Job creation looks set to continue at a strong rate after the furlough scheme ends, but a fresh rise in unemployment is still likely according to analysis by the Resolution Foundation.
The Foundation has warned that about 900,000 people are still expected to be on the scheme when it finishes on 30th September. As a result, ‘huge uncertainty; surrounds what might happen next. “The Foundation expects many of these employees to return to their previous role – especially those on partial furlough – upon the scheme’s closure,” it said in its latest labour market report.
The Foundation’s latest Labour Market Outlook examines what the end of the Job Retention Scheme could mean for the jobs market this Autumn, and whether any additional policy support is needed. The report notes that thanks to the overwhelming success of the furlough scheme, which has protected over 11 million jobs since March 2020, the expected Covid-driven unemployment surge hasn’t materialised.
From an OBR central forecast back in July 2020 that unemployment could peak at 10 per cent – the highest level since the 1980s – last month the Bank of England forecast that the peak was already behind us, with unemployment reaching just 4.7 per cent at the end of this year, down from 5.2 per cent last autumn.
However, the Foundation cautions that with around 1.7 million employees still on furlough in late July, and with the rate at which people are coming off furlough stalling, the labour market remains far from full health.
Presenting a range of possible scenarios, the report shows that should furlough rates continue to fall at the same pace as they did between April and June, when the economy was reopening, around 900,000 employees would be still be on the scheme at the time of its closure.
The Foundation expects many of these employees to return to their previous role – especially those on partial furlough – upon the scheme’s closure.
But with the number of people starting new jobs already at record highs – and potentially hitting two million for the time ever this Autumn – firms are unlikely to have the capacity to immediately take on all previously furloughed staff who do lose their job.
The Foundation notes in this scenario, unemployment would rise from its current level of 4.4 per cent (the June single-month rate) to around 4.9 per cent in the Autumn – a significant increase of around 150,000 workers, but an astonishingly small rise in the context of the biggest economic contraction in over three centuries.
Faced with this uncertainly, the Foundation says that employment support schemes, such as Kickstart and Restart, will prove particularly important in protecting vulnerable groups. Restart will be particularly important for older workers, who are now the most likely age group to be on furlough, and who are most likely to have been on the scheme for at least six months.
And while there is less of a need now for targeted economic stimulus (unless restrictions are re-imposed on specific sectors of the economy in the event of hospitalisation rates rising), the uneven nature of the economic recovery means there is a need to maintain wider economic support, such as keeping the £20 a week uplift to Universal Credit in order to maintain an adequate safety net for those losing their jobs.
Hannah Slaughter, Economist at the Resolution Foundation, said “The furlough scheme has protected 11 million jobs and prevented an unemployment catastrophe. But with the scheme ending in less than four weeks’ time, there is huge uncertainty about what will happen next to the jobs market.”
“As many as 900,000 workers could still be on the scheme when it closes, though the majority are likely to return to their previous jobs. And with firms already reporting ‘hiring bottlenecks’, even a fresh surge in job starts in unlikely to be enough to prevent unemployment rising this Autumn.”
“Given the uncertainty surrounding the labour market, the Chancellor should maintain the £20 a week uplift to Universal Credit. Cutting support while unemployment is rising is bad politics, bad economics, and bad for living standards.”
