“We are still in the ‘phoney war’ spell of the struggle against unemployment. Today’s figures are not as bad as some feared, but they cover the period when the Coronavirus Job Retention Scheme was still in full operation, with new people being furloughed and the government still paying 80% of salaries. As the scheme is wound down, redundancies will inevitably rise.
“The UK labour market is in a difficult place. But the government should not give in to pressure to extend furloughing beyond October. The Coronavirus Job Retention Scheme has done a good job of staving off the first employment shock of lockdown, but we need to look to a future when the employment structure is inevitably going to change. The emphasis should now be on helping firms to create new jobs by removing regulatory barriers and cutting the cost of employing people.
“It is worth mentioning that interpreting the figures is not straightforward, and summary figures may look counter-intuitive. For example, official unemployment (according to international definitions) rose a little, but as the number of economically inactive people rose sharply, the unemployment rate remained constant. However the claimant count – which covers both unemployed people and those on low pay receiving in-work benefits – increased rapidly and by July was over twice that in March.
“Employment has fallen because the number of older workers, self-employed and the youngest workers who are economically inactive has grown. These groups are less fully committed to the job market, and in a downturn like this could be expected not to actively seek jobs. But they represent an important potential resource and should not be forgotten by policy-makers.
“The flow data suggest that rising inactivity has been the result largely of declining entry into the active workforce, most obviously among the young who have the option to stay in education.”
For additional IEA reading on the labour market and furlough scheme: