England & Wales, Scotland Covid-19, Economy and regeneration

Covid-19 has the potential to scar employment prospects for years to come

The immediate impact of the Covid-19 pandemic on employment has been large and it has been rapid. LGIU Associate Mark Upton looks at the potential impact on people and places.

The Covid-19 lockdown has put a brake on economic output. A consequence is a quarter (27 per cent) of the workforce have been furloughed under the government’s job retention scheme, a significant proportion of businesses which are continuing to trade have reduced staff (40 per cent), the number of job vacancies has fallen by three-fifths, unemployment has increased by at least two-thirds, and the unemployment rate is expected to increase from 3.9 per cent, before the crisis, to 10 per cent by September. This will wipe out the jobs boom of the last five years in just a few months.

The job retention scheme has helped to prevent this from being even worse. The Chartered Institute for Personnel and Development believes that without it half of those furloughed could have been made redundant. The scheme has also helped to protect the low-paid, those on atypical working arrangements (including those on zero-hours contracts), women and ethnic minorities, though the young and those on temporary contracts have fared less well.

Providing that support was obviously the right thing to do, but it cannot last forever. The UK government, and the devolved administrations, have a bigger challenge: charting a course that releases us safely from the public health restrictions while minimising the risks of a damaging second spike of unemployment by allowing businesses to start trading solvently. The task is made harder as the duration of the Covid-19 outbreak and the need for on-going restrictions remain unknown. The ‘new normal’, the extent of changes in household spending habits, and investment decisions made by firms, may dampen demand in our economy.

Nonetheless, we are in for the long-haul as even in the scenario that we see a relatively quick return to economic growth during the course of next year, as predicted by the Office of Budget Responsibility, in employment terms the effect of the crisis will be felt for much longer. Unemployment rises quickly in recessions but falls slowly after economic growth has returned. The OBR predicts that it will take at least two years for unemployment to return to pre-crisis levels, but past recessions suggests that it may take longer, perhaps up to seven years.

Those regions and local areas with higher unemployment prior to the crisis have seen higher increases in unemployment-related benefit claims since, notably in the North West and North East of England, Northern Ireland and some part of the Midlands. In terms of job volatility going forward, most areas are likely to be impacted with every city and large town across the UK having at least one-in-five jobs classed as vulnerable. This is because two-thirds of vulnerable jobs are in sectors such hospitality, entertainment and non-food retail which are to be found in all areas.

What might make a difference, according to the Centre for Cities, are the risks faced by local industries which trade beyond their local areas, here and abroad. These are the engines of economic growth which bring money into local economies, households and the high street. Their vulnerability exposes those places with a narrow industrial base to greater risks. So while places like Crawley, Luton and Derby (dependent on aviation, aviation manufacturing and the automotive industries) together with Aberdeen (dominated by the oil and gas sector) have seen lower rises in unemployment claims, they face more significant risks and challenges to their resilience.

The lessons from past recessions are that the young and older workers will bear the brunt of this one, with lasting scarring consequences – resulting from them going in and out of employment, having to trade-down in their occupations, facing low pay and fewer hours – impacting upon their career prospects well beyond when macro-economic and employment indicators return to their norm.

It could be worse this time round as the most affected sectors are those which traditionally provide something of a first rung in the jobs market for a large proportion of young people. And there are two million more older-workers (i.e. 50-plus) than in 2009 who now need to work longer to maintain the declining value of their private pensions or to collect their state pensions.

The potential scale of unemployment, under any scenario, means that new active labour market policies will be essential requiring specialist support and not just more staff at Job Centres. We risk seeing latent and pre-existing developments in the labour market accelerate, e.g. the decline of non-food retail on the high street, the erosion of low-skilled work and increases in automation. And new opportunities in the labour market will emerge. It is vital that industrial strategies, education and skills provision, and careers and employment support, work together to fuse the supply and demand for labour most notably around the skills that are still needed in the economy.

For now we face the prospect of a perfect storm of elevated unemployment, a slow recovery in job vacancies, and increased exits from work as the job retention support is wound down. And 800,000 young people are due to leave education and attempt to enter the world of work over the summer and autumn months. They face a very uncertain and bleak future.

This blog draws from the LGIU briefing prepared by Mark Upton – Covid-19 – employment and the labour market, which is available free to LGIU followers and members.

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