The Old and Furloughed
The slow movement of older workers off the furlough scheme remains a blot on the UK's labour market performance
On virtually every count, the UK labour market has fared better over the course of the Covid-19 Pandemic than almost anyone had predicted or expected. With vacancies at an all-time high and the unemployment rate at 4.6% and falling, the Bank of England’s projection from February this year of peak unemployment of 7.75% in mid-2021 never even came close to materialising.
However, despite this generally very positive picture, there is one outstanding blot on the labour market landscape that should have analysts at HM Treasury and the Bank of England at least somewhat concerned. This concern is of course the scheduled end of the Coronavirus Job Retention Scheme (i.e. furlough) on the 30th of September - and what then happens to those who are still on it.
As of the most recent date we have data for (July 31st), there were 1.6 million jobs on furlough, spread across almost half a million employers. This is of course, a much lower figure than the nearly 9 million jobs which were furloughed at the start of the Pandemic, or even the 5 million that were using the scheme in January of this year. Nevertheless, over one and a half million workers with potentially no job to return to in one week’s time is no insignificant risk, and it is the slowing rate of people flowing off furlough in recent months that will be particularly concerning for the Government.
The initial large falls in the number of furloughed jobs over the Spring could largely be explained by a relaxing of Coronavirus restrictions, for example, large falls are clearly visible in the data after the reopening of retail and indoor hospitality. These were people who were on furlough because their employer wasn’t actually allowed to operate - but once they were allowed to reopen, they were able to bring their workers back quite quickly. However, as we get further from the ending of restrictions and closer to the 30th of September end date, it becomes more likely that the jobs remaining on furlough aren’t there because of restrictions on a firm operating, but rather because of a lack of demand for that firm and its products.
It should be mentioned that there will still be people who are on furlough because of Coronavirus restrictions - lingering measures in the devolved nations and continuing restrictions on foreign travel will clearly explain some of the figures (Air Travel remains the sector with the highest furlough rate). But dig further into the breakdowns by industry, and it quickly becomes apparent that in industries such as construction and manufacturing, the stubborn plateauing of furloughed workers shown in this chart from HMRC below is likely a consequence of low demand rather than restrictions, since these industries have been largely restriction free for many months now. As a result, many of these jobs are potentially ‘zombie’ jobs that individuals may not be able to return to once furlough ends.
So what do we know about these workers who may swell the ranks of the unemployed at the end of this month? Well they are disproportionately older and disproportionately male. On the 1st of January this year, there were approximately equal numbers of under 25s and over 55s on furlough, each making up just shy of 20% of the total. However since then, younger workers have flowed off furlough at a much faster rate than older workers, meaning that by the 31st of July over 55s accounted for close to a quarter of the remaining furloughed workers, while under 25s made up just 10%. The disparity in off flow rates is shown most clearly in the chart below where the number of under 25s furloughed has fallen by over 80% since 1st of January, compared to just 60% for workers over 55.
A similar picture is visible when looking at gender, where despite women making up the majority of furloughed workers throughout the first year of the scheme, since May 2021 it has been male workers who outnumbered female workers.
There are two factors that could be explaining why these types of workers are flowing off furlough more slowly. The first is a firm level explanation and the second is individual level, with both likely playing an important role.
On the firm level side, part of the reason why older and male workers are leaving furlough more slowly is because they are more concentrated in the industries mentioned above which are more likely to be keeping workers on furlough due to a lack of demand, such as manufacturing and construction. On the other hand, young and female workers are more concentrated in industries where Coronavirus restrictions were the main cause of furlough, such as retail and hospitality and which have since experienced strong demand meaning those workers have been able to move back to their jobs relatively easily.
The individual level explanation is more speculative but potentially also more illuminating as to the problems these workers will face in trying to find new work once the scheme ends. Belfast comedian Jimmy Young once did a sketch on holidays and in it one middle-aged woman laments the fact that despite her attempts to get her husband to take a longer holiday this year, he refused because if he took too long his employer would find out that “he did nothing anyway and he might have no job to go back to” (clip can be watched here at 1:29). Of course, this is very crude and exaggerated, but the basic concept does capture what may be driving the higher numbers of older workers remaining on furlough. The grinding to a halt of a lot of economic activity early on in the Pandemic gave employers the opportunity to re-evaluate their working practices, while the ability to bring workers back one by one rather than all at once has also likely made some employers realise that some existing, lower productivity staff were surplus to requirements. As a result, these lower productivity, often older workers have been kept on furlough even as other workers have returned. In other words, like the woman’s husband in the clip above, they have for all practical purposes been on an extended holiday, where their employer has realised they didn’t actually need them and hence once the furlough scheme ends, they will have no job to go back to. (It is of course also possible that their employer had been looking looking to make redundancies for some time before the pandemic but had not had they opportunity to do so, with the end of the furlough scheme now offering such an opportunity for restructuring).
Although there is a relatively high level of demand for workers at the firm level in these cases, there is low demand from the firm for their labour individually. Now if HMRC released data looking at whether firms had brought back none, some or all of their workers we would be able to test this theory by seeing when they brought workers back and the types of workers they have kept on furlough. But since this data is not made available, the theory remains fairly speculative.
However, regardless of whether it is weak demand at a firm or individual level that is causing the slow movement off furlough, it is likely that come next month there will be a significantly larger number of older workers in need of a new job. This will present a new type of problem for the Government, who to date have been largely focused on preventing youth unemployment via the £2bn KickStart scheme (which given the relatively healthy labour market for young people at present, is turning out to be somewhat excessive in hindsight).
The fact that the labour market is currently enjoying record numbers of vacancies may alleviate some of these fears, surely these older workers could simply get one of those jobs? Having a surplus of vacancies will certainly help, however the fact that these workers became unemployed either because their industry lacked sufficient demand, or because their firm deemed them to not be worth bringing back after furlough suggests that they may lack the skills to seamlessly move to the high demand sectors that are currently posting large numbers of vacancies, like hospitality.
This mismatch between the skills of these older workers, and the skills required by the current labour market, may mean that many of them are facing a prolonged spell of unemployment. Equipping older workers with the skills to find employment in a new industry is not something the UK has historically excelled at. In the early 1990s, when deindustrialisation left large numbers of predominantly older men unemployed and without the skills to find a job in the new economy, the UK Government’s main response was to reduce headline unemployment figures by pushing these men on to disability benefits so they no longer officially counted as unemployed - with the result of consigning an entire generation to essentially early retirement, with a huge cost both in terms of benefit expenditure and wasted economic resources. This policy is clearly visible in the charts below from the IFS, where the early 1990s saw a huge spike in the number of men aged 50 and above claiming disability related benefit.
Now it is unlikely that the current Government will try a similar policy, and programmes such as the Work and Health Programme are now available to help the longer term unemployed move into work. However, despite the support aimed specifically at young people, there remains no equivalent programme targeted at older workers. Without help to find alternative employment, the Government is risking having to pay Universal Credit to these people for the next decade or more, meaning that additional support over the next 6-12 months may prove to be a wise investment in the long run.