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Ethnicity Pay Gaps and Getting Stupid Answers

IOE Editor4 May 2021

By Paul Gregg

The old saying is that “If you ask a stupid question, you get a stupid answer”. The government-sponsored report from the Commission on Ethnic and Racial Disparities does just this on ethnic pay gaps. The central point is about comparing like-with-like when considering access to better-paying jobs in Britain. This blog post starts with a balanced assessment of what ethnic pay gaps in Britain actually look like, before explaining why the ONS analysis that the Commission draws on gets it so wrong.

Ethnic pay gaps from the Labour Force Survey

If we estimate the average (mean) pay gap between a Black, Asian, or Minority Ethnic (BAME) person and their White counterpart, living in the same region, and with similar educational achievement, using the nationally representative Labour Force Survey (LFS) of all with positive earnings, we find an ethnic pay gap of 14%. So similarly educated BAME people from the same place earn 14% less than White people. This is almost exactly the same pay gap as that found between men and women, and for those born into less advantaged families, compared to those born to more affluent families, again given the same educational achievement. The British labour market creates massive inequality of opportunity between people achieving the same education, across ethnicity, gender, and family background.

How does this compare with the Commission findings?

So the ethnic pay gap comparing like with like is 14%. So how on earth did the Commission come up with a 2.3% gap? There are two major parts to this.

The first is region people live in. The ONS report that the Commission draws on does not compare people in the same region. But ethnic minorities are not evenly spread across the country. They live disproportionately in London, the South East and major cities like Birmingham and Manchester. These are areas with higher pay but also higher living costs, especially in terms of housing costs. This 2.3% gap is comparing pay of BAME groups living in high-cost London to White populations living in low-cost Wales and the North East of England etc. This doesn’t make sense. One approach to make this more comparable would be to adjust for housing costs of where people live, but the easier approach is to compare BAME Brummies to White Brummies, and BAME Londoners to White Londoners – i.e. to compare BAME and White people living in the same region. Instead, this study gives a region-by-region breakdown of the ethnic pay gap, which is indicative of a pay gap between white and BAME groups, irrespective of where people live, of around 7%. This is one step closer to a balanced assessment but was not headline given by the Commission.

Well Paid Jobs

The second issue needs a little more explanation. Britain’s jobs have a wide distribution of pay levels. The minimum wage means that pay differences at the bottom are not that great. Pay of the person in the middle of the pay distribution was £13.68 Per Hour in 2020 (pre-pandemic). This is where ½ the employed population earn more and half less – the median.  Low paid people earn between £8.50 and £9 per hour (so a little above 60% of the median). One quarter earns more than 1.5 times this median figure, 10% earn more than 3 times this, and 5% more than 7 times. In other words, there are a small minority of jobs with extremely high pay. These are in law, business, and finance predominantly.

The ONS analysis which the Commission draws so heavily on, completely ignores access to these top jobs, because it measures pay gaps using– the pay gap between the person in the middle of the White earning distribution and the middle of the BAME one. This excludes differences in access to high paying jobs from the analysis. The average based on the mean (which is what all people think of as the average) rather than median, assesses the gap across all jobs. Doing this moves the pay gap from 7% or so for people in the same regions to 13%. Surely any assessment of disparities in opportunity would include access to the elite jobs in society as well as more typical jobs. It has to – to do otherwise is just stupid. The point is well made in the report in looking at BAME groups in the Civil Service (Figure 9, p12). Across departments as a whole, about 15% of staff are from BAME groups. But in senior roles, the number is half of this. Ethnic minorities of equal educational attainment systematically do not get opportunities leading to Britain’s higher-paying jobs.

Education

Educational achievement, as highlighted by the Commission report, has been a huge success story, educational levels in the BAME community are now a little higher than in the White population. Adjusting for this too, to compare Black and White with the same education to look at disparities in opportunities, pushes the pay gap up a little further to 14%. Comparing individuals with the same education, therefore, is making very little difference to the pay gap, as you would expect. The inequalities of opportunity lie beyond education in the labour market.

Britain’s ethnic minorities are well educated but are not progressing in the labour market to the highest paid jobs.  Yet a key report on ethnic disparities in opportunities chooses to assess pay gaps in a way that ignores this entirely. How stupid is that?

The challenges of COVID-19 for young people need a new cohort study: introducing COSMO 

IOE Editor23 April 2021

Jake Anders and Carl Cullinane 

The COVID-19 pandemic and its impact is a generation-defining challengeOne of its most concerning aspects, particularly in the long term, is the already profound effect it has had on young people’s lives. Disruption to their development, wellbeing and education could have substantial, long-lasting effects on later life chances, particularly for those from lower-income homesEvidence is already showing disadvantaged pupils lagging 5 months behind their peers. This poses a unique challenge for educational policy and practice, with the scale of the disruption requiring solutions to match that scale.  

In order to address these impacts, it is vital that we fully understand these effects, and in particular, the disproportionate burden falling on those from certain groups, including those from lower socio-economic backgrounds and minority ethnic groups. This needs high-quality data. Recovering from the effects of the past 12 months will be a longterm project, and to reflect this we need research of similar ambition. 

The COVID Social Mobility and Opportunity Study (COSMO for short), launched today, seeks to play this role, harnessing the power of longitudinal research to capture the experiences of a cohort of young people for whom the pandemic has had an acute impact, and its effects on their educational and career trajectories. 

This country has a grand tradition of cohort studiesincluding the pioneering 1958 National Child Development Study and the 1970 British Cohort StudySuch studies are a key tool in understanding life trajectories and the complex factors that shape them. And they are particularly vital when it comes to measuring the impact of events that are likely to last through someone’s life course. The existing longitudinal studies, including those run by our colleagues in the UCL Centre for Longitudinal Studies, have played a huge role in understanding the impacts of the pandemic on society in the last year. 

But there is a key gap in the current portfolio of cohort studies: and that is the generation of young people at the sharp end of their school education, who would have taken GCSEs this summer, and within a matter of months will be moving onto new pathways at sixth form, further education, traineeships and apprenticeships. The impacts on this group are likely to be profound and long-lasting, and understanding the complex elements that have aggravated or mitigated these impacts is crucial. 

A variety of studies have already collected some such data, providing emerging evidence of inequalities in pupils’ outcomes and experiences of remote schooling. This has highlighted alarming challenges for pupils’ learning and wellbeing. However, to develop a full understanding we require the combination of rich, representative, survey data on topics such as learning loss experiences, wellbeing, and aspirations, linked with administrative data on educational outcomes, and concurrent interventions. We also need to follow up those young people over the next few years as they pass through key stages of education and their early career, to understand what has happened next, ideally long into their working lives. 

