What does the next labour market crisis look like?

Author(s): Josh Abey; Nye Cominetti; Rebecca Florisson; Jake Shepherd; Aidan Shilson-Thomas

September 29, 2020

The coronavirus crisis means we are facing huge changes and disruption in the labour market but what are these likely to be and who will be most affected by them?

Covid-19 has accelerated change for workers already facing disruption

By Josh Abey (Fabian Society)

Covid-19 has pulled the rug from underneath millions of workers and businesses. Even jobs that seemed secure at the start of 2020 will likely be lost as furlough is replaced with the flawed job support scheme. Precarious workers, in sectors from hospitality to retail and the arts, are especially at risk. The OBR suggests the unemployment rate will reach 12 per cent by the end of the year.

But this crisis is not unfolding in a vacuum. This was always going to be a decade of disruption – with technology-driven changes transforming experiences of work across the economy. The difference now, with Covid in the picture, is that these changes are likely to be accelerated and intensified.

Many of us have already witnessed the rapid take-up of technologies at work, making millions of jobs viable during lockdown and beyond. Working from home and using Zoom have become normal for many people.

But the past tells us there may be more sinister changes afoot. Firms often invest in automating technology during recessions, to minimise payroll costs – and the unique nature of this downturn is likely to exacerbate this tendency, as businesses seek to reduce face-to-face contact. Fast-tracked technology adoption also risks changes being implemented in ways which bypass consultation and undermine conditions.

Very soon, the scale of the crisis will become clear to policymakers and the public. The government needs to make bold interventions, but these must be designed in partnership with those who know the world of work best. That means bringing both trade unions and businesses round the table, to plan a way forward together.

The country is squarely in the middle of a labour market crisis, and on the verge of a deeper one

By Nye Cominetti (Resolution Foundation)

The country is squarely in the middle of a labour market crisis, and on the verge of a deeper one.

So far we’ve had the lockdown and the reopening. In the lockdown period, despite massive support protection through the Job Retention Scheme and the Self-Employment Income Support scheme, employment fell by around 850,000. In the reopening phase, from June onwards, the labour market has broadly been in limbo. Employment hasn’t changed much in this period, and very few people are moving in and out of work.

The next phase of the crisis begins when the Government’s emergency support ends. But will the latest round of support – the Job Support Scheme – halt the coming rise in unemployment? No, is the answer unfortunately. It will only stem and delay that increase – so we still need to prepare for a period of high unemployment.

The Job Support Scheme rightly aims to encourage part-time work across firms – as is the case with short-hours working schemes across Europe.  But design flaws risk limiting its impact. Under the scheme it will be more expensive for an employer to employ two workers on half-time hours than one on full time hours. Those are not great incentives for firms to hold on to as many workers as possible.

So, as well as reforming the new scheme so it can protect more jobs, there will need to be more of a focus on creating new jobs for people to move into, as well as supporting the incomes of those who lose their jobs, through Universal Credit. Those are the big challenges for the next 12 months – at least.

Early evidence shows lower paid workers will be hardest hit through the coming crisis

By Rebecca Florisson (The Work Foundation)

We are just at the start of an employment crisis, which is already impacting the financial and emotional wellbeing of many workers.

While the Coronavirus Job Retention Scheme (CJRS) may have delayed large-scale unemployment, reductions in hours and earnings over the summer have already hit some workers hard. Last week, the Chancellor announced the CJRS will be followed by a six-month Job Support Scheme, in which workers must work a third or more of their normal hours, with 55% of their usual salary paid for by the employer, and Government putting in an additional 22%, to top up their salary to 77% of the full amount. Significant questions remain as to whether this provides employers with sufficient incentive to participate in the scheme, and if they do, whether a drop of over 20% in pay will leave low paid workers with enough to get by.

This is doubly concerning as analysis of the Understanding Society Survey reveals that the crisis has a differential impact on workers’ financial and mental wellbeing, with the least resilient being hardest hit. Those who assessed their financial situation as ‘barely getting by’ prior to the COVID-19 crisis are now 7 times more likely to be financially struggling.

Declining financial wellbeing has significant implications for mental wellbeing. Workers who got by before but are now struggling saw mental distress increase at 2.5 to 4 times the rate of those whose situation remained stable through the early stages of the pandemic.

It is vital that we see more action to support the low paid and those in insecure employment through this crisis. The Chancellor’s next priority should be to strengthen the safety nets upon which we will all rely in the coming period, and bolster the skills and training infrastructure that can support workers into better paid, more secure jobs in the future.

An increase in the precariousness of work onto an already uncertain jobs market

By Jake Shepherd (Social Market Foundation)

For several years, there has been growing anxiety around the changing nature of work. This includes the rise of the ‘gig economy’, zero hours contracts, and the use of technology to monitor every minute of an employee’s day. For some in the labour force, work has become less secure, poorly paid, and subject to intense micromanagement.

The arrival of COVID-19 has led to further fears, as remote working and the need for technological uptake in the workplace have led some companies to speed up their automation plans. It has even been reported that, given the likelihood of future disruption from COVID-19, investing in automation is more valuable than hiring or rehiring staff. Automation may be essential to surviving the current economic crisis and the sluggish, ‘U-shaped’ economic recovery that follows.

Last year, the ONS estimated that automation threatens the livelihoods of 1.5 million workers. The unemployment rate is currently rising, and if automation accelerates in the coronavirus crisis then it may be the case that some of the jobs lost over the coming months never resurface. Combined with automation, the rise of homeworking, facilitated by new technologies, has the potential to decimate the city centre jobs market in industries such as hospitality and retail, which heavily rely on commuter footfall.

At a time when businesses were already streamlining and becoming less labour intensive – think Amazon, delivery drones, and its checkout-free grocery stores – it seems likely that there will be added precarity to what was already a very uncertain jobs market.

Government needs to invest to upskill workers who will need to switch careers in response to a changing labour market

By Aidan Shilson-Thomas (Reform)

The coronavirus has radically reshaped the labour market, shutting down whole sectors and spiking unemployment – and there’s worse to come.

It is likely that many of the three million jobs still furloughed will no longer be viable once the State stops subsiding them.  The new Job Support Scheme may protect some for a few more months, but ultimately the end result is the same: lots more redundancies.

But the Chancellor’s headache gets worse still. Many of those who lose their jobs will not only need to find a new one, they’ll need to switch careers entirely. This is the next labour market crisis.

The Chancellor needs to act now to stop those made redundant from becoming trapped in long-term unemployment. Business as usual Jobcentre support is insufficient – the Government needs to make a bold offer to career-switchers.

Those having to start over in a new sector will need to gain new skills. A £5,000 learning account would enable them to retrain to work in the sectors of the future. And starting over again may also mean taking a wage cut. To mitigate this and encourage people to make the jump, the Government should provide a time-limited, means-tested maintenance ‘Career Changer Grant’ of up to £3,000.

To ensure people are developing the skills to meet actual local labour market demand, the Government should work with businesses to set up sector-based programmes, based on the Work Advance model in US, to deliver skills training.  The sector employers should then guarantee an interview to career-changers who complete the programme. (Read Reform and the Learning and Work Institute’s proposals in full here.)

The labour market is not going to return to its pre-pandemic shape, so the Government needs to invest now to equip workers with the skills of tomorrow.