3 September 2020
As we begin to emerge from the social and economic chrysalis of lockdown, it is clear that the road to recovery will be long and arduous. There is good reason to believe that, given the crutch of the furlough scheme through the spring and summer, we have not yet seen the full impact the pandemic will have on employment levels. With social distancing restrictions and local lockdowns still a feature of our lives, the retail, hospitality and other service sectors will likely be severely encumbered in their recovery.
There is already evidence that young people are being disproportionately impacted by the economic and labour market impacts of the pandemic – through the furlough scheme, unemployment and a dramatic tightening in apprenticeship opportunities.
We want to work with colleagues to closely monitor and take action to address the youth employment challenge in the months – and potentially years – to come. We want to ensure that young people receive the support they need to find, stay and progress in work in spite of the context. We want to prevent a generation of young people suffering the long-term scars that we know are associated with a prolonged period of youth unemployment.
The early economic impact of the pandemic is deeply disconcerting – if not surprising. ONS data published on 20th August confirmed that in the second quarter of 2020 (April to June), UK gross domestic product (GDP) fell by over 20% - the biggest fall since records began. Productivity in the hospitality sector fell by three quarters over the period.
As restrictions eased and businesses began to reopen, there were signs of recovery in June. The volume of retail sales increased by 13.9% and GDP grew by 8.7% month on month. That improvement left GDP a sixth lower than it was in February i.e. before lockdown.
The labour market impact has been equally sharp. ONS estimates suggest that in the second quarter, 32.92 million people aged 16 and above were in employment; that is up 113,000 on the previous year – but down 220,000 on the previous quarter. In July the number of people on payroll was down around 730,000 compared to March 2020.
Unemployment has remained largely unchanged - at around 3.9% - because of an increase in economic inactivity i.e. working age adults not currently in work, but not currently looking for work either – and, of course, because of the ‘job retention’ (furlough) scheme. By June 9.4m ‘employments’ had been placed on furlough - almost a third of the workforce.
The furlough scheme cost Government £26.5 billion by the end of June, and £9 billion in June alone. 87% of employers in the accommodation and food services sector furloughed at least some staff, between them furloughing some 73% of the sector’s workforce. Around 60% of 17 year old employees were furloughed; the highest for any age group.
The youth unemployment position is already acute. The number of people aged 16 to 24 claiming unemployment-related benefits increased by 122% in the second quarter – more than for any other age group. By July, there were 531,000 young people claiming unemployment related benefits – the highest figure since September 1996.
The risks are clear and substantial: first, that when the furlough scheme closes at the end of October we see a huge spike in unemployment; and, second, that it takes much longer than we might hope for economic activity to return to pre-pandemic levels given the continued impact of social distancing measures and local lockdowns that we are now seeing.
On the former, colleagues at the Learning and Work Institute estimate that – based on OBR analysis - more than one million furloughed workers could lose their jobs when the furlough scheme ends. It is much, much harder to judge how quickly the economy will recover from the impact of the pandemic – but most commentators now believe that we will see a ‘Nike swoosh’ recovery over 12 to 18 months at best, rather than a rapid, V-shaped rebound.
We should also expect different sectors to recover at different rates and in different ways. It is very clear that the retail, travel and hospitality sectors in particular will find it very difficult to regrow through the mist of continued social distancing measures, local lockdowns and travel restrictions. We have already seen substantial job losses, restructurings and administrations in these sectors – even with furlough and ‘eat out to help out’ support.
Recruitment and Employment Confederation insight shows that by August, short-term demand for permanent staff was positive – and markedly above the pan-sector average in the health and social care, education and technology sectors. Respondents also highlighted the health and social care and education sectors amongst those in which they expected to find a shortage of appropriately skilled candidates.
This changing pattern of labour market demand, i.e. where an individual moves to a new role in a different occupation or sector, is already beginning to surface - ONS data on ‘occupational switching’. We should closely monitor this data for insights about the transitions which people are making as they look to find and progress in work post-pandemic.
It is worth noting that through the last three recessions, it has taken the employment rate between three and seven years to recover to pre-recession levels – because of the time it takes rebounding growth to translate into new jobs created. This suggests that, even if the recovery is a relatively rapid one – there will still need to be a sustained focus on jobs.
All of the above suggests to us that whilst the outlook remains uncertain, some things are reasonably clear – and will require close attention. As the furlough schemes peels away but social distancing, travel and other restrictions remain, we should expect a spike in business failures, job losses and unemployment – felt particularly in the retail and hospitality sectors, and amongst young people. We should also expect that if young people and adults are to find and stay in work, they may need to switch sector.
Government articulated its response to the looming youth employment challenge in ‘a plan for jobs’ at the beginning of July. The plan included a combination of measures designed to create jobs – with a particular focus on young people – and boost economic activity through a combination of capital and infrastructure investments. That is to say, though unusual in scale, the plan was drawn straight from the ‘policy response to a downturn’ playbook.
One of the more controversial measures in Government’s response – announced earlier in the summer – was the ‘opportunity guarantee’ which will give young people ‘the chance of an apprenticeship or an in-work placement’ to help them develop their skills and find work. The controversy relates to whether Government can in fact underwrite such a ‘guarantee’ given the requirement for businesses to offer placements for young people to take up.
The very economic context which requires the policy intervention risks undermining its laudable intent. With more than one million furloughed workers at risk of losing their jobs when the scheme ends, and the incredible reliance of the accommodation and food services industries on furlough support, it seems unlikely that businesses will be willing or able to offer the placement and apprenticeship opportunities required to fulfil the guarantee.
These risks are reinforced by the early impact of the pandemic on apprenticeship starts. From the end of March to end of May, there were 26,000 starts compared to 50,000 in the same period last year; of which 64% were learners aged 25 or over, compared to 56% last year; and, 26% were at level two, compared to 37% last year. That is to say, there are signs that the pandemic may continue the recent trend toward older, higher level apprentices – leaving the under 25s learning at level two short of opportunities.
The plan for jobs included cash incentives designed to mitigate this risk. From August to the end of January, businesses will receive £3,000 for supporting a 16-18 year old apprentice, £2,000 for supporting a 19- 24 year old apprentice and £1,500 for supporting an apprentice aged 25 and over. Whether the measure proves sufficient to nudge the dial remains to be seen.
The other big ticket youth employment item in the plan for jobs was the £2bn ‘kick start scheme’ through which Government will cover the wages of young people on universal credit through a six month work placement. The purpose of the scheme is straightforward: directly underpin employment opportunities for young people which otherwise would not exist.
Just as for the apprenticeship element of the opportunity guarantee, the immediate challenge for the kick start scheme will be to secure the required number and quality of placements with employers – and to do so without crowding out the placements required as part of new T Level programmes being rolled out from this autumn in the digital, construction, education and childcare sectors.
The other big question about the kick start scheme is whether it can create sustained employment opportunities – ideally with training. Evidence from a similar scheme which operated in response to the 2008 crash would suggest perhaps not. The ‘future jobs fund’ supported over 100,000 placements between October 2009 and March 2011 at a total cost of £680m. The original goal was to support 150,000 placements at a cost of £1 billion.
Whilst the scheme did deliver positive returns for the economy, employers and individuals, after 24 weeks, 20% of participants were no longer in their funded job; and, only 2% of jobs lasted longer than 26 weeks i.e. the required duration of placements. Government published guidance on the kick start scheme this week; we should keep a close eye on take-up, and on what happens when Government support peels away.
The final plank in Government’s skills policy response to the pandemic is a substantial injection of money for traineeships: an additional £111m to support around 37,000 new traineeship opportunities. Providers will receive an additional £1,500 for each traineeship they support, compared to previous funding arrangements; employers will receive an incentive payment of £1,000 for each trainee they support (up to a maximum of ten trainees); and young people already qualified at level three may now enrol on a traineeship. There are also new flexibilities to support work placements with multiple employers.
Again, the success of this investment will be linked directly to employers’ willingness to offer work placements of the required quality, in the required quantum. With that caveat, there is strong evidence to support the potential, positive impact of traineeships; recent evaluation work suggests that 12 months after starting their traineeship, 29% of participants had enrolled on an apprenticeship and 57% had started further learning.
Our team has first-hand experience running an outstanding traineeship programme at scale; though they can be very challenging to deliver, we believe they can be a genuinely powerful intervention for young people. Successful, impactful delivery requires exceptional student and employer engagement; strong initial assessment; hyper-focused training; and, personalised, intensive, case management to support individual trainees.
The relatively unspoken, reasonable presumption in Government’s policy response is that the education sector will swiftly refocus its mainstream efforts to meet the challenges posed by the pandemic – supporting students to complete full and part time programmes in spite of the restrictions we are still working under, and focusing those programmes to support progression into further learning and / or work in what may well become the most challenging labour market in living memory.
Whatever your views on the context and Government’s response, it is clear that in the months to come we will face a young employment challenge unlike any we have seen.
The long-term, scarring impact of youth unemployment is well understood. Young people who experience long-term unemployment are more likely to be employed in semi-skilled and unskilled occupations when they do re-enter the labour market; and, are likely to suffer a negative impact on earnings over the duration of their working life.
Our challenge is to support young people to train, find and progress in work in spite of the current context, such that they do not suffer the short-term impact, or long-term scars associated with prolonged youth unemployment.
NCFE is determined to play our part in rising to that challenge, working with colleges, training providers and partners. We are clear that we can, and should, reach beyond the conventional role of an awarding organisation to work in close, open collaboration with colleagues to support the nation’s young people through months and years to come.
That’s why we’re launching the ‘go the distance’ initiative this week. Through it, we will:
Our overarching goal for the ‘go the distance’ initiative is simple: help young people prepare for, quickly find, stay and progress in work such that they can develop their careers in spite of the impact of the coronavirus and avoid the long term scars which we know a period of prolonged youth unemployment can cause.
Whilst the challenge we face in the months to come is huge, we believe that the further education sector possesses the passion, strategic insight and operational expertise required to overcome it with and for our students. If you share our determination to act, we’d love to work with you. For more information, visit www.ncfe.org.uk/gothedistance or email [email protected]
David Gallagher is CEO of NCFE
Matt Hamnett is the Founder of MH+A and Strategic Advisor to the Board of NCFE
