Unemployment is soaring. Next week’s numbers could show that the official measure rose over the winter even before the impact of the coronavirus lockdowns. And it has almost certainly risen since. There have been over a million new applications for Universal Credit since mid-March. If only half of these people are out of work – many would have had their hours cut – then there are now around 2m officially unemployed.
This does not mean we’re seeing the return of mass unemployment, simply because it never went away. Pre-crisis data showed there were also 1.8m people outside the labourforce who wanted work, as well as 3.3m people who were in work but not doing as many hours as they’d like.
The latest surge in joblessness reflects the fact that there are gaps in the support packages announced by Chancellor Rishi Sunak last month. Wage subsidies to furloughed workers don’t prevent some firms going bust, and some of the self-employed, such as those who only started recently, are ineligible for aid.
Even if we ignore the psychological harm to the unemployed themselves – which we certainly should not – this poses three problems for the rest of us.
One is that the unemployed suffer big falls in income because income support is so mean: the Organisation for Economic Co-operation and Development (OECD) estimates that jobless benefits in the UK after two months of unemployment are only 34 per cent of previous income, compared with 65 per cent in the average EU country. This poses the risk of bigger multiplier effects: as the unemployed cut spending a lot, otherwise healthy businesses suffer lower demand.
Secondly, even when the lockdown is over, the unemployed might not find work quickly. Firms that see increased demand will probably respond initially to it not by taking on more staff, but by making existing workers work harder. Also, the businesses that do enjoy increased demand won’t be the same as those who suffered falling demand. This means there’ll be a mismatch between the unemployed and vacancies. Which means the jobless won’t even do us the benefit of holding down inflation.
Thirdly, mass unemployment will make the lockdown hard to continue even if there is continuing need for it to contain the virus. The old question about utilitarianism will gain force: why should a big minority of people suffer greatly through no fault of their own for the public benefit?
The obvious answer to this would be to greatly increase unemployment benefits for a while.
The case for doing so is not just one of fairness or even maintaining public order. It’s a way of sustaining demand. The idea that out-of-work benefits are a transfer to the unemployed is misleading. They are also a transfer through the unemployed; as the jobless spend the money, they transfer it to others.
In this sense, welfare benefits are benefits for companies, not just individuals. A larger role for the state is therefore entirely compatible with – and in many respects necessary for – a thriving corporate sector.
