The jobless picture is grim but will get a lot grimmer. Even government ministers, normally hard-wired to find a silver lining to the darkest of clouds, admit as much. Unemployment is nudging 3 million, vacancies have plummeted and pay packets are shrinking. All this while the government is paying the wages of millions of workers through its furlough scheme.
Thus far, the true state of the UK labour market has been disguised by wage subsidies covering 9.1m jobs. A record drop in the number of hours worked provided a glimpse of what is actually going on, but a much more accurate picture will become available from August, when employers will have to start making a contribution. At the moment, for observers of the UK economy it is like being the lookout on the Titanic.
On the plus side, the furlough scheme has provided firms with breathing space. Had nothing been done when the economy went into lockdown in late March, companies would have folded in droves. As the Institute of Directors has noted, firms have at least been given the chance to adjust and launch new products.
On the other hand, the big drop in annual earnings growth suggests that many workers were receiving 80% of their wages from the chancellor but nothing on top. They were getting the bare minimum because firms were struggling.
Neither of the government’s methods of calculating unemployment provides a really accurate picture of what is happening, although for the time being it makes sense to look at the claimant count rather than the labour force survey.
The claimant count showed the level of joblessness just shy of 3 million in May after a second hefty rise in a row. Although the ONS says some of the people added to the count have been added because of a relaxation in the conditions for claiming universal credit, there were clearly large numbers of job losses in April and May despite the furlough. The claimant count has more than doubled since March and the challenge for the government is to prevent it from hitting 4 million by the time the wage subsidies come to an end in October.
For that to happen, the government needs to do three things: it has to find a way of getting schools to reopen; it either has to relax physical distancing regulations in order to make job-heavy sectors of the economy such as hospitality viable or provide continued customised help for them; and it needs to support employment by providing job guarantees for young workers and by cutting the cost of hiring through lower employer national insurance contributions.
Even then, it is going to be tough. For years, little attention was paid to the unemployment figures as the jobless rate tracked downwards and hit levels not seen since the mid-1970s. That period is now over. Britain is heading back towards the unemployment rates seen in the first half of the 1980s, with all the misery that involves.
