According to the latest official figures released by the Office for National Statistics (ONS), the UK labor market has been hit hard by the COVID-19 crisis. Between March and May 2020, there was a 612,000 fall in employee jobs (Figure 1), and an unprecedentedly large increase in unemployment claims of 1.6 million representing a 125.9% increase since March. (Figure 2). Vacancies dropped sharply – by 58% relative to March. The largest annual decrease in average hours of the past 10 years occurred (6.9 hours fall). For the month of April average earnings growth fell dramatically to -1.7% for total pay and median pay show an estimated fall of 3.5% since March to May. The most recently available monthly GDP growth statistic points to an unprecedented fall of 10.4% in the three months to April 2020 compared to the three months prior. This number obviously aggregates over months in and out of lockdown, yet this contraction of the economy vastly surpasses that experienced at the peak of the 2008 financial crisis (Figure 3).
The most affected sectors are customer-oriented personal and domestic services: Non-food, non-pharmaceutical retail; passenger transport; accommodation and food; travel; childcare; arts and leisure; personal care; domestic services. The combined employment in these sector accounts for roughly 15% of employees in the UK. These sectors have experienced the largest contractions in output with gross valued added growth for March and April on negative ground of 20%, and as high as 40% accommodation and food service activities (Figure 4). According to the latest ONS survey figures, the sectors that reported higher percentages of temporary cease of trading are accommodation and food service activities (74%) and arts, entertainment and recreation (75%). Vacancy drops in these sectors are clearly above 50% (92% and 90% respectively), showing that not all sectors have been equally hit (Figure 5).
The composition of workforce in most affected sectors is not homogeneous: being disproportionally young (2.5 times more likely to work in sector in lockdown), concentrated among low earners (7 times more likely to work in sector in lockdown), gender biased (women are 33% more likely to work in sector in lockdown) , self-employed intensive (22% of self-employed work in affected sectors, disproportional to women – close to a third of self-employed women).
The patterns previously described are corroborated by realized outcomes in a recent work by Adams-Prassl et al (2020a) who find that: young workers are 1.4 more likely to have experienced working hours reductions and earning losses in the past week than their older counterparts, lower income workers are significantly less able to work from home and are more likely to have lost their job due to COVID in the past 4 weeks, and workers in alternative working arrangements (self-employed, those not paid a salary, working with variable hours at employers’ discretion (e.g. zero-hours contracts)) are close to 3 times more likely to have seen their earnings fall compared to workers in permanent contracts. Furthermore, Adams-Prassl et al (2020b) finds that women in the UK are 5% more likely to lose their job compared to men. According to the latest Quarterly Labour Force Survey the loss in weekly hours worked has been particularly pronounced among the self-employed with a drop of 11.4 hours on average comparing the periods pre and post-lockdown until the end of April. Weekly hours worked prior to lockdown had been on average similar between employees and self-employed (32.2 and 31.9) but the lockdown has affected the self-employed significantly more with a 36% drop in hours relative to 19% felt by employees (Figure #6). Forthcoming study by Blundell and Machin (2020), which has conducted a survey of self-employed workers in the UK in May, finds that despite the disproportionate number of women working as self-employment in affected sectors, the average self-employed female worker has not been more affected, mainly due to the fact that self-employed women are more likely to be able to work from home.
- Note that employment numbers as presented are likely to underestimate the actual fall in total work as they do not account for self-employment.
- The wage growth is 0% for regular pay.
- Earnings and employment from Pay As You Earn Real Time Information, UK: June 2020, ONS
- Business Impact of COVID-19 Survey, 4-17 May, ONS
- The May figures show a slight improvement relative to the temporary cease of trading experienced in the April by the same sector (80% and 81%)
- See Joyce and Xu (2020)
The last update (8h June) for the UK is appropriate although does not include the recent extensions of both Coronavirus Job Retention Scheme (CJRS) and Self-Employed Income Support Scheme (SEISS) until October announced by the Chancellor Rishi Sunak on the 29th of May. The labor market policies introduced to date have been gradual, with measures being announced first to provide the businesses with liquidity and to shield workers with permanent contracts and then expanded to other workers. Most of the initial measures have targeted the preservation of firm-worker matches through furloughing in the Coronavirus Job Retention Scheme (CJRS), reducing and delaying the permanent ceasing of trading of firms and consequent destruction of jobs primarily among those in permanent contracts. This implied that workers in alternative working arrangements when and if eligible for support will receive so at a later point in time (Self-Employed Income Support Scheme (SEISS) starts payment only in June). As of June 4, the Office for Budget Responsibility estimates that CJRS and SEISS will represent an expenditure of 54 and 10.5 billion pounds respectively accruing to the equivalent to 3.1% of UK GDP in 2019 (Table 1). The most significant policies with respect to estimated cost are CJRS, SEISS, the Small Business Grant Scheme and Business Rates Relief Package as presented in Table 1. The policies have not yet been granular enough as to take into account the disparities in workforce composition stated previously, although that would require more discretionary actions that are not easy to plan and could delay effective implementation. However, one can observe that the policies first enacted have been directed at workers with arguably less exposure to economic damage due to the current crisis (Adams-Prassl et al, 2020a, b).
