New labour market data…

New labour market data were released earlier today by the ONS. In addition, we got an update from management information held by DWP on what was happening in the benefit system.

The headline Scottish unemployment rate rose to 4.6%, up 1.1% compared to the three months before, while the employment rate fell back to 74.3%, down -0.7%-points.

These are smaller deteriorations than many might have expected given that these data cover the period up to the end of April (and so the first full month of lockdown).

In this article, we look at these data in more detail and note a few key issues or questions that arise from these data.

The outlook for the UK and Scottish labour markets remains extremely challenging.

Headline indicators  like the employment and unemployment rate (summarised in the table below) are yet to reflect the full force of the economic crisis.

In large part this reflects the effect of the furlough schemes that have been brought in, which have effectively ‘frozen’ many jobs (over 600,000 in Scotland) since the outset of the CoVid lockdown.

February – April 2020Change relative to previous 3 months
Employment rate (16 – 64) %74.3-0.7
Unemployment rate (16+) %4.61.1
Economically inactivity rate (16-64) %22.1-0.2

ONS headline data

1. We saw increases in unemployment and decreases in employment in the data released this morning, but many were expecting these to be larger than they were (the headline estimates for Scotland are shown in the chart below). Why?

The main thing to bear in mind looking at these data are that those who are on furlough are classed as being ‘in employment but temporarily away from work’, so their pre CoVid labour market status has essentially been frozen.

As we see the unwinding of the furlough scheme later this year –and firms make decisions about their future workforce needs– these employment relationships may change, and at that point larger increases in unemployment would be expected.

Chart 1: Headline employment and unemployment rate in Scotland

2. Is the unemployment rate in Scotland higher than that in the UK as a whole?

While the headline rate of 4.6% is higher than the UK unemployment rate (3.9%), it is important to remember that both these numbers are estimates, and they have what we call a “confidence intervals” around them.

In practice, this gives us a “range” in which the ‘true’ unemployment rate sits. Because these ranges for Scotland and the UK overlap, we must be cautious about concluding that the differences in the headline numbers reflect big differences in the underlying unemployment rate.

Furthermore, these numbers are one set of data. If we really want to understand how the Scottish economy is faring relative to the UK through this period, we really need to see whether these differences are persistent in the data.

ONS has written about some of the challenges of producing labour market data in the current context.

3. In the headline statistics for the UK as a whole, we can see some other indicators that highlight the scale of the economic challenge ahead. Most acutely when we look at the number of job vacancies. See chart 2.

Chart 2: Number of job vacancies in the UK

For those who exit from the furlough schemes later this year and lose their jobs, the labour market is likely to be exceptionally challenging for some time to come.

In the same way. Looking at data on hours worked in the UK, we can see that despite the headline employment rate holding up –hours worked have dropped off sharply. This is perhaps a better indicator of labour demand in the UK economy at the present time.

Chart 3: Hours worked in the UK economy

DWP data

We also got new data this morning from management information held by the Department for Work & Pensions. This gives us insight in to how people are accessing the benefit system through this crisis. One caveat (point 6 below) is that caution needs to be exercised when interpreting data on Universal Credit as a measure of  unemployment.

4. The number of people on Universal Credit increased by 67,000 in May according to provisional figures. This is compares to an increase of 110,000 in April.

Chart 4: Change in the number of people on Universal Credit

5. Glasgow and Edinburgh have seen the highest proportional increases in the number of people on UC this month.

The pattern has changed from last month where Edinburgh saw below average proportional increases in UC numbers.

Chart 5: Change in numbers of people on UC by Local Authority as a proportion of population

6. Not everyone on Universal Credit is unemployed. Some may be on very low earnings and hence qualify for support.

Figures have been released for April 2020 to show the proportion of people who were in employment. It shows that 40% of the change in the number of people on UC in April compared to March were in employment, and 60% were not in employment.

Chart 6: Change in UC between March and April 2020 by employment status

Men were responsible for more of the increase than women. There were 61,000 more men on UC in April compared to March and 48,000 more women. The difference stems from more men coming on to UC due to not being in employment (41,000 compared to 24,000 for women).

Conclusions

The outlook for the UK and Scottish labour markets remains extremely challenging – even if headline indicators are yet to reflect the full force of the economic crisis.
The effect of the furlough schemes is such that many jobs are currently frozen, and have been since the outset of the CoVid lockdown.

As the furlough support begins to unwind through the rest of this year, and firms are having to make decisions about their future workforce needs for the post CoVid world, we expect that a number of these jobs will end.

For the workers affected, this will be a very difficult time. Aside from the immediate hardship of losing their job, there are likely to be far fewer employment opportunities in the economy for them to seek.

We know that even relatively short periods of unemployment can have long–term negative effects on individuals, particularly on young people.

This makes it essential that the UK and Scottish Government continue to provide support for these workers – both to support them financially but also to help them to access skills and training support – so that they can get back into work quicker.

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