• Dr Gerard Lyons

Column in The Times on UK unemployment

I wrote the following column for The Times. It appeared online on the evening of 28th October, 2020 and in the paper on 29th October, 2020.

“Rising unemployment needs a package of solutions


Unemployment looks set to rise sharply as the pandemic changes the future of work.

One hallmark of the UK economy has been its ability to cope with shocks. This is seen in its flexible jobs market.

During 2020 we are witnessing a transformational change. At the start of this year, the UK enjoyed the greatest share of people in work since records began in the 1970’s.

By year-end, in contrast, unemployment is set to soar. The unemployment rate has already risen from 3.8% to 4.5%, with 1.52 million out of work. This could climb to 3 million, reaching levels last seen in the mid-1980’s.

The urgent need is to contain the jobs fall-out from the pandemic. The furlough scheme that has supported people in work ends this week. Although the Chancellor has replaced this with a new Job Support Scheme, which is welcome, it is less generous.

Thus, unemployment will rise.

Also, during this vaccine gap phase, more targeted help may need to be provided to those parts of the economy whose actual existence is now under threat but in normal times would be thriving.

Take the creative sector. This encompasses a vast array of areas such as theatre and live music and is critical in giving cities like London their vibe and allowing their ecosystems to thrive.

In recent years employment in the creative sector grew at twice the rate of the rest of the economy.

In 2017 the Bazalgette Review suggested the creative industries would add an additional one million new jobs by 2030.

That rapid pace of employment growth was feasible pre-pandemic. Whether it is now, requires limiting the lasting damage suffered. If so, once a vaccine is found this sector will be able to return to normal instantly.

The second policy needed to safeguard jobs is a sustainable pro-growth economic strategy. Stronger sustained growth would reabsorb the unemployed into the jobs market and generate jobs for young people - a group hit hard by the pandemic.

If people can work from home, what is to stop firms moving these roles overseas, to lower cost centres, or to be nearer future growth markets? With western Europe set to be the world’s slow growth region for some time, the UK needs to recognise the challenge from the Indo Pacific.

The way to address this is to ensure the UK is a dynamic economy where people want to live, visit and work. That is easier said than done, and requires a low tax, pro-business environment.

As if this was not enough, the jobs outlook faces an additional challenge. A focus has to be on helping young people find their footing in the labour market, equipping them with skills for future growth sectors.

Ahead of the pandemic firms faced change from new technology and artificial intelligence. However, the view was that this would unfold over many years. The pandemic has changed this, accelerating the pace of change.

The UK’s low productivity and low wage economy has two-fifths of employees in low skilled work.

Technology poses a threat to routine jobs, whether manual or cognitive. Along with the pandemic this may expose new cohorts of workers to job insecurity.

If so, this would reinforce job polarisation, where like a bar-bell in a gym, the jobs would be at either end: low skilled, or high-skilled, while those in the middle go.

The squeezed middle would become the displaced middle.

The latest international comparison of new robot installations, released last month, highlights the pace of change.

The UK occupies 22nd place for robot installations. Last year there were 2,000 newly installed units in the UK, compared with 20,500 in Germany, 11,100 in Italy and 6,700 in France.

Although not surprising, as we are a service sector economy, the level seems too low to take comfort from.

Low wages reduce the economic case for technology to replace low-paid, non-routine manual work. The UK wishes to avoid low-paid insecure jobs becoming perpetual. Rising minimum and living wages will form part of the policy response.

Yet the heterogeneity of many tasks within jobs suggest that while technology may pose a threat to some workers it may be a complement to others. For instance, technology can support doctors in diagnostic medical work. Thus, technical change should be embraced.

The post pandemic global industrial revolution may mirror previous ones, in that while people fear job losses, the end-result is that more are added.

While technology can substitute for labour intensive jobs, new ones are created in roles that previously did not exist, or as technology lowers prices, boosting demand and jobs.

Direct policy interventions may be needed for the low skilled or those on low incomes. These might focus on workforce reskilling, vocational skills, educational reform, enhanced safety nets and improved digital access.

In a recent report, Policy Exchange looked at lessons from the 1980s and stressed the need to keep the safety net well-resourced and running smoothly. They also proposed a new 2020 Enterprise Allowance, based on a successful scheme launched in the 1980s, with the Government giving anyone without a job who wants to start a new business £100 a week for a year.

Lifetime learning, too, may become a core future need. Thus recent policies announced to help people reskill are welcome and essential.

In addition to basic educational training is the need for continuous learning, keeping pace with the changing demand for skills, some of which may be specific to new roles.

Instead of tertiary education the focus would then be on quarternary education, mid-life. Transferable skills will be the new currency.

So, a triple policy agenda is needed for jobs. Further help to sectors in need now. A pro-growth economic policy that creates jobs. And a transformational shift towards higher minimum wages for those at the bottom and affordable and accessible lifelong learning. The pandemic shows the need to think outside the box.

Dr Gerard Lyons is chief economic strategist at Netwealth