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Coronavirus: 3.2 million furloughed workers 'may not get their jobs back'

Tom Belger
·Finance and policy reporter
·4-min read
A shop worker wears a t shirt saying 'Please keep 2m apart' to respect social distancing, during the Coronavirus outbreak, Tottenham Court Road, London.  Picture date: Tuesday 21st April 2020.  Photo credit should read:  David Jensen/ EMPICS Entertainment
A London worker as the number of furloughed workers grows. (David Jensen/ EMPICS Entertainment)

Many of Britain’s 3.2 million or more furloughed workers “may not get their jobs back” after the UK begins to lift its coronavirus lockdown, according to a leading labour economist.

Danny Blanchflower, a former member of the Bank of England’s monetary policy committee, told Yahoo Finance UK Britain’s unemployment rate could skyrocket to 20%, including furloughed workers. With job losses mounting as the lockdown has paralysed the economy, it would be five times above the current official rate of 4%, based on February data.

More than 1.5 million people have applied recently for Britain’s main unemployment benefit universal credit, but official figures show at least 3.2 million workers have also been furloughed on a government scheme. Business surveys suggest real furlough numbers could be millions higher.

A PMI survey published on Thursday by IHS Markit showed a record net balance of firms reporting a decline in employment.
A PMI survey published on Thursday by IHS Markit showed a record net balance of firms reporting a decline in employment.

Blanchflower argues official data wrongly counts furloughed workers as employed. Staff are “highly vulnerable,” not allowed to work for their employer and reliant on government funds.

“This is a rather novel definition of employment,” he and fellow academic David Bell wrote in a paper published by the National Institute of Economic and Social Research on Thursday.

The paper says some may return to work when business conditions improve, but warns they can only do so “if their companies are solvent and have a market to sell to.”

The professor at Dartmouth College in the US argued many economists were “over-optimistic” about recovery, and a weak recovery will threaten firms and jobs once furlough subsidies are cut.

Read more: UK economy suffers record shock and ‘unprecedented’ job losses

In an interview with Yahoo Finance UK, he said first lockdowns and then consumer caution could drag on far longer in Britain, the US and elsewhere than widely expected.

The longer lockdowns last, the more cash-strapped firms risk hitting the wall as their incomes have collapsed but many costs have not, despite government support measures. He gave the example of his own university in New Hampshire, with livelihoods at local restaurants under threat if thousands of students’ absence from campus is prolonged.

Yet Blanchflower’s main concern is how restrained consumers’ behaviour and spending might be even after restrictions ease. “Are people going to back to gyms, concerts, sports events, restaurants, bars and malls? People are going to hunker down.”

Older people are particularly likely to stay at home, threatening sectors reliant on their spending. Blanchflower believes people may not only stay in over fears of a second wave of the virus, but also tighten their belts and save more as they worry for their own jobs.

Read more: Why ‘extremely poor’ testing ability in Britain threatens economic recovery

Widespread hopes of a ‘V-shaped recovery’ could therefore prove ill-judged. Blanchflower believes government support including wage subsidies will not last forever when restrictions lift, leaving some firms with little choice but to lay off staff.

“Is the government going to pay a gym to stay open even though if no-one is going there? After [the lockdown’s] over and they stop paying the money, what’s going to happen? The gym’s going to close.”

Other firms could slash workers’ hours and further cut use of contractors to stay afloat. With few other employers hiring, the economist expects a significant rise in under-employment, particularly among the self-employed, will be another “big outcome” of the crisis.

Fears about the economic toll of a weak recovery are increasingly being voiced by business leaders themselves. Trade body UKHospitality warned on Thursday more than a million jobs could be at risk, in a sector where large numbers have been furloughed.

They want the furlough scheme extended and another stimulus package to boost demand, fearing for firms’ survival if social distancing measures last into 2021.

Read more: Why ‘extremely poor’ testing ability in Britain threatens economic recovery

Blanchflower and Ball say a depression like the 1930s is not out of the question, and fear many households are already struggling to get by without work given low levels of state welfare both sides of the Atlantic.

Their analysis suggests a quarter of UK households have now lost half their incomes, and they expect rising joblessness to send average real earnings in Britain into reverse.

The consequences could ripple further throughout the economy. “In the US and to some extent in Britain, you’ll see a huge rise in defaults on rents, mortgages, credit cards and car loans,” predicts Blanchflower. “People have to clamp everything back as they need to eat. Things are pretty darn bad.”

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