Most people agree that the second nationwide lockdown will destroy more jobs despite the extension of the furlough scheme. This, however, is only half the story.
It’s not just the number of jobs being destroyed that will raise unemployment. So too will a fall in the number being created.
In normal times, huge numbers of jobs are created and destroyed all the time. Official numbers show that between 2001 (when records began) and the first quarter of 2020 an average of 892,000 people moved out of work each quarter – some because of illness, some because of retirement and others because they lost their job. This is despite total employment rising by over 4.3m during this time. That rise in employment happened because even more people - an average of almost one million per quarter – moved into work.
People often speak of a 'pool' of unemployment. It’s a useful metaphor, but only if you remember that the pool is joined to two fast-moving rivers – one bringing people into it and one taking them out.
And the river taking people out of unemployment is silted up. Two facts tell us this. One is that in the second quarter the numbers entering employment, while large, were lower than normal – at 938,000 compared with a pre-pandemic quarterly average of 986,000. The other is that the number of vacancies has plummeted. Latest figures show that whilst these have risen slightly, they are 40 per cent down on a year ago.
With fewer jobs being created, unemployment is likely to rise simply because the number of new jobs won’t be sufficient to keep pace with growth in the labour force and the numbers of people losing their jobs. Which is why economists foresee a big rise in joblessness. Even before the latest national lockdown was announced, the average forecaster expected the unemployment rate to double by December from last year’s 3.8 per cent low point, and to fall only slightly next year.
Which brings us to a problem. Even after this lockdown lifts, there’ll be massive obstacles to job creation.
One is simply the weakness of aggregate demand. Next week’s numbers are likely to show that although real GDP has recovered from its pandemic low, it is still 8 per cent below its pre-pandemic level – and the lockdown is likely to wipe 6-7 per cent from GDP in November. Weak demand for goods and services means weak demand for labour.
Secondly, we all face huge uncertainty. Uncertainty about the path of the pandemic and about Brexit are just adding to the usual ordinary uncertainty about the level and pattern of demand. And we know – thanks to the work of Stanford University’s Nick Bloom – that uncertainty reduces employment. Even if you think it might be worth taking on new staff, why not wait and see before doing so?
This question gains force because many firms can expand without hiring. Even before the pandemic millions of people were working fewer hours than they would have liked, and the pandemic has only intensified this. The average full-time worker is now working less than 31 hours a week, compared with over 37 a year ago. Even those few firms in the happy position of being able to expand after the lockdown will therefore do so by increasing the hours of their existing staff rather than by taking more on.
Yes, some jobs will be created. We will need extra workers to staff lorry parks and to become customs officials. Unfortunately, though, no nation ever got rich by checking each others’ papers.
The message here is grim. Unemployment is likely to rise and stay high. Worse still for investors, the reserve army of unemployed might not even do the job they have often done in the past. If, as is likely, there is a mismatch between the unemployed and the few vacancies there are, then the unemployed won’t do much to bid down wages. Nobody will win from higher joblessness.
