Getting Back to Work: Dealing with the labour market impacts of the Covid-19 recession

The Institute for Employment Studies (IES) is pleased to announce the launch of a new research report that sets out IES’s assessment of the economic challenges that we will face from this crisis, and evidence-based proposals for our labour market response.

The labour market impacts of the crisis

We expect that employment has already fallen (over the first month of the crisis) by around 1.5 to 2 million, equivalent to 5% of all of those in work. This would be double the fall in employment in the last recession (740 thousand) and five times larger than the previous largest quarterly fall at any point since 1971.

We expect that unemployment has already risen to at least 2.5 million, or from 3.9% to around 7.5% of the workforce. This will be a far quicker rise than in any of our last three recessions, and would put the unemployment rate slightly higher already than the highest point it reached in the last recession.

There is clear evidence that prolonged spells of unemployment, particularly while young, can cause long-lasting ‘scars’ on an individual’s future earnings, employment prospects and health and wellbeing. However the evidence also shows that this is not inevitable: reducing the number of unemployment spells also reduces the harm caused.

Early analysis suggests that groups at particular risk in this recession are likely to be young people and the lowest paid, with women more adversely affected than men. Older people are also likely to be particularly at risk, and we would anticipate a stronger sectoral bias in the recession than in the last – with retail and hospitality appearing to be particularly vulnerable.

What is less clear at this point is whether unemployment will continue to rise steeply in the coming months, and how fast the recovery will be. If we can leave the ‘lockdown’ smoothly by late spring, then there seems a reasonable chance that unemployment will peak quite quickly, and more or less where it reached after the 2008/9 recession. However if the lockdown continues into the summer, then it is plausible that viable businesses will start to run out of cash reserves and loan options and we will see a ‘second wave’ of large scale job losses.

Overall, we think that it is highly unlikely that we will see a steep recovery in employment or unemployment in the near future, and we expect that it will take years rather than months for the labour market to fully recover.

Getting the country back to work

The report proposes five priorities for action. At their heart would be a new Back to Work campaign, underpinned by local Back to Work Partnerships and a Back to Work Service for the long-term unemployed. We propose:

1. Investment in new active labour programmes for those out of work

2. Refocusing skills and training to support the recovery

3. An integrated and coherent offer for young people

4. An orderly withdrawal from the Job Retention Scheme

5. A new, partnership-based, ‘Back to Work’ campaign

IES Institute Director, Tony Wilson said:

“In order to be ready to act in the months ahead, we need to act now. However the sheer scale of the challenge means that government will not be able to do this by itself.

“We recommend that government brings together a ‘Cobra’ for jobs, to work together on designing, co-ordinating and mobilising this response, and convening a wide range of partners including government Departments and agencies, local government, sector bodies, trusts and foundations and key stakeholders.

“The proposals will help to ensure that as the economy recovers we can keep people attached to work, help them find better work, and minimise the ‘scars’ from being out of work.

“With a cost of around £4.7 billion over the next three years, the evidence from previous programmes tells us that this investment would more than pay for itself in the future; while the evidence from previous recessions tells us that the costs of inaction would be far higher.”

The report is available to download here: https://www.employment-studies.co.uk/system/files/resources/files/547a_0.pdf