No escape from the coming unemployment chill Photo by James Yarema on Unsplash
David Spencer, University of Leeds
Rishi Sunak has announced a new job support scheme designed to help the British economy stave off a coronavirus-induced winter chill. It encompasses a novel short-time work scheme that will give extra support for workers and businesses, after the furlough scheme ends on October 31. This scheme sits alongside other policies, including extensions in loan repayment periods that will help some struggling firms.
But, overall, the chancellor’s speech lacked both the broader reforms and vision needed to tackle the crisis. It also failed to offer a clear recovery plan.
The new job support scheme is designed to create the opportunity for “viable jobs” to continue, even where demand is suppressed by reduced spending. Which jobs are to be deemed “viable” remains unclear, but the scheme will apply to fewer jobs than the previous furlough scheme.
Under the scheme, the government will offer a wage subsidy to firms to retain workers on shorter hours, rather than make them redundant. Modelled on similar schemes in Europe, it offers protection for people in work, until the economy recovers.
The job support scheme is scheduled to begin on November 1, at the point when the existing furlough scheme ends. It is due to last six months. To be eligible for the scheme, employees must work at least a third of their normal hours. They will be paid two-thirds of their pay for the remaining hours. The government pays a third of the hours not worked, while the employers pay the other third.
Employees will lose some pay for being on the scheme, but at least they avoid unemployment. Support is targeted at small- and medium-sized firms. For larger firms, there is an eligibility criterion: they must prove that the crisis has hurt their turnover.
Some details remain to be worked out, but there are questions about the extent and effectiveness of the support provided.
First, the job support scheme is aimed at those in work. It does not help those who have lost their jobs and those who are about to lose their jobs. Many of those on furlough who are not working at all face unemployment.
Notably, there was nothing in the chancellor’s speech on raising universal credit, the default benefit payment that unemployed people qualify for. And the concern remains that people faced with unemployment will be pushed into financial hardship. Those who get ill will still face a meagre existence on statutory sick pay.
Second, it is assumed that firms can afford to pay the extra cost of employees not working some of their hours. The risk is that some firms will not sign up to the scheme, as the cost of doing so is too high. This risk is especially severe, given the continued depression of the economy.
Third, there is the existing culture of “fire and re-hire” to contend with. The UK’s flexible labour market embeds redundancy as the default option for employers and works against the adoption of a short-term work scheme, like the one announced by the chancellor. So firms may still face the incentive to sack workers, rather than keeping them on.
Fourth, the job support scheme is temporary. It is not clear what will happen if unemployment rises significantly. There is also no commitment to the creation of new viable jobs.
The sense is that the chancellor has accepted a rise in unemployment and is looking simply to cap the projected rise in the dole queue. Certainly, there is no plan for retraining and jobs for the future. Instead, there is a reliance on market forces to adjust beyond the period of policy intervention.
The fundamental problem with the chancellor’s announcements is that they seek a return to normality. They aim to restore the same growth model that existed before the crisis. Yet we know this model contained deep inequalities. We also know that it was unsustainable and liable to break down. Periodic crises have demonstrated this fact.
We need new thinking not just to cope with the crisis but also to rebuild the economy. Crisis management can go hand in hand with planning for a recovery. Shorter work time, for example, could be pursued not just to address rising unemployment in the short term, but also to create the basis for a healthier and more dynamic economy in the longer term.
Similarly, the government could expand the public sector to create more socially useful jobs, while securing the conditions for a wider transformation in the economy. In all this, it is important to think about what kind of economy we need and want beyond the crisis.
Winter will persist, in an economic sense, if policy is bound by a short-term focus and fails to rethink the way that the economy is operated. We need different thinking for a better future.
David Spencer, Professor of Economics and Political Economy, University of Leeds
This article is republished from The Conversation under a Creative Commons license. Read the original article.