Labour Market

How the labour market can recover from the Covid-19 crisis

Millions of jobs will be seen to have been lost and thousands of businesses destroyed once furloughing is ended. In preparing for emergence from lockdown, our aim must be to make it as easy as possible for existing businesses to revive and new businesses to start up – and to encourage them to take on as many staff as they can usefully employ.

Unfortunately the ideas being touted at the moment are not well chosen to do this. The TUC, for example, has called for a higher National Living Wage for all workers however young and inexperienced, pay increases across the public sector, a ban on zero-hours contracts and all outsourcing, plus subsidies to new, unspecified, green businesses and higher out-of-work benefits. Apart from the budgetary costs of these proposals (most of which were TUC policy long before Covid-19 was heard of), they would be a clear deterrent to private sector businesses wishing to take on extra staff.

The TUC has also called for a tripartite National Recovery Council, a distant echo of the National Economic Development Council talking shop scrapped under John Major. This proposal aims to give unions a say – possibly a veto – on new employment and other economic policies.

The Resolution Foundation is a left-leaning think tank which often talks a fair amount of sense, but its latest proposals for a “new settlement” for the low-paid echo many of the TUC’s proposals. They are subject to the same flaws. There is the same pressure for a higher National Living Wage, restrictions on zero-hours contracts which would effectively end them, new employment rights such as earlier protection under unfair dismissal laws and the right to request longer hours. Unions should be given the right to enter workplaces to recruit members. And, just as the TUC wants to revive tripartite discussions at the national level, the Resolution Foundation wants, bizarrely, to revive an even older idea by instituting “21st century wage boards” to set pay and conditions in low-paid industries. This would be a throwback to Winston Churchill’s pre-WW1 Trade Boards, which (under their later title of Wages Councils) at one time covered 3 million workers. When the last of these boards (the Agricultural Wages Board) was put to sleep a few years ago, it was still holding elaborate regular meetings between unions, government and employers which ended in setting the minimum hourly pay for agricultural workers at just 2p above the National Minimum Wage.

The TUC and the Resolution Foundation have produced wish lists with appeal to union activists and to progressives ensconced in comfortable public sector jobs. However, as a way of reviving employment they are complete non-starters.

Private sector employers, particularly small and medium sized businesses, already face a costly and distorting web of employment mandates. It is to their credit that, until the pandemic, they were nevertheless generating new jobs in large numbers – unlike their even more highly regulated counterparts in continental Europe. In the desperate labour market situation we face at the end of lockdown, they need far less regulation, not more.

The government has recognised that regulation in some areas needs to be reduced. We have seen liberalisation over Sunday opening, about takeaway food, about delivery hours and hours which construction sites can operate. There are proposals to facilitate changes in the use of high street buildings. But these are baby steps. And nothing of significance has been proposed for employment regulation at all.

The only noteworthy employment proposal we have seen from the government is the Prime Minister’s off-the-cuff plan to provide an “apprenticeship guarantee” to all young workers. Mr Johnson apparently had an epiphany when meeting some Clydeside apprentices on the election trail last year and now – like many politicians before him – is an enthusiast for apprenticeships.

Governments have tried for at least forty years to boost apprenticeships. For example the Cameron government was determined, after a range of scandals which saw apprenticeship “providers” taking government money to award worthless qualifications, to improve matters.

But its planned apprentice levy, operationalised under Mrs May, has turned out to be a farce, with numbers of apprenticeships having actually fallen, few of them pitched above the most basic level, and many businesses unable to access levy funds for more appropriate training schemes.

The only way governments can ever “guarantee” apprenticeships is to pay businesses to take on subsidised workers who are awarded low-level qualifications by outside bodies with little close involvement with employers. Except in some limited areas, the new skill needs of the 21st century are changing far too rapidly to be set out in formal qualifications determined by industry training bodies (in reality usually superannuated consultants).

Government-initiated apprenticeship schemes are yet another example of governments believing that they are the solution rather than the problem. If the UK labour market is to recover quickly it will be through employers being free to make their own choices about training and recruitment, relieved of the most irksome forms of job-destroying employment regulation – not by the government telling or bribing them to take on apprentices.

For example, we need the government to simplify the minimum wage system and scrap the commitment to the National Living Wage reaching two-thirds of median hourly earnings by 2024. We need to reduce the scope of occupational regulation, which now excludes workers unnecessarily from many jobs. We should modify the rules on working hours and on use of agency workers, and look again at the requirement for auto enrolment in pension schemes. In view of the recent problems with unions slowing the path out of lockdown, we should perhaps re-examine industrial relations legislation.

These and other measures need careful consideration. But, facing unemployment heading to 10% or more, our direction should be clear. We must reduce restrictions on employment rather than add to them. The private sector can lift us out of recession, as it has done before, if we have confidence in enterprise rather than the belief that only deeper involvement by the government can save us.


The implications of the pandemic for the labour market are examined in more detail in Rebooting Britain: How the UK economy can recover from coronavirus.


Editorial and Research Fellow

Len Shackleton is an Editorial and Research Fellow at the IEA and Professor of Economics at the University of Buckingham. He was previously Dean of the Royal Docks Business School at the University of East London and prior to that was Dean of the Westminster Business School. He has also taught at Queen Mary, University of London and worked as an economist in the Civil Service. His research interests are primarily in the economics of labour markets. He has worked with many think tanks, most closely with the Institute of Economic Affairs, where he is an Economics Fellow. He edits the journal Economic Affairs, which is co-published by the IEA and the University of Buckingham.

1 thought on “How the labour market can recover from the Covid-19 crisis”

  1. Posted 14/06/2020 at 10:21 | Permalink

    The public sector is a big problem and has not performed well in the current crisis, in my experience some sectors taking the opportunity of the lock- down to do less than they could otherwise have done. It has to be recognised that public sector employees are in a priviledged position (as current circumstances illustrate). They have job security, worth a lot at the moment, they have been on full pay (correct me if I am wrong) and, of course, they enjoy an entitlement to final salary pension schemes, which is a very valuable perk and I believe one source of the nation’s poor productivity performance. This is because those unhappy and unproductive at work are less incentivised to move- on (so, overall, there is poorer worker/job matching); they cling on for the maximum gold-plated pension. So my rebooting plan would be to phase-out/abolish final salary schemes (including those private sector ones that persist) through legislation. And to help to ease the current fiscal strain, the TUC should be asked to acknowledge said privaleges and agree to all public sector workers (excepting NHS front-line staff) taking a 10 per cent wage cut!
    Second, politicians always rush to boost infrastructure spending at the first opportunity. But the long-term economic benefit of a great deal of such spending is close to zero (wrong schemes, cost blow-outs etc). As the Eddington Committee pointed out (quickly overlooked) it is the small schemes that are better value for money. (I am therefore glad to see that Len did not list more infrastructure in his wish-list). Yes, hard infrastructure can be over-crowded at times but this is because of poor price structures; pricing is never seen as a (part) solution. In fact, we subsidise peak hour travel in the form of allowing ‘freedom pass’ over 60’s free travel in the rush hour. That has been suspended in London (elsewhere?); my second rebooting suggestion, it should be made permanent (disclosure, the writer is over 60!)

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