A think tank has warned of ‘dangerous complacency’ as the government prepares to scale back its Job Retention Scheme from Thursday 1 July.
Resolution Foundation research published today (28 June) found that total hours worked in the UK economy are still about 7% below what they were pre-pandemic, with the organisation claiming that the labour market is not as tight as many employers make out.
From 1 July, employers must pay 10% of wages for furloughed staff while the government pays 70%, rather than the 80% coverage offered currently. The scheme will be withdrawn completely on 30 September.
The think tank said its data suggested the labour market was “lukewarm” rather than overheating, responding to claims by many employers – particularly in the hospitality sector – that they are struggling to recruit staff.
It also queried recent figures from the Office for National Statistics that show upward pressure on pay, which suggested earnings had risen 5.6% in the three months between February and April 2021 compared with the same period in 2020.
It said this was a “compositional effect as lower-paid workers dropped out of the workforce and the base effects of the deep economic shock last year”, rather than a strong uptick in pay.
Recent data analyses from Incomes Data Research and XpertHR suggest that average pay rises are more like 2%, just under the consumer prices index rate of inflation, which is 2.1%.
One of the issues facing hospitality employers is the speed with which they reopened from an “almost complete standstill”, it adds. It estimates that those who worked in hard-hit sectors such as hospitality are 30% more likely to have taken a job elsewhere.
The think-tank said spikes of labour shortage were part of the “bumpy ride” to be expected as we recover from the pandemic rather than an indication of a “new dawn of worker power”.
Gregory Thwaites, research director at the Resolution Foundation, said: “The UK economy is bouncing back rapidly after a deep and painful recession. It’s particularly welcome to see so many furloughed staff back working again.
“But these encouraging signs risk breeding dangerous complacency, as people over-play the health of the labour market, and under-play the risks that still lie ahead.
“A recovering labour market is not the same as a recovered one. Labour shortages in hospitality aren’t a huge problem, and there is no real evidence of a new pay boom. Instead these things are part of the bumpy ride that emerging from a pandemic inevitably involves.”
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