Report questions official unemployment statistics

Employment has fallen by 15 per cent since lockdown, according to a new report which questions official figures that find unemployment statistics has remained more or less stable and warns that the economy is “on track to suffer its biggest unemployment shock since at least the 1980s recession.”

The report What can previous recessions tell us about the Covid-19 downturn? by LSE’s Centre for Economic Performance (CEP), is based on a comprehensive measure using information on people with jobs who report working no hours to assess what it calls a “realistic” employment rate. It says the total number of hours worked in June at only 80 percent of the level in February 2020, with the UK economy on track to suffer its biggest unemployment shock since at least the 1980s recession. A recent ONS report said unemployment had remained more or less stable between March and June, but that there had been a significant rise in economic inactivity and a fall of 730,000 in employment figures.

The report says individuals who are young, low-paid, black, in self-employment and those who have low education levels or live in large families have been disproportionately affected by the current recession, with these groups more likely to have lost their jobs, not be working any hours or had their pay cut in the current crisis.

For employees who were earning less than £151 per week in February, the probability of being furloughed or having their hours cut by at least half almost three times higher than for those earning more than £600 per week (53.7 percent compared to 18 percent), says the report.

It also found that those aged 18-24 who were still employed in June were almost 18 percentage points more likely than those aged 35-54 to have had their hours cut by at least half or to have been furloughed and individuals with only GCSE qualifications or equivalent are 17.1 percentage points more likely to have been furloughed or lost at least half of working hours compared with those with a degree.

Professor Stephen Machin, one of the report’s authors and director of CEP, said: “Unfortunately, the Covid-19 crisis poses even harder questions than the previous recessions. The effects on those leaving full-time education could be more pronounced due to school closures and shifts to online learning in universities. Long-lasting changes to the way we shop, travel and socialise are likely to significantly affect certain sectors. Uncertainty about the course of the pandemic, means the recovery could be even slower. Consequently, the economic scars have considerable potential to cut even deeper.”

Mihai Codreanu, another co-author, said: “Understanding what we can and cannot learn from previous recessions is important for the current downturn – there are some similarities, but also some marked distinctions. The starkest difference is the occurrence of a discrete, immediate lockdown of some sectors. Effects in these sectors are likely to be long-lasting despite government support because it is implausible that consumer demand will return to normal in the foreseeable future.”

The report compares the current situation with previous recessions and says that, despite the UK entering the Covid-19 crisis with historically low unemployment rates, earnings had only just recovered to pre-financial crisis levels and increasing numbers of people were in precarious zero-hours contract jobs.

The report cites the most recent central scenario forecast of the Office for Budget Responsibility that predicts the unemployment rate of the current recession will peak at 11.9% – the same level as in the early 1980s recession, and higher than in the early 1990s (10.7%) or the Great Recession of 2008/09 (8.4%). This would mean a rise in the unemployment rate of 8 percentage points, compared with an average rise of 4.5 percentage points in the previous recessions.

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