Such evidence will be key in shaping policies that can help to alleviate the longterm impacts on young people. Which groups have suffered most and how, how long will these impacts persist, and how can we reduce their effect. These will be fundamental questions for national policymakers, education providers, employers and third sector organisations in the coming years, both in the UK and internationally. 

That’s why we’re extremely excited to be launching COSMO with funding from UK Research and Innovation (UKRI)Ideas to Address COVID-19 response fundOur study will deliver exactly that data over the coming years, helping to inform future policy interventions that will be required, given that the huge effects of the pandemic are only just beginning. As the British Academy pointed out on the anniversary of the first COVID lockdown – this is not going to go away quickly. 

Beginning this autumn, the study will recruit a representative sample of 12,000 current Year 11 pupils across England, with sample boosts for disadvantaged and ethnic minority groups plus targeting of other hard-to-reach groups. Young person, parent, and school questionnaires – enhanced with administrative data from DfE– will collect rich data on young people’s experiences of education and wellbeing during the past challenging 12 months, along with information on their transitions into post-16 pathways via this summer’s unusual GCSE assessment process. 

The study is a collaboration between the UCL Centre for Education Policy & Equalising Opportunities (CEPEO), the UCL Centre for Longitudinal Studies (CLS) and the Sutton Trust. The study will harness CEPEO’s cutting-edge research focused on equalising opportunities across the life course, seeking to improve education policy and wider practices to achieve this goal. The Sutton Trust also brings 25 years of experience using research to inform the public and achieve policy change in the area of social mobility.  

COSMO will also be part of the family of cohort studies housed in the UCL Centre for Longitudinal Studies, whose expertise in life course research is world-renowned. We are also working closely with Kantar Publicwho will lead on delivering the fieldwork for this large study, alongside NatCen Social Research. More broadly still, all our work will be co-produced with project stakeholders including the Department for Education and the Office for Students. We are also working with partners in Scotland and Wales to maximise comparability across the nations. 

We are excited for COSMO to make a big contribution both to the landscape of educational research and to the post-pandemic policy environment, and we are delighted to be getting to work delivering on this promise over the coming years. 

We won’t reduce inequalities in post-16 progression until we make ‘lower attainers’ more visible

IOE Editor29 March 2021

By Ruth Lupton, Stephanie Thomson, Lorna Unwin and Sanne Velthuis

Inequalities in post-16 progression

The continued use of GCSEs as a blunt instrument for dividing pre-and post-16 education is one of the main causes of inequality in the English system, with impacts extending well into adulthood. The system asks the least confident, least academically successful young people, often (but not always) facing greater social and economic disadvantages, to make the most complex, life-shaping choices at the youngest age.  Contemporaries with high academic attainment can progress more straightforwardly in a simpler, better understood, and historically better-funded system, often postponing decisions about occupational directions until age 18, 19 or later.

In our new research, funded by the Nuffield Foundation, we investigated the post-16 trajectories of young people who we described as ‘lower attainers’ – the 40% of each GCSE cohort who annually do not achieve a grade 4 (formerly C) in both English and maths.  We presented our findings at a recent CEPEO webinar.

Our research employed a mixed-methods approach combining analysis of data from the National Pupil Database (NPD) and Individualised Learner Record (ILR), collection and analysis of local data about course and apprenticeship opportunities and entry requirements, and interviews and focus groups.

It shows how, in making the transition to the post-16 phase and attempting to progress beyond GCSEs, ‘lower attainers’ face multiple barriers including: inconsistent careers information and guidance; restrictive entry requirements that are often based on English and maths GCSEs (even when it is not clear why specific grades are needed); considerable local variation in accessible provision; and the low availability and poor visibility of apprenticeships. Apprenticeships are not the accessible pathway for ‘lower attainers’ that many people imagine, with only 5.8% moving into an apprenticeship at 16 in the 2015 cohort, for example.

It also shows that many young people start their post-16 phase on courses below the levels of learning they have already achieved and that learners with similar attainment at 16 enter the post-16 phase at different levels in different places, partly due to local differences in the mix of provision and institutional practices. This has potential repercussions for the achievement of Level 2 and Level 3 qualifications between 16 and 18/19.

Making the problems and solutions more visible

All this points to a complex and locally variable picture that needs to be better understood.  But achieving clarity and understanding is very difficult due to the way attainment is measured and administrative data is collected, organised and made accessible.

Published statistics do not make the achievements and trajectories of lower attaining young people very visible, probably because much of the policy focus to date has been on raising KS4 attainment at the standard benchmarks. Coverage of lower-level qualifications (and of spatial variations) still lags behind.

And beyond the published statistics, there are major problems with the capacity for detailed analysis of the underlying data.

One issue is the data itself. Currently, we have two different large-scale administrative datasets for the post-16 phase – the NPD and ILR – with different definitions, variables and standards of documentation, and including different learners.  Getting access to these involves a lengthy and difficult application procedure, and working with the data to summarise what learners are doing and achieving is a painstaking process. Looking at academic routes is easier than tracking routes through vocational courses and apprenticeships because matching NPD (Key Stage 4) to NPD (Key Stage 5) is easier than matching NPD to ILR.  It is easier to look at outcomes than it is to understand progress and what learners are actually doing.  So analysis often focuses on qualifications achieved as the data is collected in this way.  We tried a different approach.  We developed a measure of a learner’s ‘main level of learning’ – the level that they were spending most of their guided learning hours on – and thus were able to illuminate progression (or not) from levels already achieved.  If the data sources were easier to access and use, much more could be done to analyse and explain course changes and progression between 16 and 19 and to understand what constitutes success and progress.

At a local level, basic information on the system in terms of the nature of provision at any given time as well as associated entry requirements is not routinely collected. To shed light on these issues, we had to collect and aggregate this information from provider and national agency websites, a labour-intensive task. The lack of available data leaves policy-makers unsighted as to what is on offer, who is missing out, and which gaps need to be plugged.

The other issue is analytic capacity.  Even if there were better data, there is a paucity of academics with interests and expertise in further education and training compared with the numbers working on school and higher education research. And we need more research teams who can combine quantitative and qualitative methods to investigate the relationship between the pre and post-16 phases. Changing this now will require not just funding for projects and centres but investment in early-career scholarship, addressing status issues and links to teaching. And there are insufficient links between people who have the skills for data analysis and practitioners who understand how the system works on the ground. Cuts to local authority funding have further diminished local capacity and intelligence.

