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Broken records in jobs market point to huge COVID-19 disruption

Oscar Williams-Grut
·Senior City Correspondent, Yahoo Finance UK
·8-min read
File photo dated 17/02/16 of a Job Centre Plus in London. Up to one in three jobs in parts of Britain are at risk of being lost due to the coronavirus crisis, a new study has suggested.
A Job Centre Plus in London. Photo: PA

Official stats on the UK’s jobs market confounded expectations on Tuesday, as they showed unemployment near all-time lows despite the ongoing COVID-19 crisis.

Beneath the headline number, however, the report showed huge changes going on in the UK labour market, with multiple records broken.

Declines in the number of hours worked and self-employment, and rises in full-time employment and the number of economically inactive people all broke records.

Read more: UK unemployment remains near record lows even as extra 80,000 jobs lost

The broken records suggest the COVID-19 pandemic has caused huge numbers of people to abandon part-time or freelance work in favour of more secure employment.

It also suggests millions of people could be about the enter the official unemployment statistics but have so far been overlooked, either because they are currently on furlough or because they have not looked for work since losing their jobs.

Here are all the main records broken in August’s jobs report and why they are significant:

A record fall in hours worked

Average weekly hours worked declined by the most on record. Photo: ONS
Average weekly hours worked declined by the most on record. Photo: ONS

Perhaps unsurprisingly, the average number of weekly hours worked fell by a record amount in the last quarter as millions of workers were furloughed.

Average weekly hours fell by 191.3 million to 849.3 million between April and June. The fall, equivalent to an 18% drop, marks the steepest decline since records began in 1971. Weekly hours for both men and women both recorded record falls.

Over nine million people were placed on furlough at some point during lockdown, which drove the record declines.

Despite the steep fall, the ONS said its methodology may in fact understate the true decline. More experimental data used by the statistics body suggests even steeper drops in average weekly hours.

Big question marks remains over how many of these lost hours will return when the furlough scheme comes to an end and the economy is fully unlocked. Experts think many of those currently on furlough will ultimately find themselves unemployed.

“The furlough scheme has created a false market and we're now relying on data around factors such as hours worked and the number of jobs available to inform us instead,” said Lee Biggins, the founder and chief executive of CV Library.

The number of jobs available ticked up in the quarter but was still a long way off pre-pandemic levels.

A record decline in freelancing and part-time work

There was a record quarterly decline in part-time workers. Photo: ONS
There was a record quarterly decline in part-time workers. Photo: ONS

The headline employment rate remained broadly stable during the last quarter, falling just 0.2 percentage points to 76.4% — the largest drop in employment numbers since 2009.

Beneath the headline rate there were also huge changes in the type of work people were doing. Part-time workers and the self-employed both saw record declines in the quarter. Conversely, there was a record increase in the number of full-time staff.

The numbers suggest that the self-employed and part-time workers rushed to seek more secure employment as the pandemic struck. Almost 50,000 people switched from self-employed to employee during the pandemic.

A record high shift from self-employment to employee. Photo: ONS
A record high shift from self-employment to employee. Photo: ONS

Derek Cribb, chief executive of the Association of Independent Professionals and the Self-Employed, said the shift was driven by “serious gaps in the government support for the self-employed”. An estimated three million people fell through the gaps of government income support schemes.

“Going into a recession, we would normally expect a jump not a slump in the number of self-employed, as businesses look to the flexible expertise they offer,” Cribb said.

“However, with government policy driving down the number of self-employed, there is a real fear the UK workforce will become brittle and rigid just when it needs to be at its most agile.”

220,000 fewer people were ultimately in work by the end of June, meaning not all those who left part-time work or self-employment found full-time work elsewhere.

The number of people on zero-hour contracts across the UK reached a new all-time high in the April to June quarter. Just over one million people were on these controversial employment contracts at the end of June.

However, this was largely unrelated to the pandemic and extends a trend stretching back over the last eight years.

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A record shift from unemployed to inactive

The headline unemployment measure is surprisingly technical, based on standards set by the UN’s International Labour Organisation (ILO). To be officially counted as unemployed, people must be out of work, have looked for a job in the last month, and be available to start in the next two weeks.

