All forecasts are hostage to fortune, especially ones made in 'unprecedented' times. The labour market has defied the estimates made in the darkest days of the pandemic and now appears to be in rude health. But with the end of furlough looming, there is a question mark as we advance.
It's hard to make predictions, especially about the future
Most of our official labour market statistics have a lag of about six weeks. When we make predictions, it's a bit like driving whilst looking in the rear-view mirror. The pandemic has hastened the introduction of exciting 'experimental' datasets using such things as real-time PAYE data and data scraped from jobs websites can show us a more up to date picture. And then, there are leading indicators -vacancies, for example. There are lead times to recruitment: the vacancy has to attract a good pool of candidates, and then there are the interviews, notice periods and eventually a start. All of this means we can be confident that vacancies today will reflect jobs that will come to be in the following weeks and months.
Managing the workforce during after the pandemic
Furlough allowed many employers to dramatically change the size of their workforce at minimal cost to meet demand. Sometimes, more than a million workers would be added or taken away from work in the space of a day in response to changing restrictions. That is some serious flexibility. Employer confidence for much of the pandemic has been low and hiring subdued. Competition for staff was low, as evidenced by a low ratio of unemployed job seekers to available vacancies. But now that has changed. Vacancies have surpassed their pre-pandemic levels, with the latest experimental data suggesting that in July, they reached 1 million for the first time. This does not mean that there are more jobs than there were pre-pandemic. Payrolled employee numbers and hours worked are both still shy of their pre-pandemic figures. What it really means, is that lots of employers are looking for workers at the same time. This is when recruitment difficulties start to bite. The most dramatic surge in vacancies occurred in the sector that made the heaviest use of furlough, including arts and hospitality. The Resolution Foundation has used the metaphor of a fire alarm as the pandemic. As everyone re-enters the building a queue forms and it takes some time for them to filter through and find their desks - even though there is a desk (job) for each worker. It's an apt metaphor.
The latest ONS estimates are that 3.7% of the workforce was on furlough at the end of July. This is not a trivial number and represents about 1 million people. The real question is will these people transition back into the workforce smoothly, and how many will end up unemployed? The redundancy rate has returned to pre-pandemic levels, and advanced notifications of redundancies (another leading indicator) to the insolvency service do not suggest mass redundancies. The CIPD's latest Labour Market Outlook chimes with official data. The net employment balance – which measures the difference between employers expecting to increase staff levels in the next three months and those expecting to decrease staff levels – has risen to its highest level since we started tracking. These indicators all suggest a potentially smooth transition at the end of furlough.
Employers are concentrating on retention - as well as recruitment – to get their workforce, according to the CIPD's Labour Market Outlook. Encouragingly, when asked how they would deal with hard-to-fill vacancies, the largest category of response was to upskill more existing staff (44%) followed by hiring more apprentices (26%). After years of declining investment in employer training and the woeful apprenticeship levy, policymakers need to do more to support employers to invest in their workforce. There is a latent appetite to do this, but it is challenging without the right incentives. Employers need more flexibility from the levy to accredit other forms of training and skills development that suit them.
Many young people have been adversely affected by the pandemic. They have faced higher rates of furlough, and many have ducked out of the labour market by enrolling in full-time education, a sound strategy. But come September, many of these young people will be looking for work. The CIPD has launched its One Million Chances campaign to provide one million opportunities for young people. Considering ongoing uncertainty in the job market, we're calling on Government to extend the Kickstart Scheme until the end of 2022, to ensure that more young people can benefit from a step up into the jobs market.
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