The Coming Storm: Who is in its path?

By Professor Paul Gregg, University of Bath and Professor Lindsey Macmillan, Centre for Education Policy and Equalising Opportunities 

The impending catastrophic shock to employment highlighted in our recent blog post will come about through a number of different routes. While there is always churn in the labour market from some firms expanding, some contracting, and the start-up and death of firms, the lockdown and coming recession will delay start-up and expansion, as firms wait to see the state of the economy, whilst contraction and closures are accelerated. This is normal in a recession but this time the contraction and firm closures will be intensely concentrated. If this creates widespread fear of job loss, the result will be a deeper, more protracted recession, which could drag down a lot of otherwise-viable firms. Others will be pushed to the edge of existence, needing to lay off workers. So in a short space of time, we’ll see the inflow of new jobs drying up as the outflow of ones lost increases sharply.

This will play out through four main routes listed in the order that they bite as a recession hits:

1. Recruitment Freeze: Firms, in general, will already have stopped hiring new workers. Real-time vacancies data from recruitment websites says that vacancy levels are 65% down on the same period last year. Plus firms will have already, or be about to, let go of a high proportion of temporary workers and many agency workers.
2. Delayed Start-up or expansion: New startup and firm expansion will be delayed until late this year or next because of the huge uncertainty around the state of the economy.
3. Financial Distress: A number of businesses will go under and more widely firms facing acute financial distress will shed workers to reduce costs as happened in the 1990s to a greater degree than in the last recession. Also, many self-employed contractor workers will not be able to start-up again after lockdown.
4. Strategic Planning: Over time firms assess the likely demand for the goods and services returning and adjust employment accordingly, such as the aviation industry has started doing already.

Who will suffer most?

In terms of the labour market, this will hit a lot of workers but some groups will be especially hard hit, given past recession experiences.

The Young

The young are always hardest hit by the combination of no hiring and temporary contracts and recent starters being let go. Youth (18-24) NEET (Not in Employment, Education, or Training) rates will generally increase dramatically but this summers crop of school/university leavers will be the hardest hit. New graduates will have lower employment but also move extensively into lower-paying occupations (see next section). New school leavers (18/19 year olds) will see a collapse in employment opportunities in July to August. This exclusion from the labour market will damage future wages and employment prospects (referred to as scarring) as discussed in the next section.

Youth unemployment rates are currently 2.5 times that for the whole population. In part, this reflects lower employment among students but even adjusting for that it is twice as high. It was over twice as high through the last recession (18% compared to 8%) and slightly less than twice as high through the 90s recession. Broadly this is what we can expect this time too. If the overall unemployment rate reaches 14%, as predicted in the previous blog post, then youth unemployment could go beyond 25%. If unemployment is lower thanks to the recent announcements on social distancing and other government action then at 12% on average youth unemployment will be above 20%.

Among those aged 18-20 who are not in full-time education, joblessness could reach 50% (this is higher than unemployment – around 30-35% – because some give up looking for work and don’t count as unemployed). Unemployment among young people from ethnic minorities is about 1.5 times that for the White population and twice as high for Black workers and those with Pakistani or Bangladeshi heritage. As youth unemployment becomes widespread in the autumn, these disparities will come down a little. But this still suggests around a third of those young people from ethnic minorities being unemployed, and higher still for Black/Pakistani/Bangladeshi heritage youth. With the Black Lives Matter calls for justice this economic injustice will feature heavily by the end of the year.

Prime Age

Prime aged workers will be less severely affected as firms will want to hold on to experienced and productive workers. Even so, employment rates will contract sharply before recovering. Within this population the focus will quickly concentrate on a number of groups who are generally less advantaged in the labour market. The less-well educated, those in severely affected industries such as retail, leisure and tourism, those for ethnic minorities and those living in more deprived areas, will be far more at risk of long-term unemployment. But those with past unemployment or jobless spells, or already in the low pay–no pay cycle, will be hardest hit. This will include those with physical or mental health issues, ex-offenders etc.

Somewhat less obvious is that those from poorer families in childhood are far more at risk of experiencing unemployment throughout life, even for the same levels of education and living in the same local labour market. But it will bite hardest for those who face multiple disadvantages of growing up poor, living in a depressed local labour market and having lower levels of education. The cumulative effects of multiple disadvantage grow when work disappears. In our recent paper, we showed that Britain (along with Ireland, Belgium and Italy) performs particularly badly in this regard. The downturn will hurt social mobility.

 Older Workers 55+

Older workers are less commonly affected, as firms now use early retirement less frequently to shed workers because of its high cost. However, those who do become jobless will struggle to regain a foothold in the labour market and face long-term exclusion and low incomes even into retirement. Again those with health problems are at higher risk here.

How can we reach those at risk?

Targeting support

The typical way of targeting support is by using duration of out of work benefit claims. This works reasonably well when the flow of claims is spread enough that provision can be mainly dealing with a flow, rather than a large stock. But this will not be the case over the next year. Between September and December huge numbers will be reaching 6 months duration as a very large block. Likewise, next April will see a large cohort arriving at 6 months from those who lose work around October this year when the Job Retention Scheme ends, along with the school leavers. This is on top of the tidal wave (around 1 in 5 of the 1 million) of people who lost work in April/May this year reaching one-year duration of their benefit claim.

We need to get ahead of the wave: identifying those at risk and enrolling them on early effective support programmes, before the duration of spells out of work gets extended.

Identifying need

We need to be able to identify and target those at risk among the youth population. From previous youth unemployment crises, we have a history of using Risk of NEET Indicators (RoNIs).  These are a set of characteristics which collectively predict NEET status for over 6 month’s duration pretty well. The characteristics are combined into a ‘risk score’ based on several indicators, including: Achieving below 5+ GCSE’s incl. Maths and English, Special Educational Needs and Disability (SEND) status, Free School Meals status, School exclusion/suspension or a truancy record, living in a deprived neighbourhood, looked after/ foster children, teen parenthood, young carer, and a record of youth offending.

The threshold of having a set of these characteristics can be chosen on the desired population to be engaged in support programmes. A score of five or six has been used previously. The indicators mostly come from the National Pupil Database (NPD) but given the progress made in linking administrative data (such as the Longitudinal Education Outcomes, LEO) available now, this should be more easily generated and even extended. Health issues outside SEND have not been generally used but could be added through links with health data and likewise markers of youth offending.

For older adults, DWP data on past benefit receipt in the last three years plus educational qualifications, age (55+), living in a deprived area and if possible health issues could serve as the equivalent to RONIs. These will allow us to create an early entry cohort into effective government support programmes before 6 months for the young, or 1 year for the older have elapsed.

The implications of not catching these people early (scarring) and the types of programmes that might be effective will be featured in forthcoming blog posts.