Making the Job Support Scheme cheaper for employers could save 1.4 million jobs

Making the Job Support Scheme (JSS) cheaper for employers, by reducing their salary contribution for unworked hours from 33% to 10%, could see 1.4 million more jobs protected, according to new analysis published by New Economics Foundation (NEF) today. The additional cost to government of making up the difference and ensuring employee wages are still protected at 77% would be just £200 per worker, per month on average – significantly lower than the costs of unemployment benefit which would start at £410 per month for a single adult before support for housing costs.

The new modelling shows that the JSS is likely to support just 17% of jobs currently at risk of redundancy, with 2.2 million out of 2.7 million likely to be left without protection. As more local areas move into ​‘Tier 2’ lockdown this is likely to get worse as thousands more businesses face heavier restrictions, but without eligibility to local furlough that comes with ​‘Tier 3’.

The modelling also shows which sectors are worse affected by the huge gaps in the current protection offered by the JSS.

• Arts and entertainment: Over 160,000 at risk jobs are likely to miss out on protection (21% of all jobs in the sector)
• Accommodation and food services: Over 360,000 at risk jobs are likely to miss out on protection (16% of all jobs in the sector)
• Administration and business support services: Over 280,000 at risk jobs are likely to miss out on protection (10% of all jobs in the sector)
• Education (particularly higher education and other adult education): Over 250,000 at risk jobs are likely to miss out on protection (9% of all jobs in the sector)
• Health and social care (particularly private childcare and social care): Over 220,000 at risk jobs are likely to miss out on protection (6% of all jobs in the sector)
• Retail: Over 180,000 at risk jobs are likely to miss out on protection (4% of all jobs in the sector)

The analysis shows that in most cases, and even after assuming employees receive a Job Retention Bonus of 1,000 per worker, it will be cheaper for employers to make one worker redundant and keep a second on 100% of their hours, than it would be to reduce two workers down to 50% of hours on the JSS.

NEF’s modelling shows any reduction in the share of the employer contribution could make a significant difference to the number of jobs protected by the main (non-expanded) JSS. For example, even by reducing the employer contribution for unworked hours to 25% from 33% could see another 400,000 jobs protected (protecting up to 31% of at risk jobs in total) at a cost of around £150 million per month in total, or just £65 extra per worker, per month for each employee already expected to be on the scheme. Reducing the contribution to 10% could save 1.4 million more jobs (up to 70% of at-risk jobs in total) at an estimated cost of £800 million per month, or £200 extra per worker, per month. In either case, the additional per worker costs would be much lower than an employee moving onto universal credit, which would start at £410 per month for an unemployed single adult before support for housing costs.

Alex Chapman, Senior Researcher at the New Economics Foundation, said:

​“NEF is now the third national think tank to sound the alarm on the Job Support Scheme. Our analysis suggests we are on the brink of a very significant surge in unemployment due to its inadequacies. We estimate that around 2.2 million at-risk jobs are not cost-effective to protect on the JSS and many employers will not have the cash to sustain them on their own, especially following the return of the virus and stricter public health measures this winter.

“The present scheme was designed for a period of recovery, not a second wave, and it will not meet the Chancellor’s stated aim of protecting ​“viable” jobs. The good news is that there is a simple fix — reducing the employer contribution to unworked hours to 10% can increase the number of at-risk jobs which are viable on the scheme by 1.4 million.

“The costs of making this reform come in at only £200 per worker, per month – significantly less than the cost of Universal Credit. In reality however, an increase to the government contribution should not be seen as a cost at all. It is likely to do significantly less damage to the public purse, and indeed UK society, than a wave of mass unemployment and destitution.”

Contact

Sofie Jenkinson, sofie.jenkinson@neweconomics.org, 07981023031

Notes

The New Economics Foundation is a charitable think tank. We are wholly independent of political parties and committed to being transparent about how we are funded.

2.7 million jobs were at risk were calculated based on analysis of business turnover and national unemployment data. If economic activity were to pick up through the autumn these figures could come down. But given the national reintroduction of the ​‘rule of six’, and the scale and severity of local lockdowns, 2.7 million could even be an underestimate of the true number of jobs currently at risk.

To get a sense of whether employers are likely to keep workers on using the JSS the analysis adapts the Resolution Foundation’s worker ​‘archetypes’ approach to modelling the JSS (comparing the cost of retaining multiple workers part-time on the JSS against the cost of retaining one worker full-time on a given salary) by adding into the equation an estimate of the financial benefits of employee retention (the avoided costs of redundancies and rehiring workers). To do this, we use estimates for the observed relationship between ​‘employee turnover’ and firm financial performance

In order to model the likely effects of the JSS for at-risk jobs while taking account of sensitivities to employer optimism about the future economy, we construct three illustrative scenarios. However, the level of firm optimism doesn’t just affect the proportion of at-risk workers who might receive support through JSS, it also affects the numbers at risk in the first place. This is because more pessimistic expectations mean employers will see less benefit to retaining staff on their books. For each of our scenarios, we therefore adjust the initial estimate of 2.7 million jobs at risk up or down, depending on the level of firm optimism.

Downside scenario: Employers expect some economic recession to take place over Oct-Dec 2020, with the economy shrinking by around 3.65% (approximately half of the decline seen in March 2020 when the first lockdown was enforced). Under this scenario, the ​‘at-risk’ group is 3.3 million people.

Upside scenario: Employers expect strong growth (4.4%) by Oct-Dec 2020. This is our best case, based on the median of a panel of independent forecasts made in September, made prior to the tightening of social distancing regulation. The ​‘at-risk’ group is 1.9 million people.

Core scenario: Employers expect very limited growth (0.1% of GDP) by Oct-Dec 2020. This is our central estimate, and the growth estimate is based on the OECD’s ​‘double hit’ scenario for the UK. The ​‘at-risk’ group is 2.7 million people.

NEF modelling highlights that relatively modest increases to the government’s contribution towards unworked hours on the JSS could significantly increase the proportion of at-risk jobs which are supported.