1. Money

    Kate Andrews

    The pandemic’s employment paradox

    The pandemic's employment paradox
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    The pandemic continues to cause surprising events in the labour market — and challenges too, many of which were wholly unanticipated when the Covid crisis began. Today’s update from the Office for National Statistics on labour market numbers is case-in-point: the unemployment rate again, down to 4.6 per cent from May to July. Forecasts of nearly 12 per cent unemployment, once predicted by the Office for Budget Responsibility, are long in the past. The furlough scheme has starved off an unemployment surge and there’s good reason to think it’s been avoided altogether.

    Over one and a half million people were still on furlough at the end of July. But even with the scheme coming to a close at the end of the month, other phenomena in the labour market may help to balance this out. Vacancies have now reached a record high, with an estimated one million jobs up for grabs between June and August this year.

    Not all those made redundant at the end of furlough are going to be able to walk straight into a new job. Some will require particular skill-sets and training that many employees won’t have. But conditions continue to favour the worker, as labour shortages push up wages (8.3 per cent growth in average total pay from May to July, according to the ONS) and encourage employers to offer more training.

    This is not what anyone anticipated when Covid first hit the UK. The assumption was mass redundancies, a freeze on wages, with employers holding the upper hand. But the combination of Covid and Brexit — including the estimated million workers who left during the pandemic — has created rather extreme circumstances in the other direction: one where workers are empowered and employers must offer more.

    But this is not a straightforward story. Inflationary pressures are building, up 2.1 per cent on the year in July, with August’s update out tomorrow. Inflation casts a cloud over the tight labour market. Analysts at Capital Economics describes the ‘danger’ as one where labour shortages ‘persist for longer than we expect, causing inflation to stay high and the Bank of England to pull the interest rate trigger next year.’ It’s the billion-pound question that may not be answered for some time.