Don't be fooled – under Covid-19, the UK labour market is in crisis

Larry Elliott
·4-min read
<span>Photograph: Philip Toscano/PA</span>
Photograph: Philip Toscano/PA

Rishi Sunak knows it. Andrew Bailey knows it. Every economic pundit knows it. The UK labour market is facing its grimmest period in decades. It is not a question of whether the dole queues will lengthen markedly, but by how much and when.

A cursory glance at the latest data produced by the Office for National Statistics would suggest the outcome is not going to be all that bad. Unemployment, on the internationally agreed measure, remains below 4%, and has barely budged since the arrival of Covid-19 earlier this year. Employment was down 220,000 between the first and second quarters of 2020, which doesn’t look that terrible given that the economy contracted by a fifth over the same period.

But don’t be fooled, because neither the chancellor nor the governor of the Bank of England is taken in by these encouraging-looking figures for a minute.

UK claimant count level increased by 116.8% since March 2020

Seasonally adjusted

Thousands

0.5

1

1.5

2

2.5

3 million

2008

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2012

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2016

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2020

Guardian graphic | Source: Department for Work and Pensions. Note: seasonally adjusted figures

The true state of the labour market has been veiled by two things. First, and most obviously, Sunak’s job retention scheme has meant millions of workers have been furloughed since March. In the absence of 80% wage subsidies, many of them would have been laid off.

Second, someone is counted as unemployed only if they are both out of work and seeking employment. There hasn’t been much point in looking for a job while the economy has been locked down, so people have been classified as inactive rather than jobless. The government’s alternative measure of unemployment – the claimant count – provides a better guide to what has been happening. It has doubled since the start of the Covid-19 crisis, and rose by 94,000 in July to stand at 2.7 million.

There’s more. The number of hours worked fell by a record 18% in the second quarter to 849m – the lowest level since 1994. On average, a worker put in 25.8 hours a week – falling by an unprecedented 5.6 hours on the quarter. Vacancies have more than halved over the same period.

So, the true picture looks like this. Since the early months of the year, about 730,000 workers have been removed from company payrolls in the UK, a figure that would have been much higher were it not for furloughing. The labour market pain is being felt most keenly among the young, the elderly and the unskilled, groups that will struggle to find new job opportunities. The use of zero-hours contracts is rising fast.

August to October – the furlough phase-out period – was always going to be crucial, because firms now have to decide whether or not to retain staff. The Treasury and the Bank of England await data for this period with trepidation, and rightly so. It will not be pretty.

No time to rail against air traffic

There’s more than a hint of Mandy Rice-Davies in the call by train operators for higher taxes on domestic flights so they can cut rail fares. To misquote the evidence Christine Keeler’s friend famously gave at the Old Bailey trial during the Profumo scandal of 1963: they would, wouldn’t they?

The timing of the submission by the Rail Delivery Group to influence the government’s proposals for decarbonising the transport sector could be better timed as well. Passenger traffic at Heathrow is down almost 90% year-on-year and airlines have been cutting thousands of jobs.

All that said, the rail operators have a point. Airline fuel for passenger planes is untaxed while taxes on the electricity used to power trains have more than doubled in the past four years.

Given that a domestic flight emits six times as much CO2 as a domestic rail journey, this doesn’t really make a lot of sense if ministers are serious about making the economy net zero for carbon emissions by 2050. But daft though it is, don’t expect action to redress the balance any time soon. Ministers are not going to make life harder for airlines than it currently is.