The COVID-19 pandemic combined with the policy and behavioural response to it have created the steepest global recession in recorded history and, with it, eye-watering reductions in the demand for labour as seen in the chart below. In the UK, the government has responded with a furlough scheme, subsidising companies to keep those employed who they would have otherwise made redundant. However, transfers of that magnitude cannot last forever, and are currently scheduled to end within the next few months, though of course those plans might change.
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The post-COVID labour market will look very different. Some industries will thrive; others will fade or disappear. Where we work and the way we work will have changed for good, especially in service industries, which is what the UK specialises in. Bricks and mortar retail, hospitality and transport services, along with some parts of the real estate service sector may be persistently or permanently damaged, while online retail, distribution and digital industries will thrive. The first category of industries, the ‘loser’ sectors, employ around 25% of the UK workforce (just over 9 million people). They tend to be labour intensive, while the second category is less so, and technology will probably reduce even the relatively small labour input to the ‘winner’ sectors in future. Reflecting that, claimant count unemployment has rocketed by some 1.5 million during the crisis so far, much more rapidly than it did in any previous recession at least back to the 1960s.
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But the increase in the claimant count does not capture the full magnitude of the shock to the UK labour market, since many workers who are still formally ‘employed’ are in fact not working, thanks to the furlough scheme. 9.4 million employments have been placed on furlough at some point during the scheme. Many if not most of those currently on furlough will land on the labour market by the autumn, and will struggle to find new employment unless vacancies bounce back drastically. More than debt, the labour market is the biggest economic problem for UK policymakers.
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