Trying to fulfil the second and third criteria proved particularly challenging during the pandemic. As a result, many people have been classified as economically “inactive” instead of unemployed.

Almost a third of all people who were unemployed at the start of the year were instead re-classified as inactive this time around. That was a record high for the so-called “hazard rate”.

The number of people moving from unemployed to inactive spiked in the quarter. Photo: ONS
The number of people moving from unemployed to inactive spiked in the quarter. Photo: ONS

The reclassification helped to push the number of long-term unemployed — people out of work for over a year — to a record low of 227,000.

This historic re-classification also helped explain why the headline unemployment rate remained unchanged, despite tens of thousands of job loss announcements over the last few months. Like a revolving door, long-term unemployed made way for the newly unemployed as the long-term unemployed were instead reclassified as inactive.

This suggests the low unemployment rate is a statistical quirk rather than a signal of a strong labour market.

“The official ILO unemployment rate (which remained unchanged at 3.9% in the three months to June, largely on account of lower labour market participation) remains relatively uninformative given the prevalence of the government’s furlough scheme,” Goldman Sachs economist Adrian Paul wrote in a note on Tuesday.

“We continue to expect a sharp increase in official unemployment once the furlough scheme expires in Q4.”

Goldman Sachs said experimental data released by the ONS suggested the true level of joblessness was likely closer to 7.5% — its highest level since 1996.

Many of those currently classed as “inactive” will soon re-enter the labour market and become officially unemployed if they cannot find a job. The second quarter saw a record rise in the number of economically inactive people who want a job.

There was a record increase in economically inactive people wanting a job. Photo: ONS
There was a record increase in economically inactive people wanting a job. Photo: ONS

Perhaps unsurprisingly, there was a record rise in the number of people who were inactive due to “other reasons” — likely the catch-all phrase used to cover the pandemic.

There were record declines in people inactive due to looking after family or studying, and a record increase in the number of “discouraged workers.”

The number of over-65s in the workforce also declined at a record pace between April and June. 161,000 over-65s left employment during the period.

It is unclear why this particular cohort left the workforce in such numbers but many may have chosen to take retirement as the pandemic struck. Others who can afford to may simply be waiting out the pandemic before they go job hunting again.

A record jump in public sector employment

The unprecedented government response to the coronavirus led to a record surge in public sector employment. Since April, a record 269,000 people have joined the public sector to take employment to an all-time high of 7.5 million.

Notable hiring drives in the public sector include the recruitment of 18,000 contact tracers and a push to hire up to 50,000 extra nurses.

However, this public sector employment boom may prove temporary. The government announced on Tuesday it would cut the number of contact tracing staff in England by 6,000 this month.

What do the broken records mean?

The slew of broken records and other experimental data released by the ONS points to “a sharp deterioration in employment prospects beneath the surface of the official statistics,” Goldman Sachs’ Paul wrote.

The data suggests that the headline unemployment rate is being kept artificially low by the government’s job retention scheme and statistical quirks, rather than reflecting a truly buoyant jobs market.

“The ILO UK unemployment measure isn’t fit for purpose in the current environment,” said Michael Hewson, chief market analyst at CMC Markets.

As the government’s job retention scheme begins to come to an end in the coming months, experts believe the unemployment rate will begin to give a truer picture of the underlying poor health of the jobs market.

“7.5 million Britons are in a limbo the statisticians describe euphemistically as ‘away from work’,” said Karim Yousfi, chief global strategist at Audacity Capital.

“A great proportion of these people are still having the bulk of their wages paid by the British state. But as the UK’s furlough scheme is phased out over the coming months, those whose jobs have ceased to exist will be forced into the ranks of the unemployed.”

Private sector forecasts compiled by the government suggest unemployment will rise to around 8% later this year, compared to the current rate of 3.9%. The government’s own budget watchdog thinks it could rise above 11%.

The UK’s jobs market in the coming months will likely show “fewer people in work, and those who are lucky enough to keep their jobs are likely to be earning less,” Yousfi said.