As of June 14, HMRC declared that 1.1 million firms had claimed support of the Coronavirus Job Retention Scheme (CJRS), representing 9.1 million jobs furloughed (Figure 7). According to the latest release from HMRC, firms with less than 50 employees represented 92% of all firms claiming support and 44% of the jobs covered. Considering the official count of the population of firms as of 2019 by employment size, it is estimated that 37% of firms with less than 50 employees have asked support of CJRS and the same statistic climbs to 79% for larger firms. According to ONS latest survey figures (covering 4 to 17th of May) it is estimated that 79% of responding businesses had applied for the CJRS with a success rate of 90%, this represents a significant improvement in the roll out of the scheme compared to April. The differences between smaller and larger firms (250 employees threshold) in applications does not look to be statistical large (80% vs 78%) whereas the difference in approved status is more pronounced (92% vs 84%). The March to April differences in vacancies growth for businesses employing less than 50 employees compared to larger firms of 69.3% and 47.3% respectively, looks to have been reduced during the month of May with small and large firms experiencing a similar reduction of 58% compared to March. Firms with workforce size below 250 are 32% more likely to have temporarily closed or temporarily ceased trading. Furthermore, inefficiencies and burden disparities are present in the schemes as set currently, for example, when applying for the CJRS with less than 100 employees, firms are required to enter the individual details (name, NI number, claim period, claim amount and payroll number (optional)) for each worker which plausibly represents an extra burden for smaller firms.
According to HMRC, the official number of applications received for the Coronavirus Self-Employed Income Support Scheme (SEISS) was 2.6 million as of June 14 (Figure 8), corresponding to a value claimed of 7.6 billion pounds. According to their analysis, Blundell and Machin (2020) estimate the take-up of the scheme to be increasing since the opening of applications on 13th of May with 43% of their survey respondents declaring they had applied as of 15th of May. However, it is worrying that of those not applying, 41% say they are unsure about whether they are eligible for the scheme. Most recent official statistics from HMRC estimate the take up of the SEISS to be approximately 70% of the eligible population.
- Coronavirus Job Retention Scheme (CJRS) statistics: June 2020, HMRC
- It is not possible to conduct inference to conclude if the differences are statistically significant.
- The improvement for small businesses (firms employing less than 50 workers) is driven by an increase of vacancies in the 1-9 employee band from April to May of 65%.
- 25% in April figures
- Self-Employment Income Support Scheme (SEISS) Statistics: June 2020, HMRC
Jobseeker’s Allowance (Unemployment Benefit) has suffered no changes apart from the waiving of interviews and appointment attendance. Universal credit suspension of the minimum wage floor aims to facilitate eligibility of self-employed. An encouraging update relates to the option available to furloughed workers under the CJRS to take up part-time work for another employer if their employment contract allows. Additionally, flexibility on the phasing of workforce has been provided by allowing employers to be able to roll employees on and off furlough within the duration of the scheme. The first version of the CJRS did not allow for any of the previously mentioned options hence limiting the allocation of work resources and alternative income sources. It is estimated that between 28 to 31% of the employees in the UK have now been furloughed, these figures represent a considerable effort in reducing or postponing inflows into unemployment. Measures addressing job seekers are plausible to be announced at a later stage of deconfinement, so far the policies in place have focused on attenuating and postponing the inflows into unemployment.
“Essential” sectors (health, wholesale retail (groceries), public transport) have adopted strict health guidelines with their operation procedures. Opening hours and/or frequency of service have been affected and “mirrored” work shifts are in place in order to try to minimize exposure and strain of workers. According to ONS survey calculations, 7.7% of workers in Great Britain responded that they have been working longer hours with no or reduced breaks in the past seven days. Furthermore, when asked about if they are worried about their health and safety at work 17.2% responded positively. Blundell and Machin (2020) find that around a third of self-employed workers still working have felt their health safety at risk, when focusing on the subset of self-employed who work with digital platforms this steeply rises to 79%. Notice that the average self-employed worker, according to the study, experiences an exposure to health risk similar to that of key workers when surveyed by ONS in May. Homeworking has seen a pronounced increase; in the month of April it is estimated that 36% of employed workers were always working from home compared to the reporting by the same workers in January and February of 6%. The gender gap in working from home relative to the month of April was small but statistically significant, 2% in favor of men. Furthermore, education seems to play an important role in being able to perform work remotely from home, with 47.7% of graduates reporting being continuously working from home in April, whereas only 22.5% of non-graduates were able to do so. The gap illustrates a sharp difference even with respect to the same workers’ response in January and February, when the graduate to non-graduate differential was only 1.8% (7% of graduates and 5.2% of non-graduates reported as homeworking). More educated workers’ higher accessibility to remote work represents a significant shielding mechanism against the labor shock resulting from the lockdown and mobility restrictions in place. Looking at the sectoral difference in remote work arrangements one can see considerable variation with sector like Information and Communication, Education and Professional, Scientific and Technical Activities reporting a proportion of workforce working remotely considerably above 50% (Figure 9). In contrast sectors such as Accommodation and Food, Transport and Manufacturing show only approximately 20% of their workforce being able to work from their homes. When considering care responsibilities facing workers, it is estimated the COVID is directly affecting the degree of caring arrangements for 10% of those in working age with sharp gender differential: 7.2% of men compared to 12.6% of women. For those whose caring responsibilities were disrupted, 51% state that they are now spending more time caring for others.
