This week we received new headline labour market data as well as a new analysis of the ONS’s Business Impact of Coronavirus (COVID-19) Survey (BICS) undertaken by the Scottish Government – the aim of this analysis was to weight these survey data to reflect the characteristics of the Scottish business base. This is a great addition to the suite of data produced by the Industrial Statistics team at the Scottish Government and can be found here.
In this article we pull out the headline data and set out some of the reasons why these headline indicators are seemingly so resilient despite what we know about the severe impact that the pandemic has had on the Scottish economy and the challenges it poses for the labour force.
So what do the data from ONS this week show?
The latest Labour Force Survey data for Scotland cover the period to the end of July 2020, so well into the period when the economy was most acutely affected by pandemic restrictions.
These data suggest that the unemployment rate remained around historically low levels (4.6%) while the employment rate remained relatively high (74.3%). Chart 1. On both of these measures, the Scottish labour market was slightly weaker than that of the UK as a whole (which registered 4.1% and 76.5% respectively).
Chart 1: Unemployment and employment rate Scotland
Now, an optimist might take these numbers as evidence that the switch to home working by many professionals as well as the resilience of public sector employment in Scotland has cushioned the blow of the pandemic. But don’t be fooled for the reasons that we will highlight later. A sharp rise in unemployment is on the horizon.
The latest claimant count data (Chart 2) shows a sharp increase in recent months. The experimental claimant count in Scotland increased between August 2019 and August 2020 by 115,000 or over 100%.
A recent article by colleagues at the Resolution Foundation provides more detail on how changes in the welfare system suggest that the claimant count is currently overstating unemployment rates. Just in the same way that the headline LFS unemployment rate is undoubtedly understating unemployment.
Chart 2: Experimental claimant count Scotland
No doubt some people reading this far are screaming ‘but the furlough scheme’ at their screens at this point. And you’d be right.
The UK Government furlough and self–employment support schemes have indeed played a role in freezing employment relationships across the UK through much of this period. Undoubtedly these play a key role in ensuring that the number of people who are unemployed is lower than it otherwise would have been.
The latest data (covering the period to the end of July 2020) show that 780,000 jobs in Scotland were furloughed under this scheme. This represents 32% of eligible jobs, exactly the same as for the UK as a whole. Looking at the take up of this support in different sectors of the economy in the UK as a whole and Scotland the only significant different in take up rate was in the Construction sector where the take up rate was 13% higher in Scotland, perhaps reflecting the later start of business operations in Scotland as a result of different lockdown restrictions.
Over this same period, 157,000 claims from Scotland were made to the Self-Employment Income Support Scheme (SEISS).
Analysis from the Scottish Government yesterday weighted the sample of survey responses from Scotland in the ONS’s BICS data to understand how the percentage of the workforce in Scotland on furlough has changed since June. Chart 3.
Chart 3: Scottish Government Business Impact of Coronavirus (COVID-19) Survey (BICS)
This suggests that there has been a substantial reduction over this period in the share of workers still on furlough since June.
On the face of it, this is good news. As firms have been able to return to trading and activity has picked up again, many workers have been brought back by their employers.
That said, around half of workers on furlough in June appear still to be on furlough. That these workers still have not been brought back, despite large parts of the economy now back up and running, raises concerns about whether they ever will be.
Note that these data also only cover those firms with 10 or more employees, and survey firms which have a presence in Scotland and have not permanently stopped trading.
Note also that these data broadly track what we see in the data for the UK as a whole.
This gets us to what else is happening in the labour market and here we only have data for the UK as a whole, and it paints a worrying picture.
The obvious place to start here is looking at working hours. This gets us beyond simple employment measures to think about how much people are working, and in that way gives us an insight into the extent of demand being faced by businesses.
It’s important to note too that with the introduction of more flexibility in the furlough scheme, firms are able to bring workers back part of the time and be furloughed for part of the time. This might also explain some falls in average hours worked as people return from full furlough. Use of the flexible furlough scheme by firms does raise the prospect that the winding down of the furlough scheme may not result in workers returning to their previous hours.
The latest data that we have for Scotland only run to March 2020 (although these will be updated to June 2020 in the ONS release next month). So let’s look at what the UK data show. Chart 4.
In the three months to the end of July, total actual weekly hours worked in the UK decreased by 93.9 million to 866 million. This translates to a drop in average hours worked of 2.8 hours over this period.
Compared to a year ago, there are 183.8 million hours less being worked in the UK economy.
This is huge – and suggests that even while headline employment rates remain relatively stable, there are notably fewer hours being worked by those in employment.
Chart 4: Total actual weekly hours worked in the UK
Just as for those in work, hours are being squeezed, the winding down of the furlough scheme sadly means that we are seeing a rise in the number of people being made redundant. Chart 5.
In these latest data we have seen the number of redundancies increased by 48,000 in the three months to July 2020. This is an indicator to watch in the time ahead, as it will track the extent to which as the furlough scheme winds down, those on furlough are seeing their employment coming to an end.
Chart 5: UK redundancies
There is a big shakeout in the labour market ahead.
We are already seeing that a substantial number of workers remain on furlough, despite many parts of the economy being back up and running, suggesting that while demand exists it has some way to go to get back to its pre-pandemic levels. Similarly, hours worked for those at work over this period dropping off further suggests that there remains real weakness in demand in the economy.
With the tapering off of the furlough and self-employment support schemes through the rest of this year, all expectations are that we will see further increases in redundancies. With this data, there are clearly arguments in favour of tapering or selected extensions to the furlough scheme.
Equally, government will be worried about blanket extensions that simply support jobs that aren’t going to exist no matter when furlough ends. The process of rebuilding the economy will have to start some time. There is also an inherent unfairness too with blanket extensions, particularly for people who have unfortunately already been made redundant and who are unable to access a furlough scheme.
None of this is easy and policymakers face a tough balancing act. It will be important however, to ensure that the benefits of the support schemes that have been implemented are not unwound too soon or too harshly. This won’t only cause significant economic hardship but will also undue some of the great work done so far to support people through this crisis.
Of course, critical to the future path for the economy is progress on containing and eradicating the virus, and efforts to do that will be key in maintaining and expanding economic activity in the period ahead.