Thus, if the characteristics and trajectories of lower attainers at GCSE are to be better understood on an ongoing basis, three substantial changes will need to be made:

  • Routine reporting of sub-benchmark achievement in more detail, and at relevant subnational scales.
  • Improvement in data infrastructure and access.
  • Increase in research and analysis capacity, both in local government and in universities and research institutes, and better links between them.

These will not be cheap.  But if the government is serious about eroding the long-standing inequalities in post-16 progression, it simply must invest in making the situation more visible.

The research reported here was funded by the Nuffield Foundation, but the views expressed are those of the authors and not necessarily the Foundation. Visit www.nuffieldfoundation.org

Vaccine hesitancy in children and young adults in England

IOE Editor17 March 2021

By Patrick Sturgis, Lindsey Macmillan, Jake Anders, Gill Wyness

Children and young people are, mercifully, at extremely low risk of death or serious illness from the coronavirus and, for this reason, they are likely to be the last demographic in the queue to be vaccinated, if they are vaccinated at all. Yet, there are good reasons to think that a programme of child vaccination against covid-19 will eventually be necessary in order to free ourselves from the grip of the pandemic. In anticipation of this future need, clinical trials assessing the safety and efficacy of existing covid-19 vaccines on young people have recently commenced in the UK.

While children and young people experience much milder symptoms of covid-19 than older adults, there is currently a lack of understanding of the long-term consequences of covid-19 infection across all age groups and there have been indications that some children may be susceptible to potentially severe and dangerous complications. Scientists also believe that immunisation against covid-19 in childhood may confer lifetime protection (£), reducing the need for large-scale population immunisation in the future.

Most importantly, perhaps, vaccination of children may be required to minimise the risk of future outbreaks in the years ahead. If substantial numbers of adults refuse immunisation and the vaccines are, as seems likely, less than 100% effective against infection, vaccination of children will be necessary if we are to achieve ‘herd immunity’.

We now know a great deal about covid-19 vaccine hesitancy in general populations around the world from a large and growing body of survey and polling data and, increasingly, from actual vaccine uptake. Much less is known, however, about vaccine hesitancy amongst children and younger adults. Here, we report preliminary findings from a new UKRI funded survey of young people carried out by Kantar Public for the UCL Centre for Education Policy and Equalising Opportunity (CEPEO) and the London School of Economics. The survey provides high quality, representative data on over 4000 young people in England aged between 13 and 20, with interviews carried out online between November 2020 and January 2021. Methodological details of the survey are provided at the end of this blog.

Respondents were asked, “If a coronavirus vaccine became available and was offered to you, how likely or unlikely would you personally be to get the vaccine?”. While the majority (70%) of young people say they are likely or certain to get the vaccine, this includes 25% who are only ‘fairly’ likely. Worryingly, nearly a third express some degree of vaccine hesitancy, saying that they either definitely won’t get the vaccine (9%) or are that they are not likely to do so (22%).

Although there are differences in question wording and response alternatives, this represents a substantially higher level of vaccine hesitancy than a recent Office for National Statistics (ONS) survey of UK adults, which found just 6% expressing vaccine hesitancy, although this rose to 15% amongst 16 to 29 year olds.

Differences in vaccine hesitancy across groups

 We found little variation in hesitancy between male and female respondents (32% female and 29% male), or between age groups. However, as can be seen in the chart below, there were substantial differences in vaccine hesitancy between ethnic groups. Black young people are considerably more hesitant to consider getting the vaccine than other ethnic groups, with nearly two thirds (64%) expressing hesitancy compared to just a quarter (25%) of those who self-identified as White.  Young people who identified as mixed race or Asian[1] expressed levels of hesitancy between these extremes, with a third (33%) of mixed race and 39% of Asian young people expressing vaccine hesitancy. This ordering matches the findings for ethnic group differences in the ONS survey, where 44% of Black adults expressed vaccine hesitancy compared to just 8% of White adults.

To explore potential sources of differences in vaccine hesitancy, respondents were asked to state their level of trust in the information provided by a range of different actors in the coronavirus pandemic. The chart below shows wide variability in expressed levels of trust across different sources between ethnic groups, but most notably between Black young people and those from other ethnic groups. Young people self-identifying as Black were considerably less likely to trust information from doctors, scientists, the WHO and politicians and more likely to trust information from friends and family than those from other groups. Although in terms of overall levels, doctors, scientists and the WHO are most trusted across all groups. Encouragingly, only 5% of young people say they trust information from social media, a figure which was consistently low across ethnic groups.

We also find evidence of a small social class gradient in vaccine hesitancy, with a quarter (25%) of young people from families with at least one parent with a university degree[2] expressing vaccine hesitancy compared to a third (33%) of young people with no graduate parent.

We can also compare levels of vaccine hesitancy according to how young people scored on a short test of factual knowledge about science. [3]  Vaccine hesitancy was notably higher amongst respondents who were categorised as ‘low’[4] in scientific knowledge (36%) compared to those with ‘average’ (28%), and ‘high’ (22%) scientific knowledge. This suggests that vaccine hesitancy may be related, in part, to the extent to which young people are able to understand the underlying science of viral infection and inoculation and to reject pseudoscientific claims and conspiracy theories.

How much are differences in vaccine hesitancy just picking up underlying variation between ethnic groups in scientific knowledge and broader levels of trust? In the chart below, we compare raw differences in vaccine hesitancy for young people from the same ethnic group, sex, and graduate parent status (blue plots) with differences after taking account of differences in scientific knowledge and levels of trust in different sources of information about coronavirus. The inclusion of these potential drivers vaccine hesitancy do account for all of the differences between ethnic and social class groups. While Black young people are around 40 percentage points more likely to express vaccine hesitancy than their White counterparts, this is reduced to 33 ppts when comparing Black and White young people with similar levels of scientific knowledge and (in particular) levels of trust in sources of coronavirus information.

Our survey shows high levels of vaccine hesitancy amongst young people in England, which should be a cause for concern, given the likely need to vaccinate this group later in the year. We also find substantial differences in hesitancy between ethnic groups, mirroring those found in the adult population, with ethnic minorities – and Black young people in particular – saying they are unlikely or certain not to be vaccinated. These differences seem to be related to the levels of trust young people have in different sources of information about coronavirus, with young Black people more likely to trust information from friends and family and less likely to trust health professionals and politicians.

