If there was any doubt that COVID-19 would be a catastrophe for the UK’s economy, it was dispelled in August when GDP figures revealed that the economy contracted by 20 per cent between April and June 2020 – the biggest drop since records began. The economy is now in a recession of highly uncertain depth and duration, which some expect to be of a scale comparable to the Great Depression.
This is, of course, bad news for people’s jobs. As of 16 August, 9.6 million employees have been furloughed from 1.2 million firms and the claimant count (the number of individuals accessing job seekers allowance or universal credit) has more than doubled since March. Looking ahead to future employment scenarios, even the most optimistic projection by the Office for Budget Responsibility forecasts a peak 9.7 per cent unemployment rate, which rises to 11.9 per cent when medium-term economic scarring is factored in.
Government funding is essential to safeguard jobs, but to help workers we also need innovative services, tools and approaches to address the new problems that COVID-19 has created for the labour market. Importantly, these need to be designed so that they really support the people whose jobs and financial security have been hardest hit.
The months since February 2020 have shown us that some groups of people face greater risk to their health from COVID-19 than others. The same is true of the economic impacts of the virus – but with some important differences. For example, while the virus is deadliest for older people, younger age groups are likely to be hit hardest by the economic impacts. Those aged 18–24 are already much more likely to be unemployed than any other age group, and an additional 600,000 18–24 year olds due to leave education are at risk of unemployment. That’s not to say that we shouldn’t worry about workers in other age groups, however. Among those aged over 50, claimant counts more than doubled between March and May this year.
For low-paid workers, the crisis has made a bad situation worse. Pre-COVID-19, employment rates were at a record high but this masked soaring rates of poverty among working people.
According to the Institute for Fiscal Studies, working households comprised 58 per cent of those below the official poverty line in 2017–18, a 20 per cent increase since 1994–95. Once the virus hit, low-paid workers were most likely to be at risk of job losses and cuts to hours, in part because they were least likely to be able to work from home. Recent research found that one in three low-paid workers in the Capital are employed in sectors that were shut down by the pandemic, and these workers were statistically more likely to be women, young people, migrants and those from Black ethnic groups.
For those on low pay, losing income is made worse by the lack of a safety net. After conducting a survey, we found that 17 per cent of people have used up all of their emergency savings and more than a fifth are relying on credit to get by. Perhaps unsurprisingly, Citizens Advice has seen a 332 per cent increase in demand for advice on rent arrears due to COVID-19.
It is not only the scale of the economic disruption caused by COVID-19 that is challenging. The crisis is also accelerating disruptive trends in the labour market, creating new problems that in turn need new types of solutions.
Even before the virus hit, large numbers of workers were likely to face disruption: Nesta’s research showed that more than six million people in the UK were likely to see their occupations change radically or disappear entirely by 2030 due to automation, demographic change and other long-term trends. Since lockdown, sectors that were previously buoyant, like hospitality (worth £133.5 billion pre-pandemic) are now struggling. The number of zero-hours contracts rose to a record high and we are seeing businesses around the world, including in the UK, speeding up plans to automate their businesses as workers are forced to stay at home during the coronavirus outbreak.
The Government’s Plan for Jobs, published in July, announced up to £30 billion funding to boost employment. It includes some welcome measures, such as the Kickstart Scheme, which will create high quality 6-month work placements for young people, and further funding to extend the National Careers Service to provide tailored work and training advice to an additional 269,000 adults. This massive cash injection is clearly an important part of the solution, although it still not may not be enough (for example, debate continues about whether the furlough scheme should be extended). Money alone isn’t sufficient to help workers through this period of uncertainty.
We need new approaches to delivering services that respond to the labour market challenges that COVID-19 has thrown up.
For example, young people entering the labour market for the first time often have a fairly narrow view of the range of opportunities they might pursue, limiting their options from the start. As the job market tightens up, they will need more support to explore potential career paths (something that Nesta investee GetMyFirstJob is addressing).
Meanwhile, with job prospects getting worse in a range of occupations, many people will need to retrain. But as a recent Nesta report shows, deciding to change jobs – let alone change careers – tends to be a costly, risky and demoralising process. It’s difficult to find information to make good decisions about how to reskill, so people often rely on advice from friends and family, whose experience might not be very wide. Making a career move requires confidence, but many people find it difficult to identify their own skills and see how they could be applied to new jobs. Training can be expensive and hard to fit in around work and caring responsibilities, especially for those on low incomes, who are far less likely than other groups to take up adult learning opportunities.
Change is needed in employer practices, too. When jobs are advertised, they often miss out important information that would help potential applicants decide whether to apply, such as information on commuting times and flexible working. Employers may be unwilling to consider applicants with experience in different sectors of the economy, even if they have the right skills. For some roles, specific qualifications or accreditation are needed, which can be costly and complex to acquire.
When it comes to financial support for low-paid and insecure workers, the biggest challenge might be scaling up existing products and services up to meet the enormous level of need that COVID-19 has prompted. The responsible lending sector is currently a fraction of the size of the potential demand for its services. Fair4AllFinance (a government-established organisation tasked with increasing access to and use of fair financial products and services, including affordable credit) has called this a ‘10x challenge’ – the affordable credit sector needs to be ten times its current size.
The last few years have seen growing support for innovations that respond to trends in the labour market, like the increase of precarious work, and the problems these trends create. These include new approaches to improve the ways workers can look for jobs, organise and advocate for better working conditions, manage costs, plan their finances and create new types of employee owned businesses. Nesta and the Department for Education’s CareerTech Challenge is investing in innovations that will provide better career information, advice and guidance, and developing and scaling of online e-learning solutions.
Yet there’s still scope for far more innovation. Machine learning could be used to analyse an individual’s skills from their previous employment history, before directing them to opportunities that match their skills and preferences, such as travel to work time. Data solutions could also direct adults to learning opportunities, though highlighting jobs that they could upskill for quickly by taking a short or even bite-sized learning course. To help with finances, budgeting tools could be combined with financial platforms to give individuals a one-stop access point to manage their finances, and access affordable, responsible credit if necessary. Best of all, these innovative solutions could work together to provide wrap-around support for the individual; providing help at a financial crisis point with a clear budget and affordable credit, before giving the individual opportunities to learn new skills and gain employment.
Low pay and insecure work are not new problems, but COVID-19 will massively increase their scale. And with current projections forecasting a sharp rise in unemployment to almost 12 per cent, it’s time to double down on efforts to develop and scale bold solutions to help these workers to access jobs and money. These tools will not only assist economic recovery but help build a fairer, more sustainable future for all.