Finance

End of coronavirus furlough will not solve UK labour shortages

UK employment updates

The end of the UK’s coronavirus jobs furlough scheme may nudge up unemployment, but it is unlikely to fix the labour shortages plaguing employers, business groups and economists say.

More than a million jobs fell vacant as the UK economy reopened over the summer, and the latest real-time data show demand for workers is running far above pre-pandemic levels, especially in low wage sectors.

With around 1.6m people still fully or partly furloughed at the start of August, the big question for policymakers has been how many would become unemployed as subsidies were tapered. But the end of the scheme in less than 10 days, looks increasingly unlikely to prompt a flow of new jobseekers that could solve employers’ hiring headaches.

“The gradual unwinding of furlough will help the situation but I don’t think it will eliminate the situation by any means,” Rain Newton-Smith, chief economist at the CBI employers’ lobby, told the UK parliament’s Treasury committee this week.

Tony Wilson, director of the Institute for Employment Studies, said the scheme’s closure “won’t make a big difference to the path of unemployment or to the level of vacancies,” while Chris Gray, director of the recruitment agency ManpowerGroup UK, said: “It won’t move the dial.”

One reason is that the headline figure of 1.6m may overstate the true number of people still reliant on wage subsidies. Official labour force data suggest the number of people who are employed, but temporarily away from work, has already returned to pre-crisis levels.

Of the 1.6m counted by HM Revenue & Customs, almost half were already working some of their usual hours in July and would probably be kept on by their employer, if not for the hours they wanted.

Of the 820,000 still fully furloughed, some could have moved on to new jobs already, Wilson said, while others would return to existing jobs as city centres became busier and arts venues reopened.

Older workers and people employed by very small businesses also make up a disproportionate share of those still fully furloughed — and some of these might prove to have taken early retirement, or be self-employed company directors who had furloughed themselves until their business recovered.

Some jobs in small businesses will still be vulnerable, especially in sectors such as aviation, tourism and the arts that have not yet returned to normal operations. Some economists expect unemployment to rise from its current rate of 4.6 per cent towards the end of the year, with increasing underemployment also helping to limit pressures on wages.

But there has been no marked rise in the number of companies consulting on redundancies. Instead, more employers have returned furlough money they had either over-claimed or no longer needed: HM Treasury said on Tuesday that companies had handed back £300m in the last three months.

Gray said many employers were so desperate to plug staffing gaps that they would keep existing employees, even if their roles had become redundant, and would train them to move into new ones.

Charities still worry that they will see a big rise in the number of people struggling to pay rent and other bills when support is cut off. Employers’ concern is that those people who do lose jobs may be in the wrong place, or lack the specific skills for the jobs that are hardest to fill.

“You will still have some mismatch,” Newton-Smith said.

Wilson argued that while there might be a rise in unemployment “in the low hundreds of thousands”, many people would be able to find new work swiftly. But with employers desperate to hire, and vacancies clustered in low wage areas, some might choose to hold out until they found a new role that matched their skills.

“People laid off as cabin crew or from a travel agency may not want jobs in bars or distribution,” he said. “People may stay unemployed a bit longer.”

 

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