There are reasons to think that actual vaccine take up may be higher than these findings suggest. First, Professor Ben Ansell and colleagues have found a decrease in hesitancy amongst adults between October and February, a trend which was also evident in the recent ONS survey.  It seems that hesitancy is declining amongst adults as the vaccine programme is successfully rolled out with no signs of adverse effects and this trend may also be evident amongst young people. Given that parental consent will be required for vaccination for under 18s, it may be the case that parental hesitancy is as important for take up.

There may also have been some uncertainty in our respondent’s minds about what is meant by ‘being offered’ the vaccine, given there were no vaccines authorised for young people at the time the survey was conducted and no official timetable for immunisation of this group. Nonetheless, this uncertainty cannot explain the large differences we see across groups, particularly those between White young people and those from ethnic minority groups.

If the vaccine roll out is to be extended to younger age groups in the months ahead, we will face a considerable challenge in tackling these high levels of and disparities in vaccine hesitancy.

 

*Methodology*

The UKRI Covid-19 funded UCL CEPEO / LSE survey records information from a sample of 4,255 respondents, a subset of the 6,409 respondents who consented to recontact as part of the Wellcome Trust Science Education Tracker (SET) 2019 survey. The SET study was commissioned by Wellcome with additional funding from the Department for Education (DfE), UKRI, and the Royal Society. The original sample was a random sample of state school pupils in England, drawn from the National Pupil Database (NPD) and Individualised Learner Record (ILR). To correct for potentially systematic patterns of respondent attrition, non-response weights were calculated and applied to all analyses, aligning the sample profile with that of the original survey and the profile of young people in England. Our final sample consists of 2,873 (76%) White, 208 (6%) Black, 452 (12%) Asian, 196 (5%) Mixed, and 50 (1%) Other ethnic groups.  The Asian group contains respondents who self-identified as Asian British, Indian, Pakistani, Bangladeshi, Chinese or ‘other Asian’.

 

[1] Respondents in the Asian category are a combination of Indian, Pakistani, Bangladeshi, Chinese or ‘other Asian’ origin.

[2] We have not yet liked the survey data to the National Pupil Database and Individualised Learner Records which will enable us to use an indicator of eligibility for free school meals and IDACI. Currently we use parent graduate status as a proxy for socio-economic status.

[3] Once the survey is linked to the National Pupil Database we will be able to look across a wider range of measures of school achievement.

[4] There were ten items in the quiz, ‘low’ knowledge equated to a score of 5 or less, ‘average’ knowledge to a score of 6 to 8, and ‘high’ knowledge to a score of 9 or 10. Note that this test was administered in the previous (2019) wave of the survey.

This work is funded as part of the UKRI Covid-19 project ES/V013017/1 “Assessing the impact of Covid-19 on young peoples’ learning, motivation, wellbeing, and aspirations using a representative probability panel”.

Scarring effects of Furlough

IOE Editor2 February 2021

By Professor Paul Gregg, University of Bath

The Chancellors furlough scheme is a dam holding back a torrent of unemployment. A long history of research has shown that open unemployment has sizable costs to workers after they have returned to work – called scarring. But these scarring effects will not hit all workers equally – they will primarily impact those from the younger generation due to the important role of work experience in the process.

Furlough vs unemployment

For prime-age and older workers, the main cost of unemployment comes from the dislocation from the existing job. The quality of the replacement job match is lower because a range of experience and knowledge is underused. This can be specific knowledge to the firm, industry or occupation or the seniority/responsibility in the job role. Long-term unemployment sees greater loss of application of this knowledge and experience as jobs are further away from the old position across the domains just listed. Some of this cost of dislocation is recovered by later job moves but typically not that cost associated with long-term unemployment. Here then furlough is totally different than unemployment as there is no such dislocation. This also represents the economic value of keeping so many hard hit businesses afloat. It would take a lot of time for replacement businesses to start-up and then to grow to be as productive in their use of labour as those that would be closed without furlough and other supports. These supports are thus limiting the economic destruction of productive potential that a deep recession creates.

For younger workers, the story of unemployment is less about the lost job, which are generally lower paid entry positions. Rather it is the lack of accrual of the crucial work experience which attracts pay rises and allows job moves/promotions which attract even large pay rises. A years tenure in work for a young person generates pay growth 5% above that for an older experienced worker (more after one year in a job than 5 or so and at younger ages) and a job-to-job move generates around 12%. This is how young people progress through the labour market and build careers. Older workers also get pay rises when moving jobs and at short tenures but they are less common and smaller in magnitude. Here then furlough is likely to be very similar in its effects to unemployment. People are drawing a salary but not actually gaining experience or promotion opportunities.

Thus for older workers with extensive tenure in their current post, furlough should not result in the costs of unemployment but it will disrupt the gaining of experience and potentially job moves that are so essential for young people.

The outlook for the younger generation

In a bad recession youth unemployment and the proportion of young people not in work or education often rise to 25 to 30%. Upwards of 20% accumulate substantial periods (a year or more) out of work between the ages of 18 and 25. Now furloughing of young people has been very common, partly because of the sectors at the heart of the lockdowns but also because of their lower seniority. A million young people were furloughed in early July (the earliest I have found giving an age breakdown) – some 20% of the total at that time – whilst just under another million were not in work or education. This was around 30% of all young people either on furlough or out of work and college. Among those aged 18-24 it was 35%. By the end of October young people on furlough fell to 350,000 but is no doubt higher again now. The year of Covid overall is thus likely to have seen 25% of young people not in college not gaining normal work experiences, very much in line with a normal recession.

The better news is that young people in similar situations do recover a substantial portion of these wage loses. Graduates in a normal recession do not suffer a lot of unemployment but do get work in lower status and paying occupations, losing 3% pay growth per year in a suppressed labour market (normally for 3 years after a recession). But they do see faster earnings growth after a recession ends, recouping about half the losses. This is the likely situation for today’s Covid generation of young people. Provided of course, that the end of furlough is not associated with an explosion of youth unemployment.

The policy response to youth unemployment is a programme like the new Kickstart programme to give that missing experience. But whilst good number of places are promised by firms, there have been nearly no actual starts because of Lockdown. This can’t help until furlough ends. Rather it is making sure of a strong recovery from the Summer that is the only prescription that can limit the damage of lost work experience of young people through the pandemic.

Where We Are after Lockdown 2: Time to move from Crisis Management to a Recovery Plan

IOE Editor1 December 2020

By Professor Paul Gregg, University of Bath

The last two weeks have revealed that the government has woken up to the reality of the nature of pandemic and its economic effects. The most immediate shift has been to recognise that in the absence of substantial downward pressure on socialising the virus spreads exponentially. The massive error behind Lockdown 2 was the Summer return to almost normality, just no festivals. Indeed, the government actively encouraged people to return to restaurants and pubs helping to drive infection rates back up, which again they were way too slow to respond too. As soon as Lockdown 1 ended, the return was inevitable as insufficient downward force was being applied, given the track and trace system never really got off the ground. After Lockdown 2, we will not be all Christmas parties and New Year celebrations with almost none of the country in tier 1. Many areas, like my home city, went into Lockdown 2 in tier 1 and will emerge in tier 3. It will have to be a cool quiet mid-Winter this time to stop Lockdown 3 being the result. The government is now looking to suppress the virus till vaccines are available in sufficient quantity, which plans announced suggest will be around March.

What are the economic costs?

Furlough has been extended to cover this period as the only current alternatives are very unpalatable – letting the virus rip uncontrolled or business restrictions without government support and thus mass job losses. The Bank of England has allowed this extension to March to be possible through further Quantitative Easing (QE) buying up government debt. The government’s attempts to reduce spending by reducing financial support in plans announced in the late summer and early autumn are the can that has been kicked down the road again. So the government is now trapped in the current spending scenario until there’s an endgame from vaccines.

The state of the economy in September, before local lockdowns, became widespread and Lockdown 2, was 8.5% below its pre-Covid peak. This was the peak of re-opening the economy. Obviously, this high point of openness in the economy will not be reached again now until April at the earliest. In March 2021, one year on from the start of the pandemic, the economy will still be 10% down. Only the Great Depression compares with this. Without the government Furlough scheme, with its massive costs, 10% lower GDP would mean 10% lower employment, as firms cannot hold staff when under such extreme pressure. Unemployment would be heading to 14% and could have been worse if fear of these job losses drives down consumer spending.

Somewhat less obvious is the realisation that the recovery will be protracted. It will be late Summer 2022 before the economy is back to peak levels and more importantly, the prognosis now is we never get back the two and half years of lost growth. This economic cost will translate into lost wages from the downward pressure of unemployment and low productivity growth as businesses are not investing (see the useful Resolution Foundation report on the Autumn Statement). What has not been highlighted enough is that we are not all in this together. This pain will only fall on those below retirement age. The triple lock on the state pension and more importantly DB occupational pensions being linked to inflation (in most cases the generous RPI measure) means little change in current pensioner incomes from the virus. Only those reliant on earnings now will suffer, but of course, when those aged 50 or less reach retirement their pension pots will have been reduced from less being put in. The under 50s will lose out twice over.

Implications

The job preservation strategy behind the furlough scheme has massive value but also limitations which will be increasingly obvious and unjust on those not in work. We are putting huge amounts of resources into holding jobs open but next to nothing to help those who fall out of work.
This is being made clear by the last labour market data and will be even more so by the next instalment. Mass job losses are being stemmed by furlough but there is a moderate but steady decline in employment. Jobs are seeping rather than flooding out of the economy. Over ½ million fewer working-age people were in work in September than in February – that’s one and a half percent of all employment or 70,000 a month. Redundancy levels suggest things are accelerating. January to March 2020 saw 30,000 redundancies a month, April to June 44,000, July to September 100,000. The rapid increases for 3-month averages that have occurred every month suggest that September alone saw around 150,000 redundancies as the generosity of furlough was reduced.

But the rise in unemployment is being driven as much by the inability of those losing work to get back into employment. Vacancies fell to 40% of pre-Covid levels in Lockdown 1 but recovered to a bit under 70% before we closed much of the economy again. Lockdown 2 and tight restrictions that follow will mean low vacancy levels through till April. This combination of job loss and especially restricted re-entry always hurts the young most. Of the ½ million falls in employment more than half (270,000) comes from 16-24-year-olds. But large numbers have elected to stay in education as a result of fewer job opportunities, pegging the increase in the unemployment rate to 3% (for 35-64 it is up 0.4%). 270k fewer in work but only an extra 100k unemployed. The youth are doing the sensible thing and have been supported in this by the government and universities, but this trend won’t continue as most courses have started now.
But the deeper point is that the vast bulk of government efforts are on job preservation in struggling industries not new jobs in the rest of the economy- saving jobs for those in work but the little drive for new ones for those without. Kickstart, even after the proposed expansion, cannot start fully start with Lockdown 2 or restrictions after December the 2nd. This programme is essentially a hiring subsidy but in a labour market that isn’t hiring. The government has so far rejected the Intermediate Labour Market (ILM) of charities and the public sector that was used under the successful Future Jobs Fund in 2009/10. The new recognition of the protracted downturn means that this needs to be re-examined.

The Autumn Statement had two very small positive announcements around green and northern investment, which with earlier infrastructure announcements brings up the government support for new job creation to around 10% of the total economic supports for the economy (mostly furlough). The imbalance though still remains massive and the result of such little focus on job creation in a protracted recession will rise in long-term unemployment (6+ moths) through until at least April 2021.

Time for the Bank to step up?

The Bank of England is drip-feeding support to the Treasury for managing debt. What we are not having is the conversation about the total envelope that will eventually be made available and what a coherent strategy for its use would look like. What is needed is for them to be asked to fund a serious plan for the investment in green industries and housing etc, not just saving the pubs. And the government needs to have a plan on how to do it. We are still in crisis mode rather than recovery planning. The Bank of England needs to adjust its thinking and urgently – it is them, not the Treasury that is the problem here.

The crunch has been delayed and the government hopes it can keep furlough going till there is a Covid endgame. Meanwhile, we are likely to be shedding 100,000 jobs a month with few ways back in for those without work and no plan for an economic recovery, beyond re-opening pubs.

How should we assess students this year, and what are the implications for universities?

IOE Editor10 November 2020

By Professor Lindsey Macmillan, Dr. Jake Anders, and Dr. Gill Wyness

In summer 2020, to much controversy, the UK government cancelled both GCSE and A level exams and replaced them with “Centre Assessed Grades” based on teacher predictions. While Scotland has cancelled some exams in 2021, and Wales appear to have arranged for something akin to exams to take place in a classroom setting, the English Government remains adamant that their exams will go ahead as planned. This strategy is not without its problems, but with some important adjustments, it’s still the best and fairest way to assess pupils.