Considering the recent figures on the performance of the UK labor market and the likely scenario for coming months, it is expected that school leavers and graduates will be facing remarkable difficulties in entering the market and potentially severe scarring effects. In general, sectors that usually absorb part of the downturn employment shocks of recent crisis are precisely the most affected in the current situation, this worsens considerably the outlook for new labor market entrants. A natural response from school and university graduates will be to stay on in education longer, such will imply the need for additional funding on an emergency basis aimed at both students and educators. For those choosing to leave education and try to enter the labor market, targeted job guarantee schemes and prioritizing of apprenticeships for younger people will be sensible policies to reduce the detrimental impacts of crisis for new labor market entrants. Several key higher education institutions, including University of Cambridge and University of Manchester, have announced that their teaching will resume online for at least the next academic term. Other major universities, such as Oxford University and London School of Economics, are planning for a “blended” approach mixing online and face-to-face tuition next year. Although it is less clear how smaller institutions will adapt to the need for online teaching, the trend in the UK seems to be clearly oriented towards it. In a recent survey to the UK universities, 97% of the institutions (89 out of 92) answered they will be following a “blended” approach to teaching while the other 3% answered they will be exclusively online on the start of the new academic year.
It is expected an acceleration of the pre-crisis trend in shifting a share of the usual work schedule to working from home. As several current studies point out there was already a willingness-to-pay for job security among self-employed workers which were willing to sacrifice part of their income in order to access the benefits of the social safety net (Blundell and Machin, 2020; Boeri, Giupponi, Krueger and Machin, 2020). This preference will likely be intensified now that a significant proportion of workers in alternative work arrangements are suffering significant economic hardship. In the terms of structural changes in production technology, one expects a hastening in adoption of automation processes in production in order to circumvent the reliance on in-workplace presence. A degree of reorganization and reallocation of global value chain downstream production is likely to take place as consequence of firms experience during this crisis. In the UK for example, 20.5% of importing businesses declared that they completely stopped importing materials, goods or services during the outbreak. Of those businesses continuing to import 60.4% has reduced their importing (62.5% for manufacturing). This shock can push firms to decrease dependency on single geographic-centric suppliers, which in turn can have the potential to benefit labor market effects for domestic workers and closer trade partnering economies. The shifts in global value chains will likely to prioritize resilience and responsiveness over low-cost, centralized production. When asked about what type of support would help their importing challenges, 15.4% of businesses whose importing has suffered from the current crisis state support in finding new alternative supply chains as beneficial. It is hard to disentangle if firms’ future decisions regarding their downstream production will mainly be driven by Brexit or the COVID crisis, although the changes due to Brexit are heavily dependent on the future trade deals. Also, we expect to see further wage stagnation particularly with some sectors affected (passenger transport; accommodation and food; travel) being considerably restricted even in the medium run.
According to OBR, the latest estimate of the aggregate cost of the COVID response support packages is approximately -132.5 billion pounds, 6.3% of GDP. The current policy stance is likely to be unsustainable if unchanged until the end of the year (potentially even earlier). Future fiscal viability is dependent on the speed of recovery of the UK and World economy and the “tolerance” by the international financial markets towards the sovereign debt level. If the tolerance shown is the same as the one display in the European crisis of started in 2008, then most likely it will not be sustainable and can bring pressure of restrictive fiscal policies in the medium-term with severe consequences for inequality in the long-run. Additionally, the UK is no longer part of the EU making the mutualization of debt via mechanisms such as the so-called “coronabonds” is not an option. A mitigating factor is a likely sustained reduction in the capital financing costs due to a fall in investment demand.
The next steps to revive economic activity without significant job destruction and high long-term unemployment need to be focused on an efficient and well-monitored phasing out of the job retention schemes coupled with a sustained policy of investment in human capital and reskilling. One in four workers are currently furloughed and their prospects of being kept on are critical to the recovery and the phasing down of the Job Retention Scheme. As employers start to bear more of the costs there would seem to be two groups to carefully consider. The first will return to work, possibly first on a part-time or short time work basis. The second will not, either being laid off because there is not demand for their job, or because their employer closes down. For this group, policy is vital to ensure they do not be placed on a trajectory heading towards long-term unemployment, the economic, psychological and social costs of which are substantial as we know from a large body of research from earlier downturns that featured high levels of long term unemployment (Machin and Manning, 1999). It is important, for individuals, families and society that we do not return to the kind of long-term unemployment picture that did such damage in the UK in the early 1980s. Job guarantees for those reaching long-term unemployment (12 months), and perhaps at an earlier cutoff for younger workers (e.g. 6 months for under 25’s), are being discussed by some UK labor economists.