Why is the unemployment rate close to a 40-year low?

Jobs are being cut around the UK because of the impact of coronavirus.

However, the unemployment rate has remained unchanged. So, what’s going on?

How many people are unemployed?

The number of people claiming unemployment benefits surged to 2.7 million between March and July, according to official figures.

However, unemployment is difficult to measure and the picture now is complex.

One measure comes from the Labour Force Survey. This asks thousands of people every month if they are unemployed and looking for work.

It is used to calculate the unemployment rate. At 3.9% it’s close to the lowest it has been for 40 years – as if the current crisis never happened.

But in a lockdown, many people who want to look for new jobs are unable or unwilling to. They will be recorded as “inactive” and the number of people in this group rose by 301,000 in the three months to June.

Many more people told the survey they are employed but are on furlough. This is where people stop working but keep their jobs, and the government pays part of their wages.

The latest figures figures show 7.5m temporarily away from their jobs in June. Furlough comes to an end in October, raising fears that many more people will be out of work if under-pressure employers can’t pay them.

And the Office for National Statistics (ONS) identified around half a million workers who say they have a job but are not working or being paid – freelance bar staff, for example, who expect to return to work when their pubs reopen.

How many job vacancies are there?

Other official data shows how coronavirus is beginning to affect the world of work.

The number of employees on UK payrolls fell by 730,000 from March to July. Employment saw the largest falls in a decade, with younger workers, older workers and less skilled workers hit.

Average earnings fell, and the average number of hours people worked dropped by a record amount to an average of 25.8 hours a week, according to figures for April to June.

However there are some signs of things bouncing back. Hours worked in retailing, hospitality and construction rose. And there was a 10% rise in vacancies to 370,000 as small businesses took on staff to help meet coronavirus guidelines.

However, vacancies are still at far lower level than they reached even at the depths of the last recession.

This will have a big effect on future unemployment. Young people will struggle to get their first jobs, and workers who lose their jobs will struggle to find new ones.

How many people are claiming out-of-work benefits?

Over the past three months the number of people claiming out-of-work benefits more than doubled. It reached 2.7 million in July – more than doubling since the crisis began in March.

However, there are question marks over this number.

Benefit claimants are being moved to the new universal credit (UC) system.

Many groups which would not have been included before are listed as “searching for work” under UC and appear in claimant numbers. For instance, some are working, but only earning small amounts.

Also, many workers may have made a UC claim before receiving support payments from the government, including furlough.

According to research from the Resolution Foundation think tank, these groups account for more than a quarter of the rise in claimant numbers. Only 45% of the rise in benefit claimants between March and May was down to newly unemployed people, it calculates.

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    How does redundancy work?

    Redundancy is a way for an employer to reduce their workforce.

    Workers who have been continuously employed for two years can be offered a payment to compensate them for losing the job, or an alternative role within the same organisation.

    Most workers are entitled to a notice period, and for redundancies of 20 or more people, the employer has to run a consultation with employees to discuss the best way forward.

    There are rules to cover how redundancies are undertaken, to make sure that people being made redundant are selected fairly.

    What happens after furlough?

    The furlough scheme ends on 31 October. After this point, employers will have to decide if they can afford to retain all their existing staff.

    If they cannot, they could consider extending the furlough period at the employer's own expense, without government grants.

    Companies sometimes ask staff to agree a temporary pay cut, or reduced hours, as a way to get through difficult trading periods.

    However, it is likely that many companies will not be able to retain all their staff when they come back from furlough, and may have to consider making some staff redundant.

    Can I get universal credit?

    Universal credit is a payment from the government to help people who are on low, or no income.

    It includes payments to help with childcare, caring responsibilities, or who can't work because of sickness or disability.

    To claim, you must be under state pension age, living in the UK, and have less than £16,000 in savings.

    Some 16- and 17-year-olds can claim, though in most cases claimants have to be 18 or over.

    What will happen to unemployment in the future?

    The furlough scheme ends in October – and employers will have to decide if they can afford to keep those workers. That could see a big wave of unemployment in the autumn.

    Data from the Insolvency Service showed that employers were planning at least 139,000 redundancies in June. Other companies have since announced big job cuts – but those won’t appear in official unemployment numbers for a couple of months at least.

    Scenarios published by the government’s spending watchdog, the Office for Budget Responsibility, give an official view of what might happen to unemployment.

    In its optimistic scenario, the unemployment rate peaks at 9.7% this year, and returns to pre-crisis levels in 2022.

    In its “downside” scenario, it peaks at 13.2%, in 2021 – with four million people out of work. It is still at 6.3% by the end of this scenario in 2024 – well above pre-crisis levels.

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    • Unemployment
    • Coronavirus lockdown measures
    • Unemployment in the UK
    • Coronavirus pandemic
    • Employment
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