Primary and secondary schools closed their doors in late March 2020 and only fully re-opened 6 months later in September. Schooling has continued to be disrupted for many, when classes or other ‘bubbles’ have to self-isolate due to suspected COVID outbreaks, meaning that learning has to move online. This situation is likely to result in further unequal “learning loss” as a result of inequalities in-home learning environments, including technology to reliably access lessons online.

Recent work by Ofsted reported widespread learning loss as a result of these closures, with younger pupils returning to school having forgotten basic skills, and older children losing reading ability. But the loss is not evenly distributed; Ofsted reported that children with good support structures were doing better than those whose parents were unable to work flexibly. Several analyses (e.g. Andrew et al, 2020; Anders et al, 2020) back this up, reporting that pupils from better-off families spent more time on home learning, and were much more likely to have benefitted from online classes than those from poorer backgrounds. Work by the Sutton Trust found that children in households’ earnings more than £60,000 per year were twice as likely to be receiving tutoring during school closures compared to those earnings less than £30,000. While steps have been put in place to help pupils catch up, such as the pupil catch-up premium and the National Tutoring Programme, pupils this year will almost certainly be at a disadvantage compared to previous cohorts when they face this year’s exams, and the severity of disadvantage is likely to vary by family background.

While this might be evidence enough that exams should be cancelled this year, it is worth first considering that the alternatives:

  1. Continuous teacher assessment

Perhaps the most obvious alternative to exams is continuous teacher assessment, through the use of coursework, in-class testing and so on. This would negate the need for exams and would mean all students would receive a grade in the event that exams have to be cancelled due to a resurgence in the pandemic. Scotland has already committed to using teacher assessment instead of exams for their National 5s (equivalent to GCSEs) this year. While this does seem like a safe choice to replace exams, research has shown that teacher assessment can contain biases. For example, Burgess and Greaves (2013) compared teacher assessment versus exam performance at Key Stage 2, finding evidence of black and minority students being under-assessed by teachers, versus white students. Campbell (2015) similarly shows that teacher’s ratings of pupils’ reading and maths attainment at age 7 varies according to income, gender, Special Education Need, and ethnicity.

Using coursework to assess pupils (whether internally or externally marked and/or moderated) also risks interference from parents and schoolteachers, so that a pupil’s eventual grade could be more a reflection of the support they’ve received rather than their own achievements. And levels of support are likely to vary by SES, again putting those from poorer backgrounds at a disadvantage.

2. Teachers’ predictions

But sticking with exams is not without its risks. It is, after all, a pandemic, and the government could be forced to cancel exams at the last minute. If they leave it too late to implement continuous teacher assessment or an alternative form of external assessment then they will have to turn to more reactive measures – such as asking teachers to predict pupils’ grades (the method finally adopted for the 2020 GCSE and A level cohorts). This would at least have the advantage of being consistent with last year, but, again would likely result in biased measures of achievement. Predicted grades have been shown to be inaccurate, with the vast majority overpredicted (causing headaches for university admissions). However, work by Anders et al. (2020) and Murphy and Wyness (2020) showed that among high achieving pupils, those from low SES backgrounds and state schools are harder to predict and end up with lower predictions than their more advantaged counterparts.

3. A school leaving certificate?

There are more radical possibilities to consider. One is for schools to abandon assessment this year altogether, and to simply issue students with school leaving certificates, similar to that received in America for graduating high school. This would certainly level the playing field among school leavers. But it could lead to some big problems for what comes next. For example, without A level grades, how would universities decide which applicants to accept?  Under this scenario, admissions tutors would become increasingly reliant on ‘soft metrics’ such as personal statements, teacher references and interviews. This may also lead to the more widespread use of university entry tests, which are already in place at some institutions.  All of this is likely to be bad news for social mobility since the use of “soft metrics” has been shown to induce bias (Wyness, 2017; Jones, 2016) while there is very little evidence about the equity implications of using aptitude tests, except in highly specific settings (Anders, 2014) so the potential for unintended consequences is substantial.

But in theory, universities shouldn’t need to use entry tests – these pupils already have grades in national tests – their GCSEs. For this university entry cohort, they were sat before the pandemic, and are high-stakes, externally marked assessments. Indeed, Kirkup et al. (2010) find no evidence that the SAT (the most widely used aptitude test in the US) provides any additional evidence on performance once at university than using GCSE results on their own. Many universities already use GCSE grades as part of their admissions decision along with predicted A level grades. Yet these grades were measured two years ago now – and so will obviously miss any changes in performance since then. Indeed, recent work by Anders et al. (2020) suggests that GCSE performance is a poor predictor of where students are at, in terms of achievement, at the end of their A levels. Using administrative data and machine learning techniques, they predict A level performance using GCSEs, finding that only 1 in 3 pupils could be accurately predicted, and that certain groups of students (those from state schools and low SES backgrounds) appeared to be “underpredicted” by their GCSEs, going on to outperform at A level.

An alternative approach to exams?

The alternatives to exams raise many concerns, particularly for those from poor backgrounds. A better solution may be to design A level exams to take account of the learning loss and missed curricula experienced by pupils, and the fact that some pupils will have experienced this to different degrees. Ofqual was dismissive of this suggestion in their report on examinations for 2020/21, pointing to burden on exam boards among other factors, but while we take seriously the considerations they highlight, we think this underestimates the challenges of the status quo.

For all the headlines about Wales “cancelling” exams, from a first look, it appears that this is rather a simplistic summary. They are still planning to hold some kind of examination, which will be both externally set and externally marked, but when these will take place is now more flexible, and they will happen in class rather than in exam halls – ironically, removing the in-built social distancing normally associated with examinations. This kind of flexibility is needed in these difficult circumstances.

An alternative that has also been discussed in England is that exams could be redesigned so that the majority of questions are optional. In this way, they would look more like university finals, in which students are typically given a set of questions, and need only answer a subset of their choice – e.g. answer 2/7 questions. This would take account of the fact that pupils may have covered different aspects of the curricula but not all of it, since they need only answer the questions they are prepared for. While appreciating there are challenges with this approach, a carefully designed exam would at least provide pupils with a grade they have earned and would provide universities and employers with the information needed to assess applicants.

Universities should also be aware that students from different backgrounds will have experienced lockdown in very different ways, and those lacking school and parental support may still struggle to do well, even in well-modified exams. This could and should be tackled with the increased use of contextual admissions. Universities often cite fears that students from contextual backgrounds are more likely to arrive underprepared for university and risk failing their courses. But this year, lack of preparation for university may well be the norm, forcing universities to provide extra tuition and other assistance to help students get “up to speed”. There has never been more need, and more opportunity, for widespread contextual admissions.

