Extending furlough beyond April will protect up to 2.7 million jobs that would otherwise have been at risk
NEF calls on government to bring back the job support scheme after the extension of furlough, alongside integration with training to address structural unemployment
02 March 2021
Extending the Job Retention Scheme (JRS, furlough) beyond April will protect between 1.8 million and 2.7 million jobs that were otherwise at risk of redundancy, loss of pay or loss of hours in May and June, according to new analysis from the New Economics Foundation (NEF) published today. The new modelling shows that between 2 and 3 million jobs would have been at risk of redundancy, loss of pay or a loss of hours if the furlough scheme had not been extended.
The modelling uses the latest government announcement on easing restrictions as a best-case scenario for coming out of lockdown and presents two sets of estimates for the response from businesses. In the more pessimistic scenario, where 3 million jobs are at risk, it is assumed that business income would recover at a similar pace that seen last summer when restrictions were first lifted. In the more optimistic scenario, where 2 million jobs are at risk, it is assumed that business income recovers three times faster this spring compared with last summer.
NEF modelling shows that extending the JRS will provide the economic incentives needed to protect 90% of at-risk jobs, with the remainder still at risk with or without furlough as firms continue to adjust to permanent changes in the economy. The analysis also shows that if the government had brought the Job Support Scheme (JSS) scheme back under the terms set out in October 2020, only 69% of at-risk jobs would have been protected in May and June. However, the modelling also showed that the JSS is highly sensitive to employer optimism over the future, meaning that protection from the JSS would rise as the recovery becomes more assured.
To address the challenge of structural unemployment, NEF is calling on the government to bring back the Job Support Scheme (JSS) after the JRS is unwound from September, to support firms and workers in the next phase of the recovery. Alongside this, NEF is calling on government to integrate a new training offer into both the JRS and the JSS, so that hours spent not working can also be spent developing new skills for the future. With rising demands for jobs in education and social care, and expected growth in low-carbon infrastructure investment, there is a tremendous need for new skills to meet the needs of the future.
Alex Chapman, Senior Researcher at the New Economics Foundation, said:
“It is absolutely right that the government are extending furlough, which is crucial for protecting jobs in the short term. Had it not been extended, up to three million jobs would have been at risk of redundancy, reduced pay or reduced hours.
“But once the economy is out of the danger zone, furlough also needs to be retained and adapted for the longer term too, both to provide more targeted support for the industries expected to have the slowest recovery from the pandemic, and also to support workers affected by other structural shifts in the economy, such as automation and the zero-carbon transition.
“For these sectors in particular it will also be vital to integrate a new training offer into the furlough scheme, so that hours spent not working can also be used to develop new skills for the jobs of the future.”
Notes to editors
The furlough scheme (Job Retention Scheme), which has more than 18% of the workforce, or roughly 5 million people currently registered, was previously scheduled to come to an end in April. The Office for Budget Responsibility (OBR) further estimated in their November forecast that nearly 2.6 million could be unemployed in Q2 2021.
The Job Support scheme was introduced in autumn 2020 to support businesses to retain staff that worked for at least 20% of their usual hours with the government contributing 61.7% of employees’ wages for hours not worked up to a monthly limit of £1530. The scheme was quickly superseded by an extension of the furlough scheme owing to stricter lockdowns across the country but it remains an important lever for the government to use over the coming months.
A key assumption behind the analysis is business perception of future growth and turnover which informs their current choices of retaining workers or making them redundant. In anticipation of the OBR revising its economic forecasts upwards since November, we assume that over 80% of workers kept on the JRS scheme will ultimately return to work, based on the latest Bank of England forecast (see: https://www.ft.com/content/5fde9ff0-dd9f-4fba-b341-33c7788b25e1). This improves the attractiveness of the scheme to employers, who can avoid future hiring costs when business activity returns.
The modelling, based on data from the Office for Budget Responsibility and the Office for National Statistics highlights jobs at-risk across hospitality, retail and key social infrastructure services like education and arts. The then model assesses the cost effectiveness of keeping workers on the scheme, thereby incurring pension and national insurance costs, compared to making workers redundant and incurring the costs of later recruitment when business activity returns. For further details on the model which underpins our estimates of the relative performance of the furlough scheme (Job Retention Scheme) and the job support scheme (JSS) please see here: https://neweconomics.org/2020/10/job-support-scheme-leaves-two-million-jobs-unprotected
The OBR has also highlighted a significant rise in structural unemployment over the last year, reaching 5.5%, but there are reasons to believe this figure could be an underestimate. Remote working, online shopping and other behavioural changes could cause permanent risk to certain sectors and jobs. Changes in the labour market over the duration of this pandemic have also seen businesses less willing to pay even modest costs to retain the most-at-risk employees, further strengthening the argument for sustained government support.
