low before COVID-19, having dropped significantly since the last recession.
What’s more, the numbers show that the UK is good at replacing lost jobs and filling vacant roles. About 4 million unemployed or economically inactive people find work each year (and remember, even according to the OBR’s pessimistic estimate, we only need to absorb a loss of about 2 million jobs.)
Even when the Government scales back the Coronavirus Job Retention Scheme (CJRS), which covers 80% of wages for furloughed employees, the labour market should be flexible enough to cope. The loss of furlough pay will drive people back to work, or to look for new work – and there’s no need to cut it off in one brutal stroke. Reducing it from 80% to 60% should be enough to boost the labour market without leaving workers destitute. Eligibility criteria could also be tweaked to allow people to do some part-time work for their employers.
As workplaces reopen, while changing work practices to protect employee health is obviously vital, the Goverment would do well to avoid strangling businesses with too much regulatory red tape at a time when they already have little money to spare for hiring (a Deloitte survey shows that 75% of CFOs are making cost-cutting a priority, and only 7% are increasing their hiring budget.)
For this to work, all the Government really needs to do is sit back and let the UK labour market do what it does best: bounce back. We’ve seen how successful the UK has been at job creation over the last decade.
Like a quarantined gym-goer, the labour market may be out of shape right now, but muscle memory doesn’t disappear that easily. Once lockdown is over, we might be surprised how quickly it restores itself to its former glory.