Covid-19: The risk of a double hit to young people’s wellbeing

IOE Editor23 October 2020

By Dr. Jake Anders

The negative effects of the covid-19 pandemic and its associated restrictions on people’s wellbeing, especially young people’s wellbeing, have been widely highlighted since the onset of lockdowns in March. Unfortunately, there are reasons to believe that even when the direct effects of the pandemic come to an end, there is a continuing risk to young people’s wellbeing from the more long-lived effects of the associated economic downturn that is only just starting.

In a recent research study that John Jerrim, Phil Parker and I carried out, we explored the impact of the last recession (the 2008-09 global financial crisis) on the wellbeing of young people in the Australian context. Our research used data from four different cohorts of their Longitudinal Surveys of Australian Youth (LSAY), for young people born in 1981, 1984, 1987 and 1990.

Because young people’s wellbeing varies as they age, it’s not as simple as comparing the same cohort of young people’s wellbeing before and after the onset of an economic downturn. The difference that we observe might just be caused by those changes as young people get older. To address this issue, we attempted to isolate the effect of this event by comparing trends in reported wellbeing among overlapping cohorts of young people before, during and after this period. Since young people in these different cohorts experienced this event at different ages, we are able to verify that their wellbeing initially evolved in a similar manner, before comparing what happened as the economic challenge hit.

The basic idea of our results is evident from the following graph – although we also applied further statistical modelling to check the robustness of our findings in the paper.

You can follow the average reported level of each cohort’s wellbeing as separate lines reporting annually from when members of the cohort are 17, up to when they are 26. All the lines start out as solid lines – which indicates measures collected before the onset of the economic downturn – before becoming dashed lines after this event.

Because the cohorts were born in different years, the onset of the global financial crisis (and, hence, the change from solid to dashed line in our graph) happens at different ages. Only the cohorts born in 1987 and 1990 experience the onset of the global financial crisis between ages 17 and 26, so only these two lines change to being dashed. The cohorts born in 1981 and 1984 retain a solid line throughout.

The graph suggests that the cohorts born in 1987 and 1990 had similar (or slightly higher) levels of wellbeing as the older cohorts at younger ages. However, a substantial gap emerges between the wellbeing of the earlier and later cohorts, starting at age 19 for the 1990 cohort and age 22 for the 1987 cohort. This indicates that a negative impact on wellbeing was caused by the onset of the global financial crisis.

What are the lessons of this for the current situation? Unfortunately, it suggests that even if negative effects on young people’s wellbeing dissipate when restrictions are eased, the longer-term effects on well-being of the onset of the economic downturn are likely either to prolong these or add to them further. This further increases the importance of policymakers doing all they can to alleviate the negative effects of the pandemic on the economy, and in particular on the challenges that young people now seem likely to face in taking their first steps into the labour market.

The full article on which this blog post is based is freely available online: Parker, P., Jerrim, J., & Anders, J. (2016) What effect did the Global Financial Crisis have upon youth wellbeing? Evidence from four Australian cohorts. Developmental Psychology, 52 (4), 640-651.

Unemployment, the Coming Storm: Where we are, Short-time working, and Job creation

IOE Editor13 October 2020

 By Professor Paul Gregg, University of Bath

Cold Turkey – or Chicken Licken?

Before the Chancellor’s recent winter package of measures, Andy Haldane, the prominent member of the Bank of England Monetary Policy Committee (MPC), called that it was time for the UK economy to go ‘cold turkey’. That is to stop the financial support (or fiscal stimulus) from central government to business. In another poultry analogy, he argued that recently the economics and business community is acting like ‘Chicken Licken’, always believing that the sky is about to fall in since the pandemic started, whilst there were far more positive signs out there than appreciated. Andy Haldane is a decent economist and a decent bloke and his views should be considered thoughtfully and not dismissed. But in the rapidly shifting world of the pandemic things already look far worse than three weeks ago.

The Chancellor did not take Andy’s line wholesale but his Winter Economic Plan was far smaller than the previous summer stimulus to preserve jobs and in a different league to that back in March. The package essentially offered more of the same through to next April but at a lower cost to the Treasury while for firms it was the opposite.

Levels of Support

To give a broad sense of the level of support, in March a worker on £24,000 a year (£2,000 a month), a little below the typical (median) wage, cost the firm nothing to keep on the books. Now (October) the firm is paying 20% of the wage, so £400, for a furloughed worker to do no work. But part-time furlough is allowed and so a half-time worker costs the firm £200 a month in pay for hours not worked. This is the last instalment under the original scheme.

The Job Retention Bonus (JRB) added in the summer to protect jobs into next year offers a one-off £1,000 payment in January, irrespective of hours worked. To this has been added, from November, a new Job Support Scheme where the firm only pays 1/3 of the cost of hours not worked through to April but at least one-third of normal hours must be worked.

Thus between November and January, this combination of supports means a representative worker working half-time (or above) costs the firm very little since they qualify for the new scheme and the JRB. But for a worker not working at all in a firm that is not legally required to shut, the cost to the firm is £5,400 in total for them to do nothing, as they are not eligible for the new scheme and firms pay all the wage costs. Where firms are legally required to shut, the Chancellor has just added a new measure where the worker will get 66% of normal wage at no cost to the firm (though this is down from 80% in March-Oct period).

So up until January, part-time work-sharing is strongly encouraged. But after the generosity of the package declines to cover just 1/3 of the wage costs of hours not worked, before ending entirely in April.

For Chancellor to take the Haldane view and make no new Economic Plans then:
• He would be expecting firms will be able to have workers on or above half normal hours from November, to be working almost full-time from February and back to full working by April as all job preservation support ends. In addition, in April the extra support in Universal Credit ends cutting £20 a week (£1000 a year) from the budgets of those not working or working but with low family income.
• This would mean that pretty much the entire economic stimulus to the economy and efforts to preserve jobs end pointedly at the same moment. So the economy will have to be back to near normal before April, with the heart of the economy healthy and the hard-hit sectors in recovery. Although they will have shed some workers. The economy is thus weened off support from February and goes Haldan-style cold turkey in April. This would also be implicitly saying that the government can no longer offer more support than this.

Here then the interpretation of the Treasury’s position is ‘that’s your lot, guv’. The alternative view is that the Chancellor is kicking the can down the road and awaiting events before announcing the next measures.

Should we expect a Spring Economic Plan?

Whilst the government has made a complete hash of the health response to Covid-19, the Chancellor was doing well on the economic side. His responses were timely and proportional, with first the furlough scheme, then part-time furlough. The VAT cut and Eat out to Help Out looked sensible to get hospitality and related sectors trading again as we emerged from Lockdown (although it now seems certain that it helped start the second wave of Covid-19 cases). The Job Retention Bonus offered ongoing financial support to stretched firms whilst incentivising work-sharing. It did so in a very flexible way too, not requiring reduced hours of work just encouraging to use short-time working over redundancies, especially for lower-paid jobs. After October, firms were being paid to not sack workers, not for specified cuts in hours. To this has been added a smaller package which works well to support job retention until February.

But from February, support rapidly ends unless Rishi announces a Spring Economic Plan in December or January. And if this happens what should it look like?

There are two obvious points to make first:

1. The new Job Support Scheme (JSS) is less generous than previous support packages but the country is entering a phase with rapidly increasing Covid-19 cases and fresh local Lockdowns of increasing severity by the week. Across most of Northern England and much of Scotland and Wales, the winding down of support is at profound odds with the worsening health situation. The economic support and health-based restrictions are no longer in sync. There is massive dissonance here.

2. The Chancellor has designed the Job Support Scheme (JSS) to work with the Job Retention Bonus (JRB) for at or above half-time working from November and close to full-time from February. Then in April, the ending of all job protection and cuts to Universal Credit will create a substantial economic hit in the Spring. In normal recessions, the ending of fiscal stimulus measures comes a good year after the recession has ended and as recovery is underway. Austerity (there is always a degree of austerity) starts two to three years after the recession has ended and builds up. Lockdown saw economic activity drop 25%, but the improvement since should not be viewed as recovery, just re-opening. In August, the economy was still 9% down on pre-crisis levels. This is the starting point from which we judge recovery when lockdown pretty much ended. Given the second wave of the virus and related restrictions it seems likely now that the recovery will not start before Christmas, the ending of support between February and April will then prevent any recovery. Ending support before the recovery has started is very bad economics.

The Spring Economic Package: Beyond Job Preservation

There is great value in preserving jobs as, beyond those with very low levels of productivity, they have productive value that is hard to quickly recreate. Plus as people become fearful of job loss, they cut spending to reduce debt or increase savings. Maintaining consumer confidence and hence a recovery next year, hangs on employment. However, as many people will lose their jobs and some sectors will not return fully to pre-crisis working levels any time soon, there needs to be a broadening in the focus to cover both job creation and preservation. The government has done next to nothing around job creation so far. Any Spring Economic Package has to move beyond preserving existing jobs.

Job Creation

Job creation requires a further fiscal stimulus tightly focused on employment, especially on jobs suited for groups at high risk of unemployment such as the young and less well educated.

Infrastructure:
The government has announced the bringing forward of £8 billion pounds of infrastructure spending. This is sensible policy-making as it boosts activity and infrastructure spending has low import content and substantial multiplier effects on the rest of the economy. £8 billion is not very much, however. Spending on repairing roads etc. has the advantage of getting started quickly but more green action, alongside loft insulation, would be desirable. Infrastructure takes time to boost the economy: Much larger investments (offshore wind farms / tidal power) in green energy take far longer to get moving but have similar multiplier effects into the wider economy and meeting long-term needs. The Prime Minister made suggestions along these lines in his conference speech but the action has to start now for any benefits to be felt by 2022.

Lowering Employers Wage Costs:
More targeted support for employment could come by raising the earnings threshold at which employer NI payments start by £5,000 (from around £10k to 15k). This is then more valuable for lower paying jobs, which means young workers and part-time jobs which are half-time or more (employers pay no or very little NI on short hour part-time working). It also supports entry jobs and thus most of the sectors hardest hit through the Lockdown. In sum, it offers a fiscal stimulus focused on employment in general and for target groups and sectors. At the margin it provides incentives to recruit workers as labour costs are reduced and again in the sectors/groups where it represents a larger share of labour costs. It is however, not targeted beyond that. It would be worth £650 a year per worker or £20 billion to the Treasury.

Further targeting:
There are two ways of gaining greater focus and reducing the cost. First, would be to apply the raising of the NI threshold only to young workers (18-24) but this reduces the potential power for job creation in the wider economy. It may also be possible to target on areas affected by area Lockdowns for periods of say 6 months, for firms that can make clear location of their workers, which is easy for small firms, and such local NI cuts may well be best focused on small businesses (500 workers or less).

The other way to improve targeting is to raise employer NI rates at the same time. Raising the NI by 2% from the current 13.8 would cut the cost of the initiative in half. This higher rate might be capped at £50,000 annual salary (the Upper Earnings Limit for employee contributions) to stop NI costs rising for higher paid jobs. Having less earnings covered by employers but at a slightly higher rate thereafter focuses the benefits very strongly on lower earning jobs but obviously reduces the wider economic stimulus.

Conclusion

For the Haldane (cold-turkey) view to be right, the economy in the Spring will need to be in strong recovery and existing supports can be withdrawn safely. However, the virus is very much not going away right now and the health crisis in the run up to Christmas looks severe.
The reasonable prognosis for policy planning is that in January economic activity will still be at least 5 to 6% below last February’s peak. Then if government supports are wound down rapidly, a Spring recovery is implausible.

A further fiscal stimulus will, therefore, be desperately needed and should go beyond job preservation to job creation. Working through employers’ NI offers a route for an employment targeted fiscal stimulus, honed on the types of employment most needed at this stage of the economic cycle.

The connection with Andy Haldane here is that the Chancellor may only be willing to borrow more if the Bank of England is willing to undertake fresh Quantitative Easing, buying up the government debt. Andy Haldane’s statements suggest that he at least would not support such a move. The arguments against further QE are either it is not needed (which seems extremely unlikely now) or that it is storing up inflation for the future when too much money will be chasing too few goods. Right now expecting QE to create inflation at some unknown future date feels a lot more Chicken Licken than a Spring of rising unemployment.

My money is on a Spring Economic Plan package and one with a wider job creation focus. The Soviets used to have 5-year economic plans. In this crisis, ours are just 3 months apart. A little more medium-term policy thinking would be nice but the initiative lies with the Bank of England as much as the Treasury.

Official post-lockdown unemployment figures ‘only partial picture’

IOE Editor18 August 2020

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.