Thursday 16 July 2020

UK's headline unemployment rate flatters to deceive - but perhaps not for too much longer

The UK Office for National Statistics has just released its monthly compendium of labour market data. These are nowadays usually published on a Tuesday, so it's a back to the future moment for those of us old labour market watchers who trawled over the numbers on a Thursday morning in the 1980 and early 1990s. However, and surprisingly for some given the magnitude of the impact of the Covid-19 lockdown, today's figures, including Labour Market Survey (LFS) results for the quarter March to May, don't show 1980s and 1990s levels of mass unemployment.   

While these figures provide the best official picture so far of what happened in the peak period of the lockdown, what emerges is a mosaic comprised of numerous negative impacts drawn from various data sources rather than a crystal-clear image. Our view of the underlying jobs situation is particularly blurred. The LFS indicates that the total number of people in work fell by 126,000 in the three months to May – with part-time employees and the self-employed hit hardest – but the ONS’ more up to date flash estimates of employment based on PAYE data show that the number of employees fell by 649,000 between March and June. Meanwhile, job vacancies fell by 463,000 between April and June to a survey record low of just 330,000, resulting in a sharp fall in people starting new jobs. 

Yet despite this there was no rise in the headline unemployment rate which remains at a situation defying 3.9% largely because many of those who found themselves without work while the economy remained in its hiring sapping Covid-19 induced coma ended up stuck in the ranks of the so-called economically inactive. The number of economically inactive people who told the LFS they wanted a job jumped by a record 253,000 in the three months to May. Add these extra ‘want work inactive’ people – the ‘hidden’ jobless - to the active unemployment pool and the full magnitude of the underlying labour market crisis becomes more apparent.

Thankfully, emergency policy measures, notably the large scale government funded Job Retention Scheme, prevented an even more catastrophic outcome in what we should now see as phase 1 of the Covid-19 labour market crisis, the overall severity of which is evident both in data for total weekly hours worked in the economy and average earnings. With millions of furloughed workers in jobs but doing no work, plus many other workers put on short-time working, total weekly hours worked in the economy suffered a record annual decrease of 175.3 million (a whopping 16.7%) falling to a near 23 year low of 877.1 million. Fewer hours combined with a mix of pay cuts and pay freezes have in turn hit regular average weekly earnings, which fell by 0.7% in cash terms and by 0.2% in real terms.

Worryingly, as we move beyond phase 1 of the Covid-19 labour market crisis, the underlying jobs situation is likely to get a lot worse before we see any noticeable sign of a turn in the tide. Business surveys also published today suggest major job cuts are inevitable into the late summer and autumn as employers faced with an uncertain economic outlook and less generous financial support for furloughing decide to shed rather than retain furloughed staff. A reasonable expectation is that at least 800,000 to 1 million currently furloughed workers will lose their jobs by the end of this year, while more of those people currently economically inactive will start searching for whatever work they can find. If so phase 2 of the labour market crisis will hit much harder than phase 1 as Covid-19 leaves us stricken with a double-digit unemployment rate.