Little joy for women as furlough scheme clouds unemployment to come

Georgina Kenyon reviews UK unemployment data to ask if it shows the full picture.

News in the UK of the furlough scheme being extended until the end of September has been met with experts debating what the real levels of unemployment in the UK will be and the expected fallout in terms of lost jobs and bankruptcies. The furlough scheme is continuing to cloud the employment figures with confusion. As a result, it remains challenging to weigh up the true health of the economy, which is more complex than GDP figures convey.

When looking just at GDP figures for the UK, economic recovery was better than expected in the third quarter of last year according to the Office of National Statistics and London’s chief accounting firms. There are some economists who hope this brief up-turn will occur again later this year. However, there is little joy for those people who work in sectors still being hit the hardest by unemployment and redundancies.

“Hiring is still down on levels before the pandemic and this is a worry if it persists,” according to Jonathan Wadsworth, professor of economics, Royal Holloway College at the University of London. In the UK he points out that services reliant on customer contact such as retail and hospitality have been the sectors worst hit by the pandemic.

Despite government figures, there are shifting pictures of redundancies and unemployment because of the extension to the furlough scheme. Formally called the Coronavirus Job Retention Scheme, it was originally extended until the end of March 2021. It has since been extended to the end of September, only at which point the full extent of job losses and redundancies will be apparent. The International Monetary Fund’s (IMF) latest forecast of the UK’s GDP is for 4.5% expansion this year, 1.4 percentage points lower than last year’s forecast.

With the UK furlough scheme extending, the government has announced it will pay 80% of employees' normal pay for hours not worked up to a cap the end of June 2021. From July 2021 the government grant will reduce to 70% of pay (capped at £2187.50 per month), meaning the employer will have to fund the extra 10% to ensure the employee receives at least 80% of pay. The scheme is available for those working flexible hours and fulltime. According to Deloitte figures, in the UK, 59% of CFOs have already furloughed or intend to furlough staff, 33% are diversifying suppliers and 30% have accessed or intend to access the Bank of England’s COVID-19 Corporate Financing Facility.

There is less optimism for the economic outlook if you are female, however as hospitality remains one of the worst hit sectors in terms of layoffs without redundancies, and workers in it continue suffering from low levels of re-hiring. And many workers in this sector are women.

Frances O’Grady, the general secretary of the Trades Union Congress (TUC) said: ‘More women continue to face losing their jobs.’

Women are more likely to have been made redundant during the Covid pandemic than in previous recessions, according to the TUC. Data from the TUC showed female redundancies in the UK reached 178,000 between September and November 2020. This is 76% higher than the peak reached during the height of the financial crisis of 2007-9, when female redundancy levels hit 100,000. The increase is mostly reflective of their insecure work arrangements and being in sectors hit hardest by lockdowns. In the same 2020 period more men – 217,000 - were made redundant, but that was only 3% more than their peak redundancies during the financial crisis.

Making sense of the numbers

Are the numbers for unemployment the same as redundancies?

The numbers of people laid off who end up unemployed varies over the economic cycle, Wadsworth explained. Unsurprisingly, more laid off workers end up unemployed in bad times. In better economic times, forewarned redundancy can allow workers time to find a new job between the layoff notice and end of their work.

Wadsworth gives an overall perspective on employment in the UK: “Now, around 50% of recent layoffs are unemployed this year, and a further 17% are economically inactive.”

Being economically inactive could mean a person is not in work and not actively seeking work (according to the ILO/OECD definition). In theory everyone on furlough should be classified as employed, that is, still with a job but away from work. However, someone initially on furlough may subsequently have been laid off if, for example, the firm was unable to afford the pay gap. But there is no count for this, according to Wadsworth.

In contrast, Wadsworth’s analysis shows, in better economic times such as in 2004 and 2017, that nearly 50% of newly laid-off people were back in work within 3 months.

The ONS statistics show: For December 2020 to February 2021, an estimated 1.67 million people were unemployed. That was 311,000 more than for the same period a year earlier, but 50,000 down, quarter on quarter which made for the first quarterly decrease since October to December 2019. Meanwhile, economic activity – measuring ranks of jobless not seeking work - for people over 16 increased 20.9%. Approximately 500,000 employees received no pay while their job was on hold and/or affected by the coronavirus pandemic in April and May 2020. This decreased and had remained largely flat at around 200,000 since July 2020; however, it has increased over the last quarter to an average of just over 300,000 in January and February 2021.

The UK versus global outlook

Strength of the UK economic recovery over the next two years falls far behind stronger GDP forecasts for the United States and Japan. There were record economic contractions in the second quarter of last year in the UK followed by the solid, but momentary, recovery. The ONS data shows that from July to September 2020, GDP across all countries of the UK grew as lockdown restrictions were eased. The 17.2% GDP growth England posted in Q3 exceeded the 16.9% UK average.

Globally, the global economy is being boosted by predictions for the US and Japan. JP Morgan Chase in the US believes the expected recovery is a result of high savings rates, stimulus programmes and a slow growth of inflation where consumers and companies appear to be in good financial health.

In contrast, George Buckley, chief UK and euro area economist at Nomura, expects a prolonged recovery in the UK until at least the end of 2023, before the UK output regains its pre-crisis peak. He believes the UK economy’s 80% reliance on services and Brexit concerns are part of the UK’s challenge. “The fall in UK’s GDP has been among the worst in Europe, along with Spain.” He agrees with the IMF’s downward revision of the UK economic outlook, which is worse than other G7 countries that includes a poor outlook for certain sectors of employment and expected redundancies.

Looking ahead

The upshot of such trends and statistics is that until the furlough scheme is wound back at the end of September, the real numbers of unemployment, redundancies to come and bankruptcies as a result of the pandemic will not be understood. Wadsworth points to one hopeful indicator, the hours worked by employees during subsequent lockdowns after the initial lockdown. They have not dipped. “The re-opening of shops and services in general between July and September restored much of demand for these types of services. This is despite the fourth quarter GDP growth dropping negative again with the return of lockdowns plus the first 2 months of 2021 falling again by about 8-10%,” he said.

Also, there has been some growth in re-hiring and hiring for support services, IT and public administration this year.

“Although the third quarter last year was a bit of a temporary upward blip – it is probably indicative of what is to come in the second quarter of this year and onward, as things start to return to something like normal,” Wadsworth hopefully concluded.