The world of coronomics continues to surprise us. Last summer forecasters warned of a wave of redundancies after the biggest economic crash in 300 years. Peak unemployment — spurred on by lockdowns — was expected to near 12 per cent, ushering in a new era of chronic financial pain and instability for millions of workers. But the Treasury’s furlough scheme has kept the headline figure down. Unemployment has hovered around 5 per cent, less than half the original prediction.
The problem this summer isn’t mass unemployment but worker absenteeism. Job vacancies are now more than a third above pre-pandemic levels. There is no shortage of available work, only a shortage of those willing to do it. At the last count, 2.4 million people were still being paid by government to sit at home. In addition it’s estimated that more than a million non-British workers emigrated during the pandemic, many of whom won’t find their way back due to tougher immigration rules for EU migrants. This combination of furlough policy and Brexit restrictions has created a set of circumstances no one expected at the start of the crisis: workers, including those in low-paid sectors, seem to have the upper hand.
Companies are finding it hard to get interviewees through their doors. Of those that attempted to hire new staff in the spring, 70 per cent said they struggled, according to the British Chambers of Commerce. So they have to offer more. As a result, wages are up 7.3 per cent on the year. It’s a loaded figure which partly reflects young people on low pay losing their jobs, skewing the average upwards. But for many, wages are indeed increasing. These aren’t just salary boosts for the high-paid who have been working from their four-bedroom homes on Zoom. Figures from recruitment website Indeed Flex found that in areas including Greater Manchester and Yorkshire, average wages for temporary hospitality workers are up by more than 10 per cent compared with 2019.
Where wages don’t rise, expect shortages. Jack Ward, chief executive of the British Growers Association, fears vegetables may be missing from supermarket shelves in the coming months. Speaking to BBC Radio 4 this week, he lamented the ‘real shortage of seasonal labour’ to help harvest crops — especially when other sectors are competing for their labour as well. ‘If the money was there, I think we would happily pay it,’ he said, but profit margins are slim. ‘There’s a limit to how much you can afford to pay.’
In America things are even more topsy-turvy. In the absence of a furlough scheme, unemployment figures have been far more volatile: they reached a peak of nearly 15 per cent in April last year and are now down to just under 6 per cent for last month. But boosts to unemployment benefits — an extra $600 a week in the first months of the pandemic — have sustained plenty of people in a comfortable-enough lifestyle and they feel no rush to return to the workforce.
Amazon had already raised the minimum wage for its US employees to $15 an hour: a move the company says it made to honour a ‘living wage’ commitment, but soon after the pandemic it gave staff another rise in a bid to recruit more delivery drivers. A Florida McDonald’s has offered $50 to people to show up for an interview. There are reports that the fast-food company is promising tuition fee support and childcare to win new employees. Papa John’s pizza chain is offering staff up to $400 in cash bonuses in a desperate bid to hang on to them. Some economists in the States aren’t sure these offers will cut it: labour shortages, they fear, may become a permanent feature of the post-Covid economy. As so often happens when a problem is solved by state intervention, it risks creating new ones.
Britain’s labour market in the previous decade was defined by a difficult trade-off: productivity gains (often due to automating jobs) were sacrificed to pursue something close to full employment. In the aftermath of the financial crash the coalition government’s aim was to keep people in work at all costs — a noble goal, but it meant that low unemployment rates in the latter half of the 2010s were coupled with stagnant wages and little emphasis on retraining.
The Covid economy has exposed further holes in the British workforce: dependency on cheap labour that was never guaranteed to stick around, and lazy attitudes towards preparing workforces for a more tech-savvy future. Speaking to The Spectator last month, the Bank of England’s outgoing chief economist Andy Haldane estimated that between ten and 15 million people in the UK have a skills deficit for the jobs on offer (compared with three million who are ‘over-qualified’). Boosts to ‘human capital’ in the UK, he says, cannot come soon enough.
Part of that process will be winding down the furlough scheme, which Haldane says is ‘probably overdue’. The scheme, which ends in October, is now seen in some circles as simply delaying the inevitable realisation that some pre-pandemic jobs no longer exist. ‘Keeping people in suspended animation through furlough isn’t helping the economy, or their employer, or indeed them,’ Haldane says. ‘Ultimately what needs to happen is for workers to be retrained… and for the economy to adjust to this new equilibrium.’
For some time, that new balance may fall in the worker’s favour: eager employers, higher wage offers, more investment in their future. It’s a good story for them, on the face of it, but one that could still take many turns. Will native workers take up jobs in the service industry, or those requiring manual labour, if the price is right? Or will we discover that there’s far less appetite for this kind of work among British workers, regardless of higher pay? A wage boost for those on lower pay may be long overdue, but could this become another factor that heats the economy, fuelling the flames of inflation? The lesson so far is to expect the unexpected.