Official post-lockdown unemployment figures ‘only partial picture’

By Professor Paul Gregg, University of Bath

August produced two vital sets of data on the state of the economy. Assessments of output (GDP) and jobs. Britain officially entered a recession, though it has been since April when output was 26% below that seen in February. The latest data showed a sharp bounce back as businesses started to re-open in June. But output remained 15% below February’s peak. This is unsurprisingly the worst economic decline, by a big margin, since the second world war.

How can unemployment stay so static?

At the same time it was announced that since the virus hit and economic production tanked, unemployment has not moved at all by June. Also, that total employment has fallen by ¼ of million, the number of employees on payrolls for PAYE tax registration fell by ¾ million and the number of claims for out of work benefits (the claimant count) is up by 1 million. Looking at these makes anyone think that something has gone wrong at the Office for National Statistics. There are massive contradictions here. The reasons how these statistics can all be true get a little arcane but here goes.

How can the data look so good?

In short, from the start of the pandemic and up till June,

• Around 200,000 older workers decided to retire a bit earlier than planned and around
• 600,000 People with either jobs (mainly zero-hours contracts) or self-employed stopped earning anything.
• Around 5 million on furlough pay at any point in time.

None of these count as unemployed and only the 200,000 count as not in employment as they have retired. The others still have employment but no earnings.

Below I explain this in more detail.

1. Early retirees don’t count as unemployed. The unemployment and employment data comes from the Labour Force Survey and covers the 3 months April to June but there is no sign that things changed much over these months. The story here is that the employment fall was almost entirely among those aged 65+ and again almost entirely among the self-employed. Older people faced with a lengthy shut down of their businesses and other self-employment activities (what are called own account workers), have simply retired. These number around 200,000. In most cases, they were probably planning to retire soon and have just brought it forward. To be unemployed you need to be looking for a new job – if you retire you are not unemployed. Hence the difference between employment and unemployment numbers.
2. People on zero-hours contracts don’t, either. The PAYE register of employees covers an extra month, going through to July and perhaps 100,000 of the large ½ million discrepancy with LFS employment data. The bigger story is about those who are away from work. Some 7.5 million people are away from work now. Normally this is about 2.5 million which mainly reflects sickness. The 7.5 million figure reflects both higher sickness and those on furlough, where people are still being paid and count as employees in the PAYE system. However, there are a number of people away from work and not on a payroll for tax purposes. ONS estimates that there are 300,000 away from work, and not furloughed, with no earnings. Most are likely to be on zero-hours contracts and with zero hours. These people are employed – they have a contract – just they have no paid work but the will have dropped off the PAYE radar of people earning on firms payrolls.
3. About 600,000 employed with no earnings The increase in the claimant count is higher still as many self-employed people are claiming Universal Credit to tide them over lockdown. Normally UC requires people to be searching for work – which would make them unemployed – but this has been waived for the pandemic. This means we have a lot of people with zero earnings and claiming benefits but have employment contracts or normally work as self-employed and are not looking for a new job. These are considered employed in official statistics. So by June, we had about 600,000 people who count as employed but without any earnings.
4. Plus the 5 million or so on furlough by this time.

July: “the first wave of major job-shedding”

In July though the job shedding started, with at least 100,000 losing work (and more if some of those with jobs but no earnings re-started working). Up until the end of July, the economy was partially closed but jobs and incomes were largely protected by the government. This ends in August and September and the real recession begins.

Recommendation: We need to monitor the zero hours/self-employed more.

The anomaly all this highlights is people with a zero hours or self-employment contract who have no earnings are considered employed and hence don’t count as unemployed – the size of this group needs to be monitored. The question is whether these people will restart employment now lockdown is eased.

Recession “in the ballpark of the 1980s”

The main story will be how deep the recession is after lockdown has mostly ended in July. The signs are that this will be in ballpark of the 1980s and the last 2008/09 recessions.

The Bank of England suggest that there will be around 1 million workers losing their jobs, as the economy is still 5% below peak after Lockdown ends. As I have posted before I feel if this forecast of economic activity is right the jobs shakeout will be higher, around 1.5 million, as so many firms are in critical financial condition. The unemployment storm has only just started.