Mairi Spowage: Furlough end will certainly not fill all of our skills shortages

SEPTEMBER 30 saw the end of the UK Government’s coronavirus job retention scheme, more commonly known as the furlough scheme.

This scheme has become emblematic of the unprecedented intervention by the Government in the economy during this crisis, which seemed completely unthinkable prior to March 2020.

The UK Government put in place a scheme that would pay 80 per cent of people’s wages who were unable to work during the pandemic. Any employment in any sector could be furloughed, without any restriction placed upon it by the Government (excepting the upper earnings limit per month).

At the height of the pandemic, almost nine million people in the UK were on the scheme. Numerous extensions have been necessary to ensure that the scheme is available as restrictions in the economy have had to endure far longer than originally envisaged.

While the generosity of the scheme has varied (including whether employers need to pay national insurance and pension contributions at various points throughout the scheme), it has undoubtedly protected hundreds of thousands, and perhaps millions, of jobs that would otherwise have been lost.

This is one of the principal reasons that unemployment has not risen to the levels expected at the start of the pandemic. The predictions of unemployment topping out as high as 8% to 10% have not come to pass, and instead we are now expecting it to go up to around 5% to 6% instead.

This of course has come at a huge fiscal cost. The cumulative price-tag of the scheme is currently estimated to be almost £70 billion.

The latest data suggest that, as at the end of August, there were 1.3 million people still on the scheme across the UK, including 94,000 in Scotland.

But what do the statistics tell us about the people still on furlough at that point?

The average age of those on the scheme gradually increased, particularly after many restrictions were lifted in the spring of 2021.

The proportion of people on furlough who are under 35 on the scheme fell from 40% to 29% in the latest statistics. This contrasts with those over 55, who made up 24% of those furloughed in the latest data compared to 19% at the beginning of the pandemic. So, older workers were more likely to have remained on furlough.

The sectors that have been most reliant on furlough throughout the pandemic continued to make up the lion’s share of the employments on furlough in the latest figures. Accommodation and food services continued to be the biggest sector, single-handedly accounting for 17,000 furloughed employments in Scotland.

The retail and wholesale sector still had a sizeable number on furlough in the most recent figures, but the size of the sector is so large that it is a fairly small proportion of the total employments. On the flip side, one of the smaller sectors in size is arts, recreation and culture: but it had a much larger proportion of its employments on furlough.

These broad sectors mask specific detailed sectors that continued to rely heavily on furlough even up to the end of August.

Passenger air services had the highest prevalence of employees on furlough, with 44% still in this position in the latest figures. Unsurprisingly, workers in travel agencies followed next, with 40% of them on furlough at that point.

Workers in clothing manufacturing and printing continued to have around a quarter of employments on furlough, with a similar level in creative arts and those who put on conferences and trade shows.

These specific sectors of the economy are far from back to normal, so it will be interesting to see how many of these workers find roles in other parts of the economy. Potentially the changes we have seen in the way we consume services and the way we work may mean these sectors are forever changed: leading to a permanent change in the structure of our economy.

We have got a signal of the “connectedness” between furloughed staff and their employers due to the introduction of flexible furlough in summer 2020. This allowed employees to return to work part of the week, while the employer could claim furlough payments on the hours they were not working.

This has been an increasing feature of the scheme over the last year, going from 20% to 45% of employments furloughed under the latest statistics.

The variation by sector is reflected in the variation by region, as would be expected. The main city authorities in Scotland accounted for a disproportionate percentage of the furloughed workers in the latest figures, with Edinburgh, Glasgow, Dundee and Aberdeen making up a third of furloughed staff. This reflects the larger hospitality industry that we have in our cities in Scotland.

So what’s the takeaway from all of this? The end of this scheme feels like an important day as we (hopefully) emerge from the pandemic and see our economy recover.

We are in a situation in the labour market right now where there are extreme shortages in a number of different sectors, from hospitality to logistics to social care to butchery… you name it.

Those on furlough as the scheme has come to an end could potentially release some stasis in the labour market in some sectors… but it is certainly not going to provide a labour supply to deal with all our skills shortages.

In contrast, there are specific sectors with specific challenges, where operation will be nowhere near capacity for the foreseeable future. How many workers will return to these sectors, or find new opportunities in the currently buoyant labour market is also unknown.

It is likely to be some months before our labour market adjusts to our “new normal” of operating. Government at all levels has a role in easing the transition of workers to suitable opportunities in the months to come.

Mairi Spowage is the director of the Fraser of Allander Institute, an economic research institute at the University of Strathclyde. For more information about the institute’s work, go to www.fraserofallander.org

The Herald Scotland

The Herald Scotland

The Herald is a Scottish broadsheet newspaper founded in 1783. The Herald is the longest running national newspaper in the world and is the eighth oldest daily paper in the world. The title was simplified from The Glasgow Herald in 1992