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How workers became ‘unsackable’ despite a looming recession

Commuters
Commuters

The economy may be faltering but the biggest problem for Andy Walker’s engineering firm is one usually associated with a boom: too few workers.

“Everyone you speak to in the industry seems to be struggling to get trades people,” says Walker, managing director of Lancashire-based Walker Engineering. “I think we lost a lot [of workers] in Covid around the 60 year age that decided enough was enough.”

Workers enjoyed a golden period in the immediate aftermath of the pandemic, as a shortage of staff helped bid up wages across the economy and drove a glut of job hopping.

Many may fear the era of the almost “unsackable” worker is ending almost as quickly as it began. But employers and economists say this downturn could avoid the wave of job losses typically seen in a recession.

Cutting staff on the way down could leave employers without enough people on the way back up, given the scale of shortages faced before this recession. Many employers do not dare to ditch workers when economists warn labour shortages are here for the long-haul.

“It’s that balancing act: you don't want to be paying for labour that you can’t get work for but on the other hand, if stuff starts to come in, then you can't find the labour,” says Walker. Business is still brisk at the company even as the economy weakens and, like many employers, it is still looking to recruit.

This mass labour hoarding could provide a boost to the economy’s recovery but it could be a drag in the long term by stopping workers moving into more productive sectors.

Stephen Evans, chief executive of the Learning and Work Institute, says: “My expectation would be some rise in unemployment and some rise in redundancies, but certainly not on the scale that you normally get in recessions and given what's likely to happen to economic output.

“Good employees are like gold dust at the moment.”

There is typically a lag between softening economic activity and job losses, with the post-financial crisis peak in unemployment only coming in 2011. But there are promising signs from early jobs data that this downturn may avoid the kind of job losses seen in the fast.

The redundancy rate has crept up from a record low of 1.8 workers per thousand employees to 2.7 but is still lower than at any other point prior to the pandemic.

While vacancies have also fallen from record levels, they are still historically high at 1.2m, compared to a peak of 860,000 in the decade before the pandemic. In addition, the workforce has been shrinking because of the surge in long-term sickness and early retirement, meaning there are even less workers for businesses to fight for.

The pandemic recession was unusual as it was not accompanied by a wave of redundancies thanks to the £70bn furlough scheme that propped up jobs. The jobless rate rose by 1.4 percentage points to a peak of 5.2pc during the crisis.

By contrast, the unemployment rate rose by more than 3 percentage points to a peak of 8.5pc during the financial crisis, almost 4 points to 10.7pc in the early 1990s recession and almost 7 points to 11.9pc in the first half of the 1980s.

City forecasters expect this recession, triggered by the cost of living crisis and compounded by interest rate rises, to cause the unemployment rate to climb from 3.6pc currently to just 4.4pc next year and 4.8pc in 2024 – well below increases seen in previous crises.

Tony Wilson, head of the Institute for Employment Studies, says that companies will try to do more “efficiencies and pay restraint rather than lay-offs” this time around, with the impact “slightly more broadly felt” by employers.

While vacancies “may hold up pretty strongly generally” given many job postings are being caused by staff turnover, Wilson warns young workers will be disadvantaged by weaker hiring into new jobs.

Jobs site Indeed has found that vacancies are still 48pc above their pre-pandemic level but there are some signs of a slowdown in hiring for professional roles, including tech and HR.

Given the tightness of the labour market, Indeed economist Pawel Adrjan says cutting headcount and hoping to rehire when the economy improves would be a “risky strategy” for employers.

“We have issues with a shrinking workforce in the UK and inactivity rates which are still high. If an employer lays people off, it's not clear they would necessarily be able to rely on a big pool of available workers to rehire in the future.”

Is this labour hoarding by employers good for the economy? Keeping workers in jobs during the pandemic helped strengthen the recovery by protecting incomes and reducing economic scarring but it also stopped labour being reallocated to stronger, more productive sectors.

Evans says: “Labour hoarding in general in recessions is a good thing because it helps businesses to then respond to an uptick and it helps people not become detached from the labour market.

“It is a bit more of an open question this time perhaps because of the combination of labour shortages and changes going on in the structure of the economy post-pandemic.”

The unemployment rate will still likely rise but part of the increase could actually be a positive sign for the economy. While redundancies will drive any uptick in the jobless rate, it could also be pushed up by more people seeking work.

The UK economy has been hamstrung by declining economic inactivity as people drop out of the workforce altogether, a trend not seen in other developed countries. However, the cost of living crisis could tempt many to rethink their plans, particularly early retirees.

Those who are let go or re-enter the jobs market are still likely to find strong demand for their work.

“The labour market is still incredibly tight if we look at the number of vacancies per unemployed,” says Adrjan.

“Those who are unlucky enough to lose their jobs, or those who are entering the labour market right now, I think are still in a pretty good position to find a job.”