It made for grim reading: the claimant count more than doubled to 2.7m compared to its pre-lockdown level, the sharpest quarterly fall in employment since the immediate aftermath of the financial crisis, with a further 730,000 out of paid work. The only good news from Tuesday’s labour market data was that job vacancies are up a bit since the nadir of the crisis last April, albeit not by much.
Otherwise there was precious little comfort. Without the Government’s various income and job support schemes, the situation would have looked truly catastrophic.
Many of these initiatives - including the Coronavirus Jobs Retention Scheme - are due to be withdrawn by the end of October, begging the question of just how high the claimant count will go once the life support comes to an end. According to the ONS, about 7.5m of us were temporarily out of a job at the end of June, or nearly a quarter of the entire workforce.
We live in a kind of surreal dreamland where deep recession coexists with an unemployment rate that officially still stands at less than 4pc - one of the lowest rates ever. If this statistic seems to give reason for hope, think again.
The unemployment rate does not measure all those who are out of a job, but only those unemployed who are actively seeking one. It’s not the same thing as the claimant count, which may give a better understanding of the chronic condition of today’s labour market.
In any case, a combination of furlough and the fact that large numbers of people who have lost their jobs, particularly part-time workers, have chosen for now to become economically inactive, flatters the numbers. We have become like the hapless cartoon character, Wile E. Coyote, who keeps running long after he has left the edge of the cliff, apparently oblivious to the abyss beneath.
The overarching question, I suppose, is just how deep that abyss really is. I’m with the Bank of England on this front, believing that it may not be quite as bottomless as many fear. In its quarterly Monetary Policy Report last week, the Bank’s central “projection” was for a peak unemployment rate of no more than 7.5pc.
By the standards of the financial crisis, where unemployment peaked at more than 8pc, this would be a good outcome, even if predicated on two somewhat questionable assumptions - that there will be no second wave, allowing for the continued withdrawal of social distancing measures, and that a Canadian-style free trade agreement with the EU is struck before the end of the transition at the close of the year. These are actually both reasonable bets, but it could easily go the other way.
But let’s go with the flow, and hope the assumptions are correct. The Bank bases this relatively optimistic assessment on progress since the nadir of the downturn in April/ May. About 9.6m jobs have so far been supported at some stage by the jobs retention scheme, and a further 2.5m have applied for help under the self-employed income support scheme.
The full extent of the unemployment timebomb will only become apparent once the schemes have ended, but again, early signs are encouraging. The Bank estimates that the peak number of those on furlough was about seven million, which would have been in May sometime. But already, a large number of these employees have returned to work; surveys indicate that companies expect the numbers to continue dropping in the near term as the scheme is scaled back.
In the July BICS survey, firms expected that more than half of those previously furloughed would be back at work by the end of the month. Employers are liable to pay National Insurance and pension contributions for furloughed employees from August onwards, and the proportion of wages covered by the Government will begin to fall in September, with firms expected to make up the difference.
This is the moment of truth, where companies have to make up their minds whether they want their employees back, or should they just bite the bullet and use the pandemic as an opportunity for downsizing. As the costs of keeping workers on furlough creep up, we are already seeing a veritable deluge of job loss announcements across the economy.
This should worry the Treasury, and not just because surging unemployment is abhorrent and socially destabilising. If all companies use Covid to cut headcount and reduce wages, it will damage demand across the economy and potentially create a downward spiral of further job losses and demand.
It’s one of those paradoxes of economics that something that makes sense at a company-specific level to gain competitive advantage, is, when applied across the economy as a whole merely a beggar thy neighbour process that ends up making everyone poorer.
Be that as it may, the Bank believes that the numbers on furlough will fall to two million in the third quarter and go down to just one million in October, when the scheme is scheduled to end. The Government daren’t say it will extend, even if minded to, for fear of disrupting this dynamic.
Of late, I’ve been more optimistic than most about prospects for returning to relative normality - that is something close to previous levels of office working and social spending. But it does require a lot of things to go right, and there seems little doubt that some of today’s upsurge in unemployment will be persistent.
Workers left by the wayside are going to require a lot of continued support, in particular with retraining for the rather different jobs that might become available in future - in the digital and green economies for instance. For the moment, there is a big mismatch in skills.
The Government will be judged by its ability to provide a credible bridge to the new economy. Too often in the past, as with the destruction of manufacturing jobs in the early years of the Thatcher government, and the further shrinkage in decently paid blue collar work that took place after the financial crisis, we have fallen short in confronting deep structural change. Let’s not fail again.