The UK’s unemployment rate could be far worse than official figures have estimated, a group of academics has said, warning that the country could be facing the “biggest unemployment shock since at least the 1980s recession”.
A paper from the London School of Economics’ Centre for Economic Performance (CEP) said the government’s furlough scheme was skewing unemployment figures, and that the real level of unemployment could have fallen by 15 per cent between February and June this year – much higher than the official figure.
The report argued that because the job retention scheme was keeping individuals with no work in employment, a more “realistic” measure of unemployment would be the proportion of people working no hours.
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By this measure, the number of workers in employment who did not work any hours was only about 1.3 per cent in February, but increased to 30 per cent in April before falling to 26 per cent in May and 21 per cent in June.
The report added that there was significant variation when it came to lower earners, who were more likely to have been furloughed or had their hours reduced. Brian Bell, professor of economics at King’s College London and one of the report’s authors, said those most likely to be unemployed were young people, those with lower qualifications, black workers and those on low pay.
“Similar to previous recessions, the Covid-19 crisis has the potential to scar a large number of individuals, most of them already in a precarious situation,” said Bell. “Well-designed labour market policies need to be implemented to protect those most at risk and to prevent further damage to affected individuals, their families, communities and to the UK economy.”
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According to the report, employees earning less than £151 per week in February were three times more likely to be furloughed or have their hours cut by at least half when compared to those earning more than £600 per week (54 per cent compared to 18 per cent). Those with a GCSE or equivalent qualification were also 17 percentage points more likely to be furloughed or lose half their hours compared to individuals with a degree.
This latest official figures from the Office for National Statistics (ONS) reported that the UK had an unemployment rate of 3.9 per cent in the three months to June – a rate that remained largely unchanged compared to the previous quarter. However, the same period also saw the biggest decrease in employment, with 220,000 fewer people in jobs compared to the previous quarter.
ONS productivity figures also found that productivity per worker fell nearly 20 per cent compared to the first quarter of 2020 – a disparity it also attributed to the furlough scheme keeping inactive workers in employment. However, it did not link this to any potential changes in employment.
Professor Stephen Machin, director of the CEP and another of the CEP report’s authors, said the economic fallout from the coronavirus crisis had created “even harder questions” for businesses than previous recessions: “The effects on those leaving full-time education could be more pronounced due to school closures and shifts to online learning in universities [and] long-lasting changes to the way we shop, travel and socialise are likely to significantly affect certain sectors.”
“Uncertainty about the course of the pandemic means the recovery could be even slower. Consequently, the economic scars have considerable potential to cut even deeper